Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete (14-NOV-06,
GAO-07-92).
Fiscal year 2005 marked the second year that executive agencies
were required to report improper payment information under the
Improper Payments Information Act of 2002 (IPIA). As a steward of
taxpayer dollars, the federal government is accountable for how
its agencies and grantees spend billions of taxpayer dollars and
is responsible for safeguarding those funds against improper
payments. GAO was asked to determine the progress agencies have
made in their improper payment reporting and the total amount of
improper payments recouped through recovery auditing. To
accomplish this, GAO reviewed improper payment information
reported by 35 agencies in their fiscal year 2005 performance and
accountability or annual reports.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-92
ACCNO: A63304
TITLE: Improper Payments: Agencies' Fiscal Year 2005 Reporting
under the Improper Payments Information Act Remains Incomplete
DATE: 11/14/2006
SUBJECT: Accountability
Audit reports
Data integrity
Erroneous payments
Executive agencies
Government information
Internal controls
Payments
Program abuses
Program evaluation
Program management
Questionable payments
Reporting requirements
Risk assessment
Policies and procedures
Program goals or objectives
Savings estimates
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-07-92
* [1]Report to Congressional Requesters
* [2]November 2006
* [3]IMPROPER PAYMENTS
* [4]Agencies' Fiscal Year 2005 Reporting under the Improper
Payments Information Act Remains Incomplete
* [5]Contents
* [6]Results in Brief
* [7]Background
* [8]Improvements Needed in Agencies' Reporting of Improper Payment
Information
* [9]Results of Selected Agencies' Risk Assessments Appear
Questionable
* [10]Only a Limited Number of Agencies Are Estimating
Improper Payments
* [11]The Extent and Level of Detail Related to Selected
Reporting Requirements Varied
* [12]Causes of Improper Payments and Corrective Action
Plans
* [13]Manager Accountability
* [14]Statutory or Regulatory Barriers
* [15]Improper Payments Estimate Is Understated
* [16]Some Agencies Continue to Lack Improper Payment
Estimates for Susceptible Programs
* [17]Certain Methodologies Used to Estimate Improper Payments
Do Not Result in Accurate Estimates
* [18]Reduction in Improper Payment Estimate May Not Be a
Result of Improved Accountability and Enhanced Internal
Controls
* [19]IPIA May Need to Be Amended to Ensure Agencies Fully Meet Its
Objectives
* [20]Identification Threshold Limits Agency Reporting on
Susceptible Programs
* [21]IPIA Definition of Improper Payments Excludes Certain
Payments from Reporting
* [22]Agencies' Reporting of Recovery Auditing Information
Questionable
* [23]Conclusions
* [24]Matter for Congressional Consideration
* [25]Recommendations for Executive Action
* [26]Agency Comments and Our Evaluation
* [27]Objectives, Scope, and Methodology
* [28]Improper Payment Estimates Reported in Agency Fiscal Year 2004 and
2005 PARs or Annual Reports
* [29]Outlays, Improper Payment Estimates, and Error Rates Reported in
Agency Fiscal Year 2005 PARs or Annual Reports
* [30]Comments from the Office of Management and Budget
* [31]GAO Contact and Staff Acknowledgments
* [32]Related GAO Products
Report to Congressional Requesters
November 2006
IMPROPER PAYMENTS
Agencies' Fiscal Year 2005 Reporting under the Improper Payments
Information Act Remains Incomplete
Contents
Tables
Figures
Abbreviations
November 14, 2006Letter
Congressional Requesters
Fiscal year 2005 marked the second year that federal executive branch
agencies were required to report improper payment information under the
Improper Payments Information Act of 2002 (IPIA).^1 IPIA has increased
visibility over improper payments by requiring executive agency heads,
based on guidance from the Office of Management and Budget (OMB),^2 to
identify programs and activities susceptible to significant improper
payments,^3 estimate amounts improperly paid, and report on the amounts of
improper payments and their actions to reduce them. As the steward of
taxpayer dollars, the federal government is accountable for how its
agencies and grantees spend hundreds of billions of taxpayer 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 long-standing, widespread, and significant problem in the
federal government.^4 Yet, the extent of the problem initially had been
masked because only a limited number of agencies reported their annual
payment accuracy rates and estimated improper payment amounts prior to the
passage of IPIA.
As we reported in March 2005,^5 regarding the first year reporting under
IPIA, the improper payment estimate of $45 billion did not include any
amounts for some of the highest risk programs, such as Medicaid with
outlays in excess of $175 billion for fiscal year 2004. Further, we noted
that some agencies still had not instituted systematic methods of
reviewing all programs and activities or had not identified all programs
susceptible to significant improper payments. We concluded that the
magnitude of the governmentwide improper payments problem is still unknown
because agencies have not yet prepared improper payment estimates for all
of their programs. In that report, we made three recommendations to OMB to
help ensure successful implementation of IPIA requirements.
Because of the continued interest in addressing the governmentwide
improper payments issue, you asked us to determine (1) the extent to which
agencies have included required improper payment information in their
performance and accountability reports (PAR), (2) the annual improper
payment estimate reported by agencies for fiscal year 2005, (3) whether
the definition and types of improper payments included in IPIA and OMB's
implementing guidance provide adequate disclosure of the extent of
improper payments at the agencies, and (4) the reported amount of improper
payments recouped through recovery audits.
The scope of our review included the 35 federal agencies that the
Department of the Treasury (Treasury) determined to be significant to the
U.S. government's consolidated financial statements. We reviewed improper
payment information reported by the 35 agencies in their fiscal year 2005
PARs or annual reports. We also reviewed OMB guidance on implementation of
IPIA and its report^6 on the results of agency-specific reports,
significant findings, agency accomplishments, and remaining challenges. We
did not independently validate the data that agencies reported in their
PARs or annual reports or the data that OMB reported. However, we are
providing this agency-reported data as descriptive information that will
inform interested parties about the magnitude of governmentwide improper
payments and other improper payments-related information. We believe the
data to be sufficiently reliable for this purpose. We conducted our work
from April 2006 through September 2006 in accordance with generally
accepted government auditing standards. See appendix I for more details on
our scope and methodology.
Results in Brief
Our review of agencies' reporting of selected improper payment information
identified that improvements are still needed to fully address improper
payments reporting requirements. For example, we found agencies' reporting
of improper payment information was incomplete and the extent and level of
detail of agencies' improper payment information varied. Furthermore, the
total improper payment estimate does not include several large,
risk-susceptible federal programs, while other program estimates included
in the total are not statistically valid. In addition, we found that OMB's
existing threshold criteria to assess program susceptibility to
significant improper payments affect how agencies identify these programs,
thus limiting the disclosure and transparency of governmentwide improper
payments.
Generally, agencies must perform four key steps to address the improper
payment reporting requirements--perform a risk assessment, estimate
improper payments for risk-susceptible programs and activities, implement
a plan to reduce improper payments for programs with estimates exceeding
$10 million, and annually report improper payment estimates and actions to
reduce them. Of the 35 agencies in our review, 23 reported that they had
performed risk assessments of all of their programs and activities, while
12 had not. In addition, the adequacy of some of these risk assessments
was questionable. For example, the auditors for the Departments of Justice
(DOJ) and Homeland Security (DHS) cited agency noncompliance with IPIA in
their fiscal year 2005 annual audit reports, primarily caused by
inadequate risk assessments.
A lack of detailed guidance may be a contributing factor to agencies'
inability to adequately assess their programs for risks. Specifically, we
found that OMB's implementing guidance does not include a description of
the common types of risk factors agencies should consider when annually
reviewing their programs, such as program complexity, operational changes,
findings from investigative reports, and financial statement and
performance audit reports. Agencies have developed their own processes for
conducting risk assessments, which may not satisfactorily identify
programs susceptible to improper payments. For example, at the Department
of Agriculture (USDA), its auditors reported that the agency's risk
assessments were not adequate to estimate the agency's susceptibility to
improper payments because the Office of Chief Financial Officer's (OCFO)
guidance was not prescriptive and detailed enough to translate into
meaningful results.
For fiscal year 2005, 18 agencies reported improper payment estimates for
57 programs totaling in excess of $38 billion,^7 which is $7 billion less
than the $45 billion reported for fiscal year 2004.^8 Of the 18 agencies
reporting improper payment estimates, 14 agencies had one or more programs
with improper payment estimates exceeding $10 million, and thus were
required to prepare and implement a plan to reduce improper payments and
report on actions taken. Key elements that agencies are required to report
on include causes of improper payments and corrective actions, manager
accountability, and statutory barriers.^9 Generally, agencies reported
this information for one or more of their programs in their PARs. However,
the extent and details of reporting varied. For example, 1 agency
addressed the manager accountability reporting element in one sentence
while 2 other agencies provided information on how each program manager
was held accountable for each of their high-risk programs identified.
Although the federal government continues to make progress in meeting the
requirements of IPIA, agencies' fiscal year 2005 reporting does not yet
reflect the full scope of improper payments across government.
Specifically, the $7 billion reported decrease in the total improper
payment estimate represents a reduction of 16 percent reported by agencies
in fiscal year 2004. On the surface, this would suggest that significant
progress has been made. Yet, we found that the reduced estimate for
improper payments for fiscal year 2005 may not represent actual
improvements in this area.
In fact, all indications are that the estimate should be markedly higher
because the total improper payment estimate does not include certain
factors that if included, would increase the estimate. For example,
agencies have not estimated improper payments for 10 risk-susceptible
programs with outlays totaling over $234 billion, even though most of
these programs had such reporting requirements predating IPIA.^10 In
addition, we found that improper payment estimates totaling about $389
million for 9 programs were not based on a statistical sampling
methodology.^11 Given that total outlays for these 9 programs exceeded
$58.2 billion in fiscal year 2005, estimates for these programs would
likely have been much greater had statistically valid methods been used.
Also, agency auditors have reported major management challenges that
highlight internal control weaknesses that continue to plague programs
susceptible to significant improper payments. In some cases, agencies
reported that their programs were not susceptible to significant improper
payments, despite the fact that the auditor's reports in the same PARs
identified major program management challenges, including significant
internal control weaknesses.
Further, OMB's implementation^12 of the act's broad 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 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 payment total. In addition, we note that the definition of
improper payments under IPIA excludes certain types of payments required
to be made under constitutional, statutory, or judicial requirements, even
though those payments are subsequently determined to be incorrect. This
includes payments that an agency must make pursuant to a statute or court
order that later are determined to be overpayments. Yet, because agencies
are not required to track, monitor, and report on these types of
overpayments, the governmentwide magnitude of this issue is unknown.
