Improper Payments: Posthearing Responses on a December 5, 2006,  
Hearing to Assess the Improper Payments Information Act of 2002  
(27-FEB-07, GAO-07-533R).					 
                                                                 
On December 5, 2006, we testified before the Senate Subcommittee 
on Federal Financial Management, Government Information, Federal 
Services, and International Security, Committee on Homeland	 
Security and Governmental Affairs, at a hearing entitled, "An	 
Assessment of Improper Payments Information Act of 2002." At the 
end of the hearing, Congress asked us to provide information	 
regarding (1) barriers inhibiting agencies' efforts to prevent	 
and reduce improper payments, (2) legislative reforms needed to  
facilitate agencies' efforts to prevent improper payments, and	 
(3) suggested language to amend the Improper Payments Information
Act of 2002 (IPIA) that would provide more complete disclosure	 
and transparency of agencies' improper payments reporting.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-533R					        
    ACCNO:   A66325						        
  TITLE:     Improper Payments: Posthearing Responses on a December 5,
2006, Hearing to Assess the Improper Payments Information Act of 
2002								 
     DATE:   02/27/2007 
  SUBJECT:   Congressional oversight				 
	     Erroneous payments 				 
	     Financial disclosure				 
	     Information disclosure				 
	     Financial management				 
	     Federal law					 
	     Reporting requirements				 
	     Data sharing					 
	     Transparency					 

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GAO-07-533R

   

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February 27, 2007

The Honorable Thomas R. Carper
Chairman
The Honorable Tom Coburn
Ranking Member
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security
Committee on Homeland Security and Governmental Affairs
United States Senate

Subject: Improper Payments: Posthearing Responses on a

December 5, 2006, Hearing to Assess the Improper Payments

Information Act of 2002

On December 5, 2006, we testified^1 before your subcommittee at a hearing
entitled, "An Assessment of Improper Payments Information Act of 2002." At
the end of the hearing, the subcommittee asked us to provide information
regarding (1) barriers inhibiting agencies' efforts to prevent and reduce
improper payments, (2) legislative reforms needed to facilitate agencies'
efforts to prevent improper payments, and

(3) suggested language to amend the Improper Payments Information Act of
2002 (IPIA) that would provide more complete disclosure and transparency
of agencies' improper payments reporting.

First, we identified several key barriers that agencies encounter in their
quest to reduce improper payments, such as the inability to share data and
restrictions in the program's administration. In some cases, legislation
limits the type of information that can be shared among agencies to verify
data provided by applicants for government programs or benefits or to make
eligibility decisions. For example, we reported^2 in November 2006 that
the Department of Education reported that section 6103 of the Internal
Revenue Code concerning confidentiality of the tax return information
precludes data matching. We also reported^3 in October 2005 that the
United States Citizenship and Immigration Services, a component of the
Department of Homeland Security (DHS) reported that it was not authorized
to receive taxpayer information from the Internal Revenue Service (IRS)
directly to determine eligibility for immigration benefits. Barriers
related to program administration involve some aspect of an agency's
current program structure that limits its actions to prevent or reduce
improper payments. However, the agency can take steps to modify current
program operations to help prevent improper payments. For example, we
recommended^4 in June 2006 that DHS enter into an agreement with other
agencies, such as the Social Security Administration, to periodically
authenticate information contained in the Individuals and Households
Program registrations to prevent individuals from applying for assistance
using Social Security numbers that were never issued or belonged to
deceased or other individuals.

^1GAO, Improper Payments: Incomplete Reporting under the Improper Payments
Information Act Masks the Extent of the Problem, [4]GAO-07-254T
(Washington, D.C.: Dec. 5, 2006).

^2GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete, [5]GAO-07-92
(Washington, D.C.: Nov. 14, 2006).

^3GAO, Taxpayer Information: Options Exist to Enable Data Sharing Between
IRS and USCIS but Each Presents Challenges, GAO-06-100 (Washington, D.C.:
Oct. 11, 2005).

Second, regarding legislative reforms, the Budgets of the U.S. Government
for Fiscal Years 2008 and 2007 include proposed actions to facilitate
better measurement and detection of improper payments. We continue to
support the administration's proposed legislative reforms that assist
agency action to reduce improper payments, such as imposing penalties for
fraud, improving benefit coordination between agencies, and simplifying
eligibility requirements. Specifically, since fiscal year 2000, our
recommendations have been aimed at raising the level of attention given to
improper payments, including annually estimating, reporting, and reducing
improper payments for agencies' programs. Our work on governmentwide
improper payments and issuance of our executive guide on strategies to
manage improper payments^5 led to the passage of IPIA. The act requires
that executive branch agency heads identify programs and activities
susceptible to significant improper payments, estimate amounts improperly
paid, and annually report improper payment estimates and actions to reduce
them.