Lastly, with regard to agencies' recovery audit efforts, the data reported
may not present an accurate view of the extent of these efforts. While 21
agencies were required to report on their recovery audit efforts, we
identified discrepancies in several agencies' information and found
limited reviews over contract payments. For example, for fiscal year 2005,
the National Aeronautics and Space Administration (NASA) reported that it
had identified and recovered $617,442 in contract payments, a reported 100
percent recovery rate. Yet, the NASA Office of Inspector General (OIG)
reported it had identified over $515 million in questioned contract costs
during fiscal year 2005, of which NASA management decided to pursue
recovery of $51 million. Had the $51 million amount been compared to the
$617,442 NASA actually recovered, its recovery rate would drop from the
reported 100 percent to 1.2 percent. In addition, we noted that 5 of the
21 agencies did not review all of their agency components as part of their
recovery audit efforts while 2 agencies reported that recovery auditing
was not cost beneficial without reporting any details to support this
determination.
This report includes one matter for congressional consideration and four
recommendations for executive action. Specifically, to ensure that the
full extent of improper payments is being captured, the Congress should
consider whether existing IPIA provisions should be amended to define
specific criteria, such as a dollar threshold, agencies should use to
identify which programs and activities are susceptible to significant
improper payments, thereby triggering improper payment estimating and
reporting requirements. In addition, to facilitate agencies' progress in
ensuring accurate and complete improper payments and recovery auditing
reporting, we recommend that OMB take several actions regarding (1) risk
assessment methodologies and the level of detail necessary to meet the
annual improper payment reporting requirements, (2) statistically valid
estimates, (3) extent of payments agencies make under statute or judicial
determinations that later are determined to be overpayments, and (4)
agencies' rationale that recovery auditing is not cost beneficial.
In commenting on a draft of this report, OMB generally agreed with our
recommendations and highlighted progress made in the second year of
governmentwide improper payments reporting, as well as initiatives under
way to measure improper payments in selected programs susceptible to
significant improper payments. For example, OMB reported that for fiscal
year 2005, agencies estimated improper payments for 17 additional programs
and that this number will increase again by 10 programs for fiscal year
2006. OMB also stated that beginning in fiscal year 2007, the Department
of Health and Human Services (HHS) will begin reporting component error
rates for its Medicaid, Temporary Assistance for Needy Families, and State
Children's Health Insurance programs. OMB's written comments are reprinted
in appendix IV.
Background
IPIA was passed in November 2002 with the major objective of enhancing the
accuracy and integrity of federal payments. IPIA requires executive branch
agency heads to review their programs and activities annually and identify
those that may be susceptible to significant improper payments. For each
program and activity agencies identify as susceptible, the act requires
them to estimate the annual amount of improper payments and to submit
those estimates to the Congress. The act further requires that for
programs for which estimated improper payments exceed $10 million,
agencies are to report annually to the Congress on the actions they are
taking to reduce those payments.
The act requires the Director of OMB to prescribe guidance for agencies to
use in implementing IPIA. OMB issued implementing guidance in May 2003,
which requires the use of a systematic method for the annual review and
identification of programs and activities that are susceptible to
significant improper payments. The guidance defines significant improper
payments as those in any particular program that exceed both 2.5 percent
of program payments and $10 million annually.^13 It requires agencies to
estimate improper payments annually using statistically valid techniques
for each susceptible program or activity. For those agency programs
determined to be susceptible to significant improper payments and with
estimated annual improper payments greater than $10 million, IPIA and
related OMB guidance require each agency to annually report the results of
its efforts to reduce improper payments.
In addition, applicable agencies are required to report their efforts to
recoup contract-related improper payments under section 831 of the
National Defense Authorization Act for Fiscal Year 2002.^14 This
legislation contains a provision that requires all executive branch
agencies entering into contracts with a cumulative total value exceeding
$500 million in a fiscal year to have cost-effective programs for
identifying errors in paying contractors and for recovering amounts
erroneously paid. The act further states that a required element of such a
program is the use of recovery audits and recovery activities. The law
authorizes federal agencies to retain recovered funds to cover in-house
administrative costs as well as to pay other contractors, such as
collection agencies. Agencies that are required to undertake recovery
audit programs were directed by OMB to provide annual reports on their
recovery audit efforts, along with improper payment reporting details in
an appendix to their PARs.
In August 2006, OMB revised its IPIA implementing guidance. The revision
consolidates into Appendix C of OMB Circular No. A-123, Management's
Responsibility for Internal Control,^15 all guidance for improper payments
and recovery auditing reporting.^16 The revised guidance includes
authorization for risk assessments to be conducted less often than
annually for programs where improper payment baselines are already
established, are in the process of being measured, or are scheduled to be
measured by an established date. Although OMB kept its criteria for
defining significant improper payments as those exceeding both 2.5 percent
of program payments and $10 million, OMB added that it may determine on a
case-by-case basis that certain programs that do not meet the threshold
may be subject to the annual reporting requirement. Additionally, the
revised guidance allows agencies to use alternative sampling
methodologies^17 and requires agencies to report on and provide a
justification for using these methodologies in their PARs. This revised
guidance is effective for agencies' fiscal year 2006 improper payment
estimating and reporting in the PARs or annual reports. For the purposes
of evaluating agency reporting in this report, we used the requirements
from the OMB implementing guidance effective for fiscal year 2005.
OMB has also established Eliminating Improper Payments as a new
program-specific initiative under the President's Management Agenda (PMA).
This separate PMA program initiative began in the first quarter of fiscal
year 2005. Previously, agency efforts related to improper payments were
tracked along with other financial management activities as part of the
Improving Financial Performance initiative of the PMA. The objective of
establishing a separate initiative for improper payments was to ensure
that agency managers are held accountable for meeting the goals of IPIA
and are therefore dedicating the necessary attention and resources to
meeting IPIA requirements. With this new initiative, 15 agencies^18 are to
measure their improper payments annually, develop improvement targets and
corrective actions, and track the results annually to ensure the
corrective actions are effective.
The fiscal year 2005 PARs, the second set of annual reports representing
the results of improper payments assessments for federal executive branch
agency programs, were due November 15, 2005. In our December 2005
report^19 on the U.S. government's consolidated financial statements for
the fiscal years ended September 30, 2005, and 2004, which includes our
associated opinion on internal control, we reported improper payments as a
material weakness in internal control. Specifically, we reported progress
in implementing processes and controls to identify, estimate, and reduce
improper payments, but that significant challenges remain to effectively
achieve the goals of IPIA.
Improvements Needed in Agencies' Reporting of Improper Payment Information
Our review of agencies' reporting of select improper payment information
identified that improvements are still needed to fully address improper
payment reporting requirements. Of the 35 fiscal year 2005 agency PARs or
annual reports included in our review, 23 agencies reported they had
performed risk assessments of all of their programs and activities.
However, the results of certain agencies' risk assessments appear
questionable. For example, agency management at DOJ and DHS reported that
based on their risk assessments, no risk-susceptible programs were
identified. Yet, these agencies' auditors cited agency noncompliance with
IPIA in their fiscal year 2005 annual audit reports, primarily caused by
inadequate risk assessments.
Eighteen of the 35 agencies reported improper payment estimates totaling
in excess of $38 billion for some or all of their high-risk programs in
fiscal year 2005. Of the 18 agencies, 14 reported having one or more
programs with improper payment estimates that exceeded $10 million, and
thus were required to implement plans to reduce improper payments and
report on actions taken.^20 Based on our review of these key improper
payment reporting requirements, we generally found that the applicable
agencies reported this information for one or more of their programs in
their PARs as required. However, the extent and details of reporting
varied among the agencies. For example, the Office of Personnel Management
(OPM) addressed the manager accountability reporting requirement in one
sentence for its risk-susceptible programs, while USDA and the Department
of Veterans Affairs (VA) provided information on how each program manager
was held accountable for each high-risk program identified. Six different
agencies reported that the responsibility for improper payments is
included in management's performance plans; however, specific details were
not discussed.
IPIA and OMB's implementing guidance require agencies to annually review
and identify programs susceptible to significant improper payments,
estimate the amount of their improper payments, and report on the amount
of their improper payments and their actions to reduce improper payments.
OMB requires the results of these steps to be reported in the agencies'
PARs, in the Management Discussion and Analysis section and as a separate
appendix for each fiscal year ending on or after September 30, 2004.
Figure 1 provides an overview of the four key steps OMB requires agencies
to perform in meeting the improper payment reporting requirements.
Figure 1: Required Steps to Identify, Estimate, Reduce, and Report
Improper Payment Information
Agencies must estimate improper payments for each susceptible program
identified during the risk assessment process. In addition, agency
programs that were included in former section 57 of OMB Circular No. A-11
must estimate improper payments even if the estimate does not exceed $10
million and 2.5 percent of program payments. Further, some agency programs
voluntarily reported an improper payment estimate or other improper
payment information. When the program improper payment estimates exceed
$10 million, agencies are required to report on various actions they are
taking to reduce improper payments, such as determining causes of improper
payments and taking corrective actions and ensuring manager
accountability, and statutory barriers that limit corrective actions to
reduce improper payments. To address these three reporting requirements,
OMB requires agencies to report the following information in their PARs:
oCauses of improper payments and corrective action. A discussion of the
causes of the improper payments identified, actions taken to correct those
causes, and results of the actions taken to address those causes.
oManager accountability. A description of the steps (including timeline)
the agency has taken and plans to take to ensure that agency managers
(including the agency head) are held accountable for reducing and
recovering erroneous payments.
oStatutory barriers. A description of any statutory or regulatory barriers
that may limit the agency's corrective actions in reducing erroneous
payments.
Figure 2: Improper Payments--Step 1
Results of Selected Agencies' Risk Assessments Appear Questionable
Of the 35 fiscal year 2005 agency PARs or annual reports included in our
review, 23, the same number of agencies that reported having risk
assessments in our prior year review, reported they had performed risk
assessments of all of their programs and activities. The remaining 12
agencies either did not report this information in their PARs or annual
reports, or included some improper payment details in their PARs, but did
not report assessing for the risk of improper payments for all of their
programs and activities. Table 1 indicates for each of the 35 whether the
agency reported having assessed all programs and activities.
Table 1: Agency Reporting of Risk Assessments Performed for All Programs
and Activities
Department or agency Agency reported it had assessed all
programs and activities
1 Agency for International
Development
2 Department of Agriculture X
3 Department of Commerce X
4 Department of Defense X
5 Department of Education X
6 Department of Energy X
7 Environmental Protection Agency
8 Export-Import Bank of the United
States
9 Farm Credit System Insurance
Corporation
10 Federal Communications Commission X
11 Federal Deposit Insurance
Corporation
12 General Services Administration X
13 Department of Health and Human X
Services
14 Department of Homeland Security X
15 Department of Housing and Urban X
Development
16 Department of the Interior X
17 Department of Justice
18 Department of Labor X
19 National Aeronautics and Space X
Administration
20 National Credit Union
Administration
21 National Science Foundation X
22 Nuclear Regulatory Commission X
23 Office of Personnel Management X
24 Pension Benefit Guaranty
Corporation
25 U.S. Postal Service
26 Railroad Retirement Board X
27 Securities and Exchange Commission
28 Small Business Administration X
29 Smithsonian Institution
30 Social Security Administration X
31 Department of State X
32 Tennessee Valley Authority
33 Department of Transportation X
34 Department of the Treasury X
35 Department of Veterans Affairs X
Total 23
Source: GAO analysis of cited agencies' fiscal year 2005 PARs and annual
reports.
The first step in OMB's implementing guidance requires agencies' use of a
systematic method, also known as a risk assessment, to annually review and
identify those programs and activities that are susceptible to significant
improper payments. Although OMB's guidance identifies the scope of
payments agencies are to review, such as federal awards made by recipients
and subrecipients subject to the Single Audit Act, as amended,^21 it does
not provide agencies detailed information on how to conduct a risk
assessment in order to adequately carry out their responsibilities to meet
the requirements of the act. Specifically, we found that OMB's guidance
lacks a description of the common types of risk factors agencies should
consider when annually reviewing their programs, such as program
complexity; operational changes; and findings from investigative,
financial statement, and performance audit reports. Developing such a
framework would begin the process to effectively identify and target
high-risk areas within a program and better position agencies as they
determine which control activities to implement to reduce risks and
ultimately reduce fraud and errors.
Risk assessment is a key step in gaining assurance that programs are
operating as intended and that they are achieving their expected outcomes.
Done properly, it entails a comprehensive review and analysis of program
operations to determine if risks exist, what those risks are, and the
potential or actual impact of those risks on program operations. 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. In performing a risk
assessment, management should consider all significant interactions
between the entity and other parties as well as internal factors at both
the entitywide and program levels.
The specific risk assessment methodology used can vary by organization
because of differences in missions and the methods used in assigning risk
levels. Risk identification methods often include qualitative and
quantitative ranking activities, management conferences, forecasting and
strategic planning, and consideration of findings from audits and other
assessments. Because governmental, economic, and operating conditions
continually change, risk assessments should be periodically updated to
identify and deal with any special risks prompted by such changes.
Although 23 agencies reported meeting this requirement for all of their
programs and activities, other readily available information suggests to
us that the adequacy of agencies' risk assessments was questionable. For
example, auditors for DOJ and DHS cited agency noncompliance with IPIA in
their fiscal year 2005 annual audit reports, primarily caused by
inadequate risk assessments. The DOJ auditor stated that one agency
component had not established a program to assess, identify, and track
improper payments. The DHS auditors reported that the department did not
institute a systematic method of reviewing all programs and identifying
those it believed were susceptible to significant erroneous payments. This
was the second consecutive year that the auditor reported IPIA
noncompliance for DHS. Although the auditors identified the agency's risk
assessment methodology as inadequate, DHS again reported in its PAR that
it had assessed all of its programs for risk and found none susceptible to
significant improper payments.
However, existing significant financial management weaknesses at these
agencies highlight visible, well-known risks for improper payments. For
example, DHS continues to face significant financial management weaknesses
as illustrated by previous reviews of the Federal Emergency Management
Agency's (FEMA)--a DHS component--Individuals and Households Program
(IHP). In November 2005, DHS received a disclaimer of opinion on its
fiscal year 2005 balance sheet and its fiscal year 2004 consolidated
financial statements,^22 primarily because of financial reporting
problems. DHS's auditors cited 10 material weaknesses;^23 2 other
reportable conditions in internal controls; and 7 instances of
noncompliance with applicable laws and regulations, 1 of those being
noncompliance with IPIA, as mentioned previously. The DHS OIG cited
disaster response and recovery as one of DHS's major management challenges
for that year.
In May 2005, the DHS OIG reported^24 weaknesses in DHS's IHP program,
including inspection and verification of losses reported by individuals
related to the 2004 hurricane season as well as eligibility issues.
Subsequently, in July 2005, the Senate Committee on Homeland Security and
Governmental Affairs released its investigation results of FEMA's response
to the 2004 Florida hurricanes, in particular, Hurricane Frances, and
found similar weaknesses in FEMA's IHP program. In discussing its risk
assessment methodology, DHS reported that FEMA's IHP might be at high risk
for issuing improper payments as a result of the weaknesses identified in
the DHS OIG report and performed a second round of testing of its fiscal
year 2004 disbursements. From its test results, DHS concluded that its
estimate of improper payments for the IHP did not meet OMB's criteria of
exceeding $10 million and 2.5 percent of program payments. DHS reported
that IHP would receive closer scrutiny and undergo an independent payment
review in fiscal year 2006, but that its sample payment testing did not
show the program to be at high risk for improper payments.
Our recent review of FEMA's IHP shows a dramatically different result. In
our June 2006 report,^25 we estimated improper payments related to FEMA's
IHP of about $1 billion as of February 2006, related to individual
assistance payments in response to hurricanes Katrina and Rita that
occurred in 2005. This amount represents 16 percent of the IHP payments.
For example, we determined that millions of dollars in expedited and
housing assistance payments went to registrants who provided the names and
Social Security numbers of individuals incarcerated in federal and state
prisons during the hurricanes. In addition, FEMA improperly paid
individuals twice for their lodging--paying both hotels and rental
assistance. Also, FEMA could not establish that 750 debit cards worth $1.5
million went to Hurricane Katrina victims.
We noted risk assessment deficiencies at other agencies as well. The USDA
OIG reported^26 that the agency's risk assessments were not adequate to
estimate the agencies' susceptibility to improper payments because the
guidance from the USDA's OCFO was not sufficiently prescriptive and
detailed to translate into meaningful results. As such, the OIG
recommended that USDA OCFO strengthen guidance over its IPIA risk
assessments to provide reasonable assurance that the requirements of the
act are met. Further, the OIG stated that USDA should identify risk
factors that are discrete to the program being assessed and consider
information from all sources, such as audit reports. In another example,
Treasury's OIG reported^27 that it planned to evaluate whether the
agency's current process is effectively identifying and reducing erroneous
payments, which further validates our concern that agencies' risk
assessments may not be appropriately identifying a complete universe of
programs and activities that are susceptible to significant improper
payments.
In our previous report^28 on agencies' fiscal year 2004 improper payment
reporting, we recommended that OMB require those agencies that did not
address the IPIA requirements or did not perform risk assessments of all
of their programs and activities to establish time frames and identify
resources needed to perform risk assessments and satisfy reporting
requirements. We also recommended that OMB develop a plan to address the
resource needs of those agencies that did not perform risk assessments or
satisfy reporting requirements. In response to our recommendations, OMB
stated that pursuant to the PMA initiative--Eliminating Improper
Payments--federal agencies were already required to submit relevant time
frames and account for the resources necessary to complete planned
actions. Furthermore, OMB stated that the remaining risk assessments to be
completed, not covered by the PMA initiative, correlated to programs with
relatively small outlays. As we stated in our March 2005 report, while we
view the PMA initiative as a positive action, it applies to only 15
agencies--the 14 agencies that were previously required to report improper
payments information under OMB Circular No. A-11 and DHS. However, this is
not a comprehensive list because it does not include the remaining
executive branch agencies covered under IPIA that are, to some extent,
required to address improper payments for their programs and activities.
Thus, agencies not included in the PMA initiative would not be required to
establish time frames and account for needed resources under that effort.
Therefore, we reaffirm our previous recommendations that OMB require those
agencies that did not address the IPIA requirements or did not perform
risk assessments for all of their programs and activities to establish
time frames and identify resources needed to perform risk assessments and
satisfy reporting requirements and that OMB develop a plan to address the
resource needs of those agencies that did not perform risk assessments or
satisfy reporting requirements.
Figure 3: Improper Payments--Step 2
Only a Limited Number of Agencies Are Estimating Improper Payments
Agencies must estimate improper payments for each risk-susceptible program
identified during the risk assessment process. Of the 35 agencies, 18
agencies accounting for 57 programs reported improper payment estimates
totaling in excess of $38 billion for some or all of their high-risk
programs. (See app. II for further details.) Included in this estimate
were 17 newly reported programs in 10 agencies, totaling about $1.2
billion for fiscal year 2005.
The total improper payment estimate of $38 billion represents
approximately 2 percent of the total fiscal year 2005 government outlays
of $2.5 trillion. For the remaining 17 agencies that did not report
estimates, 8 said they did not have any programs susceptible to
significant improper payments, 8 were silent about whether they had
programs susceptible to significant improper payments, and the remaining
agency identified programs susceptible to significant improper payments
and said it planned to report an estimate by fiscal year 2007. Further
details are included in table 2.
Table 2: Agency Improper Payment Estimate Reporting in Fiscal Year 2005
Agency did not
report estimate
Department or Agency Agency reported Agency silent as Agency
agency reported that no to whether it had reported
estimate programs were programs future
for one or susceptible to susceptible to date to
more significant significant report
programs improper improper payments estimate
payments
1 Agency for X
International
Development
2 Department of X
Agriculture
3 Department of X
Commerce
4 Department of X
Defense
5 Department of X
Education
6 Department of X
Energy
7 Environmental X
Protection Agency
8 Export-Import X
Bank of the
United States
9 Farm Credit X
System Insurance
Corporation
10 Federal X
Communications
Commission
11 Federal Deposit X
Insurance
Corporation
12 General Services X
Administration
13 Department of X
Health and Human
Services
14 Department of X
Homeland Security
15 Department of X
Housing and Urban
Development
16 Department of the X
Interior
17 Department of X
Justice
18 Department of X
Labor
19 National X
Aeronautics and
Space
Administration
20 National Credit X
Union
Administration
21 National Science X
Foundation
22 Nuclear X
Regulatory
Commission
23 Office of X
Personnel
Management
24 Pension Benefit X
Guaranty
Corporation
25 U.S. Postal X
Service
26 Railroad X
Retirement Board
27 Securities and X
Exchange
Commission
28 Small Business X
Administration
29 Smithsonian X
Institution
30 Social Security X
Administration
31 Department of X
State
32 Tennessee Valley X
Authority
33 Department of X
Transportation
34 Department of the X
Treasury
35 Department of X
Veterans Affairs
Total 18 8 8 1
Source: GAO analysis of cited agencies' fiscal year 2005 PARs and annual
reports.