For example, the Budget of the U.S. Government for Fiscal Year 2008
includes legislative reforms related to the Department of the Treasury's
Earned Income Tax Credit (EITC) and Child Tax Credit programs, which are
intended to clarify the uniform definition of child, simplify the EITC
eligibility rules, and reduce the computation complexity of the refundable
Child Tax Credit. According to the Office of Management and Budget (OMB),
if enacted, the proposal would save $392 million in the first year and
$6.5 billion over 10 years.^6 We have raised similar issues regarding the
complexity of the EITC program in previous reports and testimonies^7 and
since 1995, have designated the EITC program as a high-risk area. In our
January 2007 high-risk series update,^8 we reported that the IRS and the
Congress will need to develop and IRS will need to execute multiple
strategies over a sustained period, including simplifying the tax code or
specific code sections.

^4GAO, Expedited Assistance for Victims of Hurricanes Katrina and Rita:
FEMA's Control Weaknesses Exposed the Government to Significant Fraud and
Abuse, GAO-06-655 (Washington, D.C.: June 16, 2006).

^5GAO, Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations, GAO-02-69G (Washington, D.C.: October 2001).

^6We have not independently assessed OMB's proposed legislative reforms
and related projected savings included in the Budgets of the U.S.
Government for Fiscal Years 2008 and 2007.

^7GAO, Tax Gap: Multiple Strategies, Better Compliance Data, and Long-Term
Goals Are Needed to Improve Taxpayer Compliance, GAO-06-208T (Washington,
D.C.: Oct. 26, 2005), and Tax Compliance: Better Compliance Data and
Long-term Goals Would Support a More Strategic IRS Approach to Reducing
the Tax Gap, GAO-05-753 (Washington, D.C.: July 18, 2005).

^8GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January
2007).

Lastly, we reported^9 in November 2006 that OMB's broad implementation of
IPIA's general criteria to identify risk-susceptible programs limits the
disclosure and transparency of governmentwide improper payments. This
limitation does not further the objectives of IPIA, as programs that do
not meet OMB's criteria of exceeding

$10 million and 2.5 percent of program payments are excluded from
agencies' improper payment reporting. For example, one agency identified
three programs with estimated improper payments exceeding $10 million, but
because the estimates did not exceed 2.5 percent of program outlays, they
were not included in the governmentwide improper payments total. In our
November 2006 report, we recommended that the Congress consider amending
existing IPIA provisions to define specific criteria, such as a minimum
dollar threshold, agencies should use to identify which programs and
activities are susceptible to significant improper payments. The enclosure
includes our suggested language for amending IPIA for better transparency
and disclosure of improper payments reporting.

                                  - - - - - -

This report is available on GAO's Web site at http://www.gao.gov. Should
you have any questions on matters discussed in this report or need
additional information, please contact McCoy Williams, Director, at (202)
512-9095 or [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 are Carla Lewis,
Assistant Director; Donell Ries; and Chris Rodriguez.

David M. Walker

Comptroller General
of the United States

Enclosure

^9GAO-07-92.

Enclosure

                          DRAFT BILL LANGUAGE TO AMEND

                     THE IMPROPER PAYMENTS INFORMATION ACT

Sec. _____. Subsection (d) of section 2 of Public Law 107-300 (31 U.S.C. S
3321 note) is amended by inserting after paragraph (3) the following new
paragraph:

"(4) SIGNIFICANT.---- For purposes of subsection (a), the term
"significant" means annual improper payments under a program or activity
that exceed

$10 million."

                             DRAFT REPORT LANGUAGE

The Improper Payments Information Act of 2002 (IPIA) states that agency
heads must review their agencies' programs and activities to determine
those that are susceptible to significant improper payments. The law does
not currently define what programs or activities are susceptible to
significant improper payments. In its implementing guidance, OMB directed
that a program or activity is susceptible to significant improper payments
if it meets two criteria--potential improper payments exceeding $10
million and 2.5 percent of program payments. Therefore, both criteria must
be met for an agency to subject the program to the later steps requiring
the agency to estimate improper payments and address the various improper
payment reporting requirements. Using OMB's criteria could materially
affect the extent to which agencies report improper payment information in
their performance and accountability reports. This section would amend
IPIA to define, for purposes of identifying what programs or activities
are susceptible to improper payments, the term "significant" to mean
"annual improper payments under a program or activity that exceed $10
million." This amendment will result in more complete disclosure and
transparency of governmentwide improper payment reporting.

(195111)

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