Step 2 of OMB's guidance requires agencies to estimate the annual amount
of improper payments for those programs susceptible to significant
improper payments. Unless previously approved by OMB, this estimate must
be based on a statistically valid sampling methodology^29 and should
include a gross total of both over- and underpayments. In its Circular No.
A-136, OMB encourages agencies to break out over- and underpayments as
part of its improper payment reporting, if available. Of the 57 programs
for which an estimate was reported for fiscal year 2005, a breakout
between over- and underpayments was provided for 20 programs. This
included 6 of the 7 largest programs that according to OMB, make up 95
percent of the
current total improper payment estimate.^30 Treasury's Earned Income Tax
Credit (EITC) program, the second largest program constituting the
reported improper payment total, is the only program of the 7 largest that
did not do so. Of the 20 programs, 3 attributed all their improper
payments to overpayments. For example, the USDA's Marketing Assistance
Loan Program reported an improper payment estimate of about $45 million.
USDA reported that the entire estimate resulted from overpayments made.
For more details related to over- and underpayment estimates, see appendix
III.
We also found that agencies' auditors identified challenges with certain
program's improper payment estimates. USDA's OIG reported that it
considers USDA's efforts to develop supportable methodologies to detect
and estimate the extent of improper payments as a major challenge because
of the number and complexity of USDA programs and activities that are
subject to IPIA. In another example, agency auditors for the Department of
Education (Education) raised concerns about the methodology Education used
to estimate improper payments for its Federal Student Aid (FSA) program.
The auditors reported that the methodology used did not provide a true
reflection of the magnitude of improper payments in the student loan
programs. Specifically, FSA's estimate is primarily based on actual
questioned costs from OIG audits, does not extrapolate questioned costs
associated with compliance violations identified through OIG audits, and
does not take into account restitutions and penalties resulting from OIG
investigations. To address improper payment estimating challenges, it will
be critical that agencies follow existing OMB guidance to use a
statistically valid sampling methodology.
Figure 4: Improper Payments--Step 3
The Extent and Level of Detail Related to Selected Reporting Requirements
Varied
As previously mentioned, 18 of the 35 agencies reported over $38 billion
of improper payments. Of the 18 agencies, 14 reported improper payment
estimates that exceeded $10 million^31 for one or more programs, and
therefore were required to implement plans to reduce improper payments
under step 3 of OMB's guidance.
Figure 5: Improper Payments--Step 4
Based on these plans, under step 4 of OMB's implementing guidance agencies
are required to report on various elements, such as a description of (1)
the steps (including time line) the agency has taken and plans to take to
ensure that agency managers (including the agency head) are held
accountable for reducing and recovering erroneous payments and (2) any
statutory or regulatory barriers that may limit the agency's corrective
actions in reducing improper payments and any statutory or regulatory
barriers that may limit the agencies' corrective actions in reducing
improper payments. In addition, the 14 agencies with estimated improper
payments greater than $10 million were required to report in their PARs or
annual reports on the above elements as well as other areas, such as the
causes of the improper payments, actions taken to correct those causes,
and the results of those actions and additional reporting requirements.
Generally, these agencies reported on their actions to address the
additional reporting requirements in their PARs; however, the extent and
details of reporting varied among agencies. Although not all of the
agencies in table 3 provided meaningful descriptions for each of the
additional reporting requirements, our table acknowledges all agencies
that at least mentioned these reporting elements as part of their improper
payment reporting. The results of agencies' reporting on these key
elements are discussed in more detail in the following sections.
Table 3: Agency Reporting of Certain Reporting Requirements for One or
More of Its Programs
Department or agency Agency reported on Agency reported on Agency
causes and manager reported on
corrective actions accountability statutory
barriers
1 Department of X X X
Agriculture
2 Department of X X X
Defense
3 Department of X X X
Education
4 Department of Energy
5 Department of Health X X X
and Human Services
6 Department of X X
Housing and Urban
Development
7 Department of Labor X X X
8 Office of Personnel X X X
Management
9 Railroad Retirement X X
Board
10 Small Business X X
Administration
11 Social Security X X X
Administration
12 Tennessee Valley X X
Authority
13 Department of the X X X
Treasury
14 Department of X X X
Veterans Affairs
Total 13 13 9
Source: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports.
Causes of Improper Payments and Corrective Action Plans
Table 3 shows that 13 of the 14 agencies required to report on the causes
of program improper payments and any associated corrective actions did so.
Looking at this from a qualitative perspective, we noted that some
agencies provided few details on the causes and corrective actions taken,
while others provided detailed descriptions at the program level. For
example, the Department of Labor (Labor) reported that the causes of
improper payments for its Unemployment Insurance program resulted from
claimants who continue to claim benefits despite having returned to work
as well as coding errors that identify why the claimant separated from
work. In contrast, the Small Business Administration (SBA) reported that
it was planning to identify and track reasons for improper payments for
one of its high-risk programs, but had not yet done so. Similarly, HHS did
not list causes of improper payments for several of its risk-susceptible
programs, although it provided detailed corrective actions for reducing
improper payments. When no causes are reported, they sometimes can be
inferred based on the descriptions of the corrective actions. However,
without fully knowing what causes improper payments, it may be difficult
for the agency to determine what types of internal control need to be
implemented or changed and if the corrective actions in place will be
effective in reducing improper payments. As agencies identify causes of
improper payments, they can implement control activities to address
identified risk areas and help ensure that management's decisions and
plans are carried out and program objectives are met.
Manager Accountability
All but 1 of the 14 agencies also reported on efforts related to assigning
and holding managers accountable for reducing improper payments. The
remaining agency did not address this reporting requirement in its PAR.
Generally, improper payments result from a lack of or inadequate system of
internal control, but some result from program design issues. A key
component of internal control is the control environment. A strong control
environment is fundamental in creating a culture of accountability by
establishing a positive and supportive attitude toward improvement and the
achievement of established program outcomes, including protecting taxpayer
interests in program integrity.
Similar to agencies' reporting on causes and corrections, we also found
that agencies' reporting on the manager accountability requirement varied.
For example, OPM addressed the manager accountability reporting
requirement in one sentence for its risk-susceptible programs while USDA
and VA provided information on how each program manager was held
accountable for the high-risk programs identified. Furthermore, six
different agencies reported that the responsibility for improper payments
is included in management's performance plans; however, specific details
were not disclosed. For example, the Railroad Retirement Board (RRB)
reported that agency managers' performance plans are linked to RRB's
strategic goals of paying benefits accurately and timely and providing
prudent stewardship over the trust funds.
Statutory or Regulatory Barriers
Of the 14 agencies required to report on any statutory or regulatory^32
barriers, 9 agencies identified such barriers that may limit corrective
actions to reduce improper payments. The remaining 5 agencies^33 were
silent as to whether any statutory or regulatory barriers existed or
reported that no barriers had been identified. Agencies cited various
barriers that restrict their ability to better manage their programs
against improper payments. We classified the reported barriers into five
categories: (1) data matching, (2) contractual requirements, (3)
state-administered program structure, (4) recovery auditing, and (5)
other. We also identified agencies that reported barriers that were not
related to a statute or regulation. Table 4 summarizes the statutory
barriers agencies reported and, when provided, the legislation or
regulation citation related to the barriers.
Table 4: Agency-Reported Statutory Barriers to Reducing Improper Payments
Agency Type of barrier(s) Agency reported law or
regulation related to
barrier(s)
Department of Data matching, Finality Rule-Department of
Agriculture state-administered Agriculture Reorganization
program structure, Act of 1994, Section 281,
recovery auditing generally precludes the use
of recovery auditing
techniques to recover
payments considered final
pursuant to 7 U.S.C.
7001(a).^a
Farm Security and Rural
Investment Act of 2002,
Section 1502(d)(2), requires
the agency to use standards
applied under an earlier law,
thereby limiting the agency
from developing a definition
for a particular type of
dairy producers.^a
Department of Contractual requirements The Department of Defense's
Defense Retired and Annuitant Pay
Service Contract, when
awarded, did not include the
goals or mandates of IPIA.
Any additional work or
changes to meet the goals of
IPIA would need a contract
modification and be subject
to Subpart 43.1 of the
Federal Acquisition
Regulation.^b
Department of Data matching Section 6103 of the Internal
Education Revenue Code concerning
confidentiality of the tax
return information precludes
data matching.^c
Department of State-administered Temporary Assistance for
Health and Human program structure, other Needy Families legislation,
Services including funding for Child
Care Programs, specifically
prohibits HHS from regulating
the conduct of states, unless
expressly provided. Requiring
states to identify and report
improper payments is not
expressly required.^d
Department of Labor Data matching, Section 3304(a)(4) of the
state-administered Federal Unemployment Tax Act
program structure, (FUTA) requires that moneys
recovery auditing in the unemployment fund only
be withdrawn for benefit
payments, precluding the
availability of money in the
fund to be used for recovery
auditing techniques. ^a
Office of Personnel Contractual 5 U.S.C. S 8452 and 5 C.F.R.
Management requirements, recovery 844 Subpart C contain the
auditing, other Federal Employees Retirement
System (FERS) disability
offset provision which
mandates that FERS benefits
be reduced if the annuitant
also receives Social Security
benefits. However, the FERS
benefits cannot be reduced
until Social Security
Administration starts paying
the disability benefits so
that OPM can reduce the FERS
benefits to their proper
level.^c
Generally, the Right to
Financial Privacy Act (12
U.S.C. S. 3401-3422) requires
financial institutions to
obtain permission from their
customers to disclose
financial information. This
requirement in effect bars
OPM from obtaining posthumous
payments information,
preventing recovery of
improper payments.^c
OIG lacks statutory or
regulatory audit rights and
only has limited audit rights
in contracts entered into
with pharmaceutical benefits
managers.^b
Social Security Other Not cited.^b
Administration
Department of the Other IRS Tax Code.^e
Treasury
Department of Other 38 U.S.C. 5112(b)(4)(A)^c
Veterans Affairs prohibits adjustments to
benefit payments until the
first of the month after the
change in a beneficiary's
income. Thus, this creates an
overpayment until the benefit
payment is adjusted for the
change in income.
38 U.S.C. 501(a) and 38
C.F.R. 3.103^c preclude VA
from changing benefit
payments when it determines
that an adjustment or
termination of benefits is
needed. VA must continue to
make benefit payments based
on existing information until
a claimant's due process has
taken place, which requires
giving the claimant 60 days
to submit evidence for a
claim. This, therefore,
usually means VA must
continue payment for
approximately 90 days after
discovery because any
adjustments occur the first
of the next month.
Sources: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports and OMB.
Note: We did not verify whether the legal citation reported actually
results in a barrier.
^aAgency provided specific legislative citation in its PAR.
^bAgency did not provide a legislative citation in its PAR or to OMB.
^cSpecific legal citation provided by OMB.
^dGeneral legal citation provided by OMB.
^eAgency only provided a general citation in its PAR.
Only two of the nine agencies mentioning statutory barriers cited the
specific law or regulation related to a corresponding barrier in their
PARs. The remaining seven agencies described the barrier but did not
provide a specific law or regulation in their PARs. For three of these
seven agencies, we were able to obtain specific legislative citations for
some of the agency-reported barriers from OMB, and included these in table
4. The remaining four agencies did not provide specific legislative
citations in their PARs, nor did the agencies provide them when we
followed up with OMB. The lack of transparency in agencies' reporting of
specific legislative or regulatory barriers impedes the Congress's ability
to use its authorization, appropriation, and oversight responsibility to
help agencies meet performance goals. The Congress can review the actions
taken and regulations formulated by departments and agencies to make
certain that program officials appropriately execute the laws. If agencies
provide the required information, the Congress can determine whether the
public's needs are adequately served by federal programs, and thus take
corrective action through legislative changes.
As we previously reported,^34 it should be recognized that many of these
barriers exist as a result of decisions to ensure beneficiary privacy and
other data safeguards and the inherent nature of some federal programs. As
a result, it may be difficult to eliminate or mitigate these barriers to
the point where they no longer restrict agency actions in certain areas to
better manage their improper payment problems. Accordingly, federal
agencies, the administration, the Congress, and the public must recognize
that some level of improper payments will occur because of these public
policy decisions.
Data matching. Three agencies reported barriers that prevented data
matching with other agencies' computer databases to reduce improper
payments. For example, Education reported that requirements in the
Internal Revenue Code precluded data matching, but that a database match
with the Internal Revenue Service (IRS) would likely improve the accuracy
of Pell Grant awards. In addition, it would eliminate the need for schools
to rely on paper copies of tax returns submitted by applicants, which are
used to verify applicants' adjusted gross income and taxes paid.
Currently, the schools have limited assurance that the tax returns
submitted by the applicants contain the same information that is filed
with IRS. However, Education's proposal to amend the Internal Revenue Code
to permit a 100 percent database match has not yet been enacted, and
Education is uncertain whether or when such legislation may be enacted. As
a further illustration, Labor reported that for its Federal Employees'
Compensation Act (FECA) program,^35 legislation does not currently permit
FECA to verify employment earnings with the Social Security Administration
(SSA) without the claimant's written permission. Compensation benefits may
be overpaid if an employee has unreported earnings and does not grant
Labor permission to verify earnings with SSA.
Contractual requirements. Two agencies reported contractual requirements
as a barrier to reducing improper payments. For example, OPM reported that
its OIG has begun an initiative to audit pharmaceutical benefits managers
(PBM). However, in some cases, the OIG has only limited audit rights based
on the carrier's contracts with the PBMs. To mitigate this, OPM is in the
process of revising the Federal Employees Health Benefits Acquisition
Regulations to require carriers to provide the OIG complete audit rights
in all contracts entered into with PBMs.
State-administered program structure. Three agencies reported barriers
resulting from the state-administered structure of their programs. For
example, Labor reported that by statute, states administer the
Unemployment Insurance (UI) program and set operational priorities.
Therefore, the agency reported it has limited ability to ensure that the
states pursue improper payment reduction activities. In another example,
HHS stated that for Medicaid and the State Children's Health Insurance
Program, its ability to minimize improper payments was limited in the
absence of statutory authority to hold states accountable for meeting
targets for the reduction and recovery of improper payments.
State-administered programs are particularly vulnerable to improper
payments. Generally, the federal government provides broad statutory and
regulatory guidelines as well as all or a part of the program funding,
while the other entities manage the day-to-day program operations. As
such, federal agencies must depend on state, county, and local officials
and other entities to ensure that eligibility requirements are met and
that benefit amounts are determined correctly. Further, states may have
little incentive to ensure that the right amounts go to the right
individuals.
Recovery auditing. Three agencies reported that their ability to reduce
improper payments through recovery auditing techniques was barred by
statute. For example, USDA reported that Section 281 of the Department of
Agriculture Reorganization Act of 1994 precluded the use of recovery
auditing techniques because Section 281 provides that 90 days after the
decision of a state, county, or an area committee is final, no action may
be taken to recover the amounts found to have been disbursed as a result
of the decision in error unless the participant had reason to believe that
the decision was erroneous. In another example, Labor stated that Section
3304(a)(4) of the FUTA, which states that moneys in the fund can only be
used for benefit payments, precludes using the funding for recovery
auditing techniques.
Other. Five agencies reported statutory or regulatory barriers that we
categorized as other. For example, VA reported that under current
legislation, adjustments to payments are effective the first of the month
following the month of the change in income or net worth. Additionally,
benefits are paid on a prospective basis based on the beneficiary's
estimate of anticipated income. Thus, VA stated that an award adjustment
because of changes in income is always after the fact and creates an
overpayment. Despite this, VA believes this legislation should not be
changed since the program meets the requirement to provide income support
for current needs. As a second example, OPM stated that if an applicant
receives FERS and Social Security disability benefits, then the FERS
benefits are statutorily required to be reduced.^36 However, OPM cannot
reduce the applicant's FERS benefits until it knows the amount of Social
Security disability benefits that the applicant receives from SSA.
Typically, the applicant receives FERS benefits first and does not start
receiving SSA disability benefits until several months later. As a result,
OPM makes FERS benefit overpayments to the applicant knowing that it will
have to subsequently reduce the FERS benefits to the proper level when SSA
starts paying the disability benefits.
During our analysis, we also identified two additional agencies that
reported barriers in their improper payment information, but these
barriers did not result from existing statutory requirements. For example,
USDA reported that its program administration of the Food and Nutrition
Service is highly decentralized and can involve a myriad of governmental
and nongovernmental organizations. This decentralization is a hindrance to
the development of robust accountability processes. As another example,
Treasury reported several barriers to reducing overpayments in the EITC
program, including high program turnover and unscrupulous tax preparers.
For the nine agencies that reported statutory or regulatory barriers, five
agencies discussed in their PARs actions that they were taking to mitigate
the effects of the barriers identified. For example, USDA reported that
its Rural Housing Service agency is seeking to overcome a data-matching
barrier through legislation that would permit access to HHS's National
Directory of New Hires (NDNH) data to allow management agents to use the
data to collect and verify the tenant's income documentation. As a second
example, Labor reported that Section 3304(a)(4) of FUTA and Section
303(a)(4) of the Social Security Act require that moneys deposited into
the UI program must be used for benefits and are precluded from being used
for prevention, detection, and recovery of improper payments. Labor has
proposed legislation with its fiscal year 2006 budget that would relax the
"withdrawal standard" barrier to provide additional funding for recovery
initiatives.
We also noted that according to OMB's annual improper payments report that
six agencies requested legislative intervention in their fiscal year 2007
budget submissions to facilitate better measurement, detection, and
elimination of improper payments. For five of these agencies, the
legislative intervention addressed some barrier reported in their PARs.
For example, Labor proposed a legislative change related to overpayment
recoveries in its UI program. According to OMB, the legislative changes
provide financial incentives to states to more aggressively pursue benefit
overpayments, enlist debt collection agencies, impose penalties for fraud,
charge employers when their actions lead to overpayments, and collect
delinquent overpayments through garnishment of tax refunds. OMB also noted
that these proposed legislative changes would further improve the accuracy
of the hiring data in the NDNH by including the actual start work date,
thereby improving the detection of potential improper payments. OMB
reported that this proposal is projected to save $1.2 billion over 10
years.
Improper Payments Estimate Is Understated
The total improper payment estimate of about $38 billion represents almost
a $7 billion, or 16 percent, decrease from the $45 billion of improper
payments reported by agencies in fiscal year 2004.^37 On the surface, this
would suggest that significant progress has been made. However, this is
not the case because the reported $7 billion reduction in the total
improper payments estimate may not reflect improved accountability or
strengthened internal controls. As we previously reported in March and
April 2006,^38 this estimate reduction is primarily attributable to a
decrease in HHS's Medicare program improper payment estimate. This
decrease mainly resulted from a change to Medicare's estimating
methodology rather than from improved payment controls. Regardless of
whether prior year estimates were reliable, the reported reduction is
unlikely to represent a measurable improvement in internal control and
accountability given that HHS's OIG continued to cite the integrity of
Medicare payments as a top management challenge in HHS's fiscal year 2005
PAR. As discussed previously, other agency auditors have reported major
management challenges that highlight internal control weaknesses that
continue to plague programs susceptible to significant improper payments.
In some cases, agencies reported that their programs were not susceptible
to significant improper payments, despite the fact that the auditor's
reports in the same PARs identified major management challenges, including
significant internal control weaknesses, for some of the agencies'
programs.
Also, the total improper payment estimate does not include certain factors
that if resolved, would materially increase reports of estimated improper
payments. For example, 10 risk-susceptible programs with outlays totaling
over $234 billion for fiscal year 2005 did not estimate improper payments,
even though OMB required most of these programs to report selected
improper payment information several years before IPIA became effective.
In addition, we found six agencies that did not use statistical sampling
for 9 programs to estimate improper payment amounts. Because
nonstatistical sampling methods were used, such as results from Single
Audit Act^39 reports and internal performance reviews, the $389 million
reported represents only the known improper payment amounts reported by
agencies. Given that total outlays for these 9 programs exceeded $58.2
billion in fiscal year 2005, the improper payment estimate for these
programs would likely have been much greater had statistically valid
methods been used. We also found instances where agencies estimated
improper payments for only one component of the risk-susceptible program.
Using these types of methodologies results in estimates that may be
significantly understated.
Some Agencies Continue to Lack Improper Payment Estimates for Susceptible
Programs
The fiscal year 2005 governmentwide improper payments estimate of $38
billion did not include any amounts for 10 programs, with fiscal year 2005
outlays totaling over $234 billion. OMB had specifically required 7 of
these programs to report selected improper payment information for several
years before IPIA reporting requirements became effective. After passage
of IPIA, OMB's implementing guidance required that these programs continue
to report improper payment information under IPIA. The remaining 3
risk-susceptible programs, with no previous reporting requirement,
provided target dates for estimating improper payments. As shown in table
5, the fiscal year 2005 improper payment estimate does not include one of
the largest federal programs determined to be susceptible to risk, HHS's
Medicaid program, with outlays exceeding $181 billion annually.
Table 5: Susceptible Programs That Did Not Report Improper Payment
Estimates and Target Dates for Estimates
Dollars in billions
Agency/program Fiscal year Target date Previously
2005 for improper required to
payment estimate
outlays estimates
Department of Agriculture--School $8.2 2007 X
Programs
Federal Communications 1.7 2007
Commission--Universal Service
Fund's Schools and Libraries
Federal Communications 3.8 2007
Commission--High Cost Support
Program
Department of Health and Human 5.1 2008 X
Services--State Children's
Insurance Program
Department of Agriculture--Women, 4.8 2008 X
Infants, and Children
Department of Health and Human 181.7 2008 X
Services--Medicaid
Department of Agriculture--Child 2.1 2010
and Adult Care Food Program
Department of Health and Human 4.9 Did not report X
Services--Child Care and target date
Development Fund
Department of Health and Human 17.4 Did not report X
Services--Temporary Assistance for target date
Needy Families
Department of Housing and Urban 5.0 Did not report X
Development--Community Development target date
Block Grant
Total $234.7 7
Sources: OMB and cited agencies' fiscal year 2005 PARs.
Of these 10 programs, 7 reported that they would be able to estimate and
report on improper payments sometime within the next 3 fiscal years, but
could not do so for fiscal year 2005. For the remaining 3 programs, the
agencies did not estimate improper payment amounts in their fiscal year
2005 PARs and were silent about whether they would report estimates in the
future. As a result, improper payments for these programs susceptible to
risk will not be known for at least several years, even though 7 of these
programs had been required to report this information since 2002, with
their fiscal year 2003 budget submissions under previous OMB Circular No.
A-11 requirements.
OMB reported that some of the agencies were unable to determine the rate
or amount of improper payments because of measurement challenges or time
and resource constraints, which OMB expects to be resolved in future
reporting years. For example, since fiscal year 2002, HHS has conducted
pilots at the state level to further its progress toward reporting a
national improper payments estimate for its Medicaid program. Each state
is responsible for designing and overseeing its own Medicaid program
within the federal government structure. This type of program structure
presents challenges for implementing a methodology to estimate improper
payments as HHS must work with states to obtain applicable documentation
used in the calculation. An additional challenge HHS and other agencies
with state-administered programs face is the ability to hold states
accountable for meeting targets to reduce and recover improper payments in
the absence of specific statutory authority.
Of the three programs that did not report a target date for estimating,
the Department of Housing and Urban Development's (HUD) Community
Development Block Grant (CDBG) program was the only one that did not
report any actions under way to begin estimating improper payments. In its
fiscal year 2005 PAR, HUD reported that based on completed testing of
fiscal year 2003 payments, this program is below OMB's threshold
criteria--exceeding $10 million and 2.5 percent of program payments--for
significant improper payments and, therefore, was removed from HUD's
at-risk inventory. HUD stated that this program was not subject to
retesting unless there was a significant change in the nature of activity
or internal control structure.
We have several problems with HUD's position. The CDBG program was subject
to the previous OMB Circular No. A-11 requirements and thus was required
by OMB's guidance to continue to report improper payment information under
IPIA, regardless of the agency-determined risk level, which based on other
known information may not reflect actual risk. During a June 2006
hearing^40 on the CDBG program, HUD's OIG reported on numerous instances
of fraudulent, improper, and abusive use of program funds identified over
a 2- 1/2-year period based on 35 audits. The HUD OIG reported that its
office has recovered over $120 million in program funds, identified over
$100 million in questioned costs, indicted 159 individuals, initiated
administrative actions against 143 individuals, and took 5 civil actions
and 39 personnel actions. As evidenced by the HUD OIG reviews, the CDBG
program may be at risk of significant improper payments.
Certain Methodologies Used to Estimate Improper Payments Do Not Result in
Accurate Estimates
The total executive branch-wide improper payment estimate may also be
understated because of nonstatistical sampling methodologies agencies used
to estimate improper payments in its programs. OMB's implementing guidance
requires that agencies use a statistical sample to estimate improper
payments. With statistical sampling, sample results can be generalized to
the entire population from which the sample was taken. From our review, we
found six agencies that did not use statistical sampling to estimate
improper payments totaling approximately $389 million for nine programs
with outlays exceeding $58 billion.
For example, Labor analyzed fiscal year 2003 single audits to identify
questioned costs for its Workforce Investment Act^41 program, which, in
turn, were used as a proxy for reporting its improper payment estimate.
Specifically, the improper payment rate was determined by calculating the
projected questioned costs and dividing this total amount by the
corresponding outlays. We do not believe this is a reasonable proxy for
improper payment levels because single audits, by themselves, may lack the
level of detail necessary for achieving IPIA compliance. Specifically,
single audits generally focus on the largest dollars in an auditee's
portfolio. Thus, all programs identified as susceptible to improper
payments at the federal level may not receive extensive coverage under a
single audit. Consequently, both the depth and level of detail of single
audit results are, generally, insufficient to identify improper payments,
estimate improper payments, or both.
We also found instances where agencies estimated improper payments for
only one component of the risk-susceptible program. For example, HHS's
Medicare program is the largest program constituting the total improper
payment estimate, with an estimate of $12.1 billion for fiscal year 2005.
However, this estimate represents payment errors only for its
fee-for-service program component. HHS has not yet begun to estimate
improper payments for its managed care component, with outlays totaling
about $52 billion, or 15 percent of Medicare program outlays. In its
fiscal year 2005 financial report, HHS's Centers for Medicare and Medicaid
Services (CMS) identified bringing the Medicare managed care component
into compliance with IPIA as a key challenge in the coming years. In
addition, CMS's external auditors identified Medicare's managed care
benefits payment cycle as a material weakness in its report on internal
controls. Specifically, the auditor found that existing CMS policies and
procedures are not sufficient to adequately reduce the risk of material
benefit payment errors from occurring or not being detected and corrected
in a timely manner.
In addition, the Department of Transportation (DOT) reported zero improper
payments based on its testing of four state-administered grant programs
with outlays totaling $42.1 billion in fiscal year 2005. (See app. II.)
DOT stated that none of these programs exceeded OMB's reporting criteria.
However, DOT's test procedures only applied to payments made by DOT to
grantee entities. Test procedures did not address subsequent "flow down"
payments made at the grantee level, where the risk of improper payments is
at its greatest. As such, the DOT OIG reported in the agency's fiscal year
2005 PAR that detecting improper payments and stopping wasteful spending
by grantees is a top management challenge for the agency. DOT stated that
it had actions under way to implement an improper payment methodology for
its grant programs and plans to implement nationwide testing beginning in
fiscal year 2007.
Reduction in Improper Payment Estimate May Not Be a Result of Improved
Accountability and Enhanced Internal Controls
The reported $7 billion decrease in the governmentwide estimate is
primarily attributable to a decrease in Medicare's estimate.^42 However,
we found that this decrease was mainly a result of an improvement made to
Medicare's estimating methodology rather than to improved payment
controls. When providers do not submit documentation to justify payments
received, these payments were counted by HHS as erroneous for purposes of
calculating an annual improper payment estimate for the Medicare program.
However, the decreased error rates achieved this year because of increased
efforts to obtain provider documentation are not directly comparable to
those reported in prior years before the new procedures were implemented.
Based on our review, the Medicare improper payment estimate decrease was
principally caused by increased efforts to educate health care providers
about its Medicare error rate testing program and the importance of
responding to its requests for medical records to perform detailed
statistical reviews of Medicare payments. HHS reported that these more
intensive efforts had dramatically reduced the number of "no
documentation" errors in its medical reviews. HHS reported marked
reductions in its error rate attributable to fewer cases of (1)
nonresponses to requests for medical records and (2) insufficient
documentation submitted by the provider. We noted that these improvements
partially resulted from HHS extending the time that providers have for
responding to documentation requests from 55 days to 90 days.
These changes primarily affected HHS's processes related to its efforts to
perform detailed statistical reviews for the purposes of calculating an
annual improper payment estimate for the Medicare program. While this may
represent a refinement in the program's improper payment estimate, the
reported reduction may not reflect improved accountability over program
dollars. Therefore, the federal government's progress in reducing improper
payments may be exaggerated because the reported improper payments
decrease in the Medicare program accounts for the bulk of the overall
reduction in the governmentwide improper payments estimate.
Our work did not include an overall assessment of HHS's estimating
methodology. However, we noted that the changes made for the fiscal year
2005 estimate were not related to improvements in prepayment validation
processes, and we did not find any evidence that HHS had significantly
enhanced its preventive controls in the Medicare payment process to
prevent future improper payments. Further, we also found that HHS's OIG
continues to cite the integrity of Medicare payments as a top management
challenge. In addition, health care fraud schemes continue to hamper HHS's
efforts to improve accountability. For example, in May 2006, DOJ
reported^43 that a businessman pleaded guilty to conspiracy to defraud
Medicare of $40 million in fraudulent billings over a 16-month period. The
fraud scheme included billing Medicare for motorized wheelchairs that were
either not required by the Medicare beneficiary, not delivered, or both.
Other agency auditors have also reported major management challenges
related to agencies' internal control weaknesses that continue to plague
programs susceptible to significant improper payments. For example, SBA's
auditors reported that for the 7(a) Business Loan program, SBA did not
consistently identify instances of noncompliance with its own
requirements, resulting in improper payments. In some cases, agencies
reported that they had determined that programs were not susceptible to
significant improper payments despite the fact that the auditor's reports
in the same PARs identified management challenges, or material weaknesses
within the programs. For example, the Department of the Interior's OIG
reported that the agency's grant programs lacked proper management,
creating accountability and stewardship deficiencies, as well problems
related to data reliability, training, and ensuring that funds were spent
appropriately. Likewise, the General Services Administration's (GSA) OIG
reported several issues related to the agency's contract management
practices, such as unauthorized personnel issuing task orders, not
inspecting completed work projects prior to payment, not ensuring services
were rendered prior to payment, and paying invoices that often lacked
supporting documentation.
Table 6 provides four other examples of agencies' major management
challenges, as reported in the fiscal year 2005 PARs, in specific agency
programs or activities. None of the programs listed in table 6 have been
identified by agencies as susceptible to significant improper payments,
and thus are not included in the total improper payment estimate. These
examples raise further questions about the adequacy of agencies' risk
assessments to identify susceptible programs, and whether agencies
considered major management challenges identified by the OIG as part of
their risk assessment process.
Table 6: Examples of Programs or Activities with Major Management
Challenges but Not Identified as Susceptible to Significant Improper
Payments
Department or agency Program or Description of major management
activity challenge identified by the OIG
Department of the Workers' oInefficient and ineffective
Interior Compensation management led to increases in
annual costs. At best, program is
managed inconsistently, and at
worst, is subject to abuse by
managers seeking an easy way to
deal with problem employees.
oProgram is understaffed,
employees lack training, and there
is no uniform process for ensuring
that costs are accurate. Also,
there is an overwhelming lack of
awareness that workers'
compensation fraud exists.
General Services Contract oGSA disbursed almost $19 billion
Administration Management in contract payments for fiscal
year 2005. Certain trends
identified in recent years that
cause concern related to contract
management include
olimited project oversight and, at
times, completed work projects not
inspected prior to payment;
opayments made for services not
provided; and
oinvoices approved for payment,
but lacked supporting
documentation.
Department of Justice Grant Programs oLong-standing challenge to
effectively manage grant programs,
which totaled more than $3.5
billion in fiscal year 2005.
Grantees have received unclear,
untimely, and ambiguous guidance
to carry out program objectives.
oThe myriad of policy guidance is
often confusing and contradictory,
increasing the risk that grantees
will be less likely to satisfy
their fiduciary responsibility to
safeguard grant funds and ensure
funds are used solely for the
purposes for which they were
awarded.
Social Security School Attendance oAgency disbursed about $70
Administration million in incorrect payments to
32,839 students. The OIG
recommended, and SSA agreed, to
ensure that the overpayments are
established and that subsequent
collection activities are
initiated for those payments.
Source: GAO analysis of agencies' fiscal year 2005 PARs.
IPIA May Need to Be Amended to Ensure Agencies Fully Meet Its Objectives
IPIA includes broad criteria that agencies should use to annually assess
what programs and activities are at risk of having improper payments.
However, OMB has prescribed more specific criteria in its implementing
guidance that in practice have the effect of limiting the disclosure and
transparency of governmentwide improper payments. This limitation appears
contrary to the objective of IPIA, which, among other things, was created
to facilitate the Congress's understanding of the nature and extent of the
governmentwide improper payment problem and hold agencies accountable for
improved management over federal funds. An amendment to the act could
clarify the criteria that agencies should use to identify which programs
and activities are susceptible to significant improper payments to ensure
agencies meet the intent of the act. In addition, we note that the
definition of improper payments under IPIA excludes certain types of
payments that are required to be made under constitutional, statutory, or
judicial requirements, even though those payments are subsequently
determined to be incorrect. This includes payments that an agency is
required to make under statute or court order that later are determined to
be overpayments. Because agencies are not required to track, monitor, and
report on a governmentwide basis these types of overpayments, the
magnitude of this issue is unknown.
Identification Threshold Limits Agency Reporting on Susceptible Programs
For purposes of assessing what programs and activities are at risk of
improper payments, 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 define susceptibility.
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.
As stated earlier in this report, the information developed during a risk
assessment forms the foundation 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.
Thus, these assessment criteria affect how agencies identify, estimate,
report on, and reduce those programs susceptible to significant improper
payments. For example, of the 23 agencies that reported assessing all
programs and activities, we found that 6 agencies limited their risk
assessment reviews to only those programs that would likely meet OMB's
definition of programs susceptible to significant improper payments. Two
of these 6 agencies reported that they did not perform a comprehensive
risk assessment for those programs with outlays of less than $10 million
because the programs would not have exceeded both of OMB's threshold
criteria. The remaining 4 agencies did not perform a comprehensive risk
assessment of programs with outlays ranging from $40 million to $200
million, generally citing the threshold criteria as the reason for their
exclusion.
We also noted instances where agencies with large program outlays reported
that their programs or activities were not susceptible to significant
improper payments because the improper payment estimates only exceeded one
of OMB's criteria for reporting improper payment information, another
example of how OMB's criteria could materially affect the extent to which
agencies report improper payment information in their PARs. From our
review of the 57 agency programs and activities that were included in the
total $38 billion improper payment estimate, we identified 20 programs or
activities that reported improper payment estimates exceeding $10 million,
but not 2.5 percent of program outlays. We also identified 1 program that
reported an error rate exceeding 2.5 percent of program outlays, but not
$10 million. See table 7 for additional details.
Table 7: Agency Improper Payment Estimates Included in the Governmentwide
Total That Met One of the Two OMB Reporting Criteria
Department or Program or activity Program Fiscal Fiscal year Previous OMB
agency outlays year 2005 2005 Circular No.
(in improper improper A-11
millions) payment payment reporting
estimate error rate requirements
(in (percentage)
millions)
1 Department of Marketing $6,400.0 $45 0.70 X
Agriculture Assistance Loan
Program (previously
Commodity Loan
Programs)
2 Federal Crop 3,170.0 28 0.89
Insurance
Corporation
3 Farm Security and 1,027.0 16 1.55
Rural Investment
4 Department of Military Retirement 35,700.0 49.3 0.14 X
Defense Fund
5 Military Health 7,500.0 150 2.00 X
Benefits
6 Military Pay 69,100.0 432 0.63
7 Department of Student Financial 10,085.0 16 0.16
Education Assistance--Federal
Family Education
Loan
8 Title I 12,520.0 149 1.19 X
9 Department of Payment programs 24,114.0 14.5 0.06
Energy
10 Department of Head Start 6,865.0 110 1.60 X
Health and
Human Services
11 Office of Retirement Program 54,800.0 152.2 0.28 X
Personnel (Civil Service
Management Retirement System
and Federal
Employees
Retirement System)
12 Federal Employees 29,400.0 196.5 0.67 X
Health Benefits
Program
13 Railroad Retirement and 9,185.4 150.6 1.64 X
Retirement Survivors Benefits
Board
14 Small Business Small Business 1,568.2 10.5 0.67 X
Administration Investment
Companies
15 Social Old Age and 493,300.0 3,681.0 0.74 X
Security Survivors'
Administration Insurance
16 Disability X
Insurance^a
17 Department of International 41.0 1.9 4.63
State Information
Program-U.S.
Speaker and
Specialist Program
18 Tennessee Payment programs 7,080.0 36.3 0.05
Valley
Authority
19 Department of Compensation 28,960.0 322.9 1.12 X
Veterans
Affairs
20 Dependency and X
Indemnity
Compensation^a
21 Education programs 2,661.0 64 2.40
Total $803,476.6 $5,625.7 13
Source: GAO analysis of fiscal year 2005 PARs and annual reports.
^aAgency combined with the above program.
As table 7 shows, we identified, in total, 21 programs or activities with
improper payment estimates exceeding $5.6 billion that meet only one of
OMB's reporting criteria. Most of these program estimates greatly exceeded
$10 million and, without certain stipulations, could have avoided
reporting improper payment information under OMB's reporting criteria.
However, OMB has required that 13 of these 21 programs estimate improper
payments regardless of dollar amount or error rate, because they had
previous reporting requirements under OMB Circular No. A-11.^44
Nonetheless, if the Circular No. A-11 requirements did not apply or
agencies decided not to voluntarily report on their improper payment
estimates that were under OMB's reporting threshold, OMB's definition of
significant improper payments could potentially mask the full scope of
improper payments.
In addition to our analytical reviews above, we also found specific
instances where OMB's definition of significant improper payments limits
agencies' reporting. Although we do not know the extent of improper
payments that are not reported, a limited number of agencies voluntarily
provided information in their PARs that allowed us to determine the amount
of improper payments for certain programs and activities that were
excluded from the total improper payments estimate of $38 billion for
fiscal year 2005. For example, Education identified three programs with
estimated improper payments exceeding $10 million for each program, which
totaled about $155 million in improper payments. In light of OMB's
criteria, because these estimates did not exceed 2.5 percent of program
outlays, they were not included in the agency's total improper payment
estimate. In another example, the Department of Defense (DOD) OIG
reported^45 it had identified about $23 million in improper payments
related to the procurement of fuel at the Defense Energy Support Center
during fiscal year 2005. DOD did not report this information in its PAR
since the improper fuel payments did not exceed 2.5 percent of program
payments.
As these examples illustrate, OMB's current criteria for identifying
risk-susceptible programs limit the disclosure of valuable information
that the Congress, the public, and others with oversight and monitoring
interests need to hold agencies accountable for reporting and reducing
improper payments. Thus, amending existing IPIA provisions to define
risk-susceptible programs and activities, such as the use of a specific
dollar threshold, would allow for more complete disclosure and
transparency of govermentwide improper payment reporting and, in turn,
would require OMB to revise its implementing guidance to reflect such
amendments as well as align existing guidance with the intent of the act.
IPIA Definition of Improper Payments Excludes Certain Payments from
Reporting
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. This 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.
On August 28, 2003, OMB advised SSA on improper payment reporting. Under
this advice, SSA was allowed to exclude from its estimate of improper
payments those payments that it made following constitutional, statutory,
or judicial requirements, even though those payments were subsequently
determined to be incorrect. These payments were deemed by OMB to be
"unavoidable" improper payments,^46 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.
As we previously reported,^47 although the definition of improper payments
does not use the terms avoidable^48 or unavoidable, we agree with OMB that
a payment that was made because of a legal requirement to make the payment
subject to subsequent 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.^49
In its Supplemental Security Income (SSI) program, SSA disburses
disability payments to recipients at the beginning of the month based on
the income and asset levels recipients expect to maintain during the
month.^50 If SSA initially determines that an overpayment occurred, court
decisions^51 and language in the Social Security Act allow individuals to
continue receiving the same amount of SSI benefits pending the results of
a hearing to determine eligibility. If the initial determination is
affirmed, the payments made during the hearing and appeals processes are
considered overpayments, which SSA may recover using a variety of
means.^52
In this example, SSA, because of the statutory requirement, must make the
payment. 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 whether subsequently deemed
to be correct or incorrect, have not been made to an ineligible recipient
at the time they were made. Accordingly, the facts would not support
inclusion of these overpayments as improper payments as defined under
IPIA. However, if as a result of the due process procedures, it is
subsequently determined that the recipient is no longer eligible for
benefits and SSA makes a payment subsequent to these procedures, that
amount would be an improper payment.
Yet, we would not go so far as to conclude that any payment that is
unavoidable 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 these types of payments as
part of their debt collection efforts and have the ability to readily
report this type of information upon request. OMB currently does not
require SSA to report in its PAR details relating to these types of
overpayments, nor does OMB require governmentwide reporting of these types
of overpayments, thus the magnitude of this issue is unknown. Having
agencies annually report on these types of overpayments would provide
Congress, agency management, and other decision maker's valuable
information with which to determine the extent of these types of
overpayments and to make policy decisions, if needed, to appropriately
address this issue.
Agencies' Reporting of Recovery Auditing Information Questionable
We noted discrepancies in selected agencies' reporting of recovery audit
information and limited reviews over contract payments. As a result,
reporting for recovery auditing information may not represent an accurate
view of the extent of agencies' efforts. From our review of agencies' PARs
and discussions with OMB, we determined that 21 agencies reported entering
into contracts with a total value in excess of $500 million and, thus were
subject to recovery auditing requirements under section 831 of the
National Defense Authorization Act for Fiscal Year 2002. Generally, these
agencies reported on their recovery auditing efforts, such as the amount
identified for recovery and the amount recovered. However, we noted a few
instances where the agency amount of contract costs identified for
recovery was considerably lower than the corresponding OIG amount
identified from current year audit reviews. These discrepancies raise
questions as to whether the agency amount identified for recovery should
have been much higher, thereby significantly decreasing the reported
agency-specific and overall governmentwide high rate of recovery. We also
noted that 5 of the 21 agencies did not review all of their agency
components as part of their recovery audit efforts, and 2 agencies
reported that recovery auditing was not cost beneficial.
Section 831 of the National Defense Authorization Act provides an impetus
for applicable agencies to systematically identify and recover contract
overpayments. The law authorizes federal agencies to retain recovered
funds to cover in-house administrative costs as well as to pay
contractors, such as collection agencies. Any residual recoveries, net of
these program costs, are to be credited back to the original appropriation
from which the improper payment was made, subject to restrictions as
described in
legislation. As we previously testified,^53 with the passage of this law,
the Congress has provided agencies a much-needed incentive for identifying
and recovering their improper payments that slip through agency prepayment
controls.
Recovery auditing is a method that agencies can use to recoup detected
improper payments. Recovery auditing is a detective control to help
determine whether contractor costs were proper. Specifically, it focuses
on the identification of erroneous invoices, discounts offered but not
received, improper late penalty payments, incorrect shipping costs, and
multiple payments for single invoices. Recovery auditing can be conducted
in-house or contracted out to recovery audit firms. The techniques used in
recovery auditing offer the opportunity for identifying weaknesses in
agency internal controls, which can be modified or upgraded to be more
effective in preventing improper payments before they occur for subsequent
contract outlays.
Nonetheless, effective internal control calls for a sound, ongoing invoice
review and approval process as the first line of defense in preventing
unallowable contract costs. Given the large volume and complexity of
federal payments and historically low recovery rates for certain programs,
it is much more efficient to pay bills and provide benefits properly in
the first place. Aside from minimizing overpayments, preventing improper
payments increases public confidence in the administration of benefit
programs and avoids the difficulties associated with the "pay and chase"
aspects of recovering improper payments. Without strong preventive
controls, agencies' internal control activities over payments to
contractors will not be effective in reducing the risk of improper
payments.
For fiscal year 2005, OMB expanded the type of recovery auditing
information that agencies are to report in their annual PARs. Prior to
fiscal year 2005, agencies were only required to report on the amount of
recoveries expected, the actions taken to recover them, and the business
process changes and internal controls instituted or strengthened to
prevent further occurrences. In addition, OMB was not reporting on a
governmentwide basis agencies' recovery audit activities in its annual
report on agencies' efforts to improve the accuracy and integrity of
federal payments. In fiscal year 2005, OMB required applicable agencies to
discuss any contract types excluded from review and justification for
doing so. In addition, agencies were required to report, in a standard
table format, various amounts related to contracts subject to review and
actually reviewed, contract amounts identified for recovery and actually
recovered, and prior year amounts.
As shown in table 8, 21 agencies reported over $340 billion as amounts
subject to review for fiscal year 2005, while the contract amounts
reviewed totaled over $287 billion. In addition, the 21 agencies reported
identifying about $557 million in contracts for recovery, which
represented less than two-tenths of a percentage of the $287 billion
amount reviewed. Of the $557 million identified, agencies reported
recovering $467 million in improper payments, an 84 percent recovery rate.
However, we found two instances where the agency amount of contract costs
identified for recovery was considerably lower than the corresponding OIG
amount identified from current year audit reviews. These discrepancies
raise questions as to whether the agency amount identified for recovery
should have been much higher, thereby significantly decreasing the
agency-specific and overall high rate of recovery.
Table 8: Improper Payment Amounts Recovered in Fiscal Year 2005
Department or Agency reported Agency reported Agency Agency
agency amount subject actual amount reported reported
to review for reviewed and amount amount
fiscal year 2005 reported in identified recovered in
reporting fiscal year 2005 for recovery fiscal year
in fiscal 2005
year 2005
1 Agency for $13,000,000,000 $13,000,000,000 $5,900,000 $5,782,000
International
Development
2 Department of 4,965,000,000 2,428,000,000 333,000 189,000
Agriculture
3 Department of Did not report Did not report 96,354 84,551
Commerce^a,b
4 Department of 222,800,000,000 222,800,000,000 473,000,000 418,500,000
Defense
5 Department of Did not report Did not report 274,367^c 112,506^c
Education^b
6 Department of 11,387,000,000 11,387,000,000 10,600,000 9,500,000
Energy
7 Environmental 6,460,000,000 175,600,000 130,000 130,000
Protection
Agency
8 General Services 1,625,000,000 1,625,000,000 26,638,654 8,317,187
Administration
9 Department of 12,600,000,000 11,100,000,000 2,100,000^d 14,430
Health and Human
Services
10 Department of 3,232,300,000 3,232,300,000 2,191,000 1,207,000
Homeland
Security
11 Department of 2,270,000,000 206,600,000 0^f 0^f
Housing and
Urban
Development^b,e
12 Department of 4,790,000,000 4,790,000,000 1,548,620 195,479
the Interior^b
13 Department of 6,667,804,071 4,606,639,213 1,044,320 765,086
Justice
14 Department of Did not report Did not report Did not Did not
Labor^b,e report report
15 National Did not report 82,542,704 617,442 617,442
Aeronautics and
Space
Administration^b
16 Social Security 1,160,000,000 61,000,000 317,000 50,000
Administration
17 Department of 30,600,000,000 Did not report 5,350,000 5,190,000
State^g
18 Tennessee Valley 5,557,600,558 38,491,498 909,573 443,763
Authority
19 Department of 3,064,875,000 2,587,772,000 2,663,984 2,663,984
Transportation
20 Department of 4,941,295,411 3,851,985,924 428,977 364,680
the Treasury
21 Department of 5,368,316,378 5,368,316,378 23,001,137 12,957,264
Veterans Affairs
Total $340,489,191,418 $287,341,247,717 $557,144,428 $467,084,372
Sources: OMB and cited agencies' fiscal year 2005 PARs.
^aDepartment of Commerce (Commerce) reported that the results of its
recovery audit revealed no significant improper payments or internal
control deficiencies. However, according to OMB, subsequent to its PAR
issuance, Commerce reported that based on its final recovery auditing
report, the amount identified for recovery totaled $96,354 and the amount
actually recovered totaled $84,551 for fiscal year 2005.
^bCommerce, Education, HUD, Interior, Labor, and NASA did not report on
the required reporting elements nor did they follow the required format
included in OMB's guidance.
^cSubsequent to its PAR issuance, Education reported to OMB that as of
December 14, 2005, $274,387 had been identified for recovery, and the
amount collected totaled $112,506 based on its review of payments made
over a 5-year period, with a collection threshold of $50.
^dHHS reported that of the $2.1 million identified as potential improper
payments, $1.3 million was determined to be related to payments that were
either voided, subsequently credited, or both.
^eHUD and Labor reported that recovery auditing efforts were not cost
beneficial.
^fFor fiscal year 2005, HUD reported reviewing about $207 million in
contract payments, but identified no improper payments for recovery.
^gFor the amount reviewed column, the Department of State reported the
number of contract payments reviewed instead of the contract dollar amount
reviewed.
For example, for fiscal year 2005, NASA reported in its PAR that it had
identified and recovered $617,442 in contract payments, a 100 percent
recovery rate. Yet, the NASA OIG reported^54 it had identified over $515
million in questioned contract costs during fiscal year 2005. Of this
amount, NASA management decided that $51 million in contract costs should
be pursued for recovery. When comparing the $51 million in questioned
contract costs identified for recovery to the $617,442 NASA actually
recovered, the recovery rate decreases from the reported 100 percent
recovery rate to a 1.2 percent rate.^55 In another example, DOD reported
in its PAR that it had identified for recovery $473 million and recovered
about $419 million in contract payments, an 89 percent recovery rate.
However, the DOD OIG reported^56 it had identified over $2 billion in
questioned contract costs as of September 30, 2005. When comparing the $2
billion in questioned contract costs^57 to the $419 million DOD actually
recovered, the recovery rate significantly decreases from a reported 89
percent recovery rate to 21 percent.
These two discrepancies alone significantly decrease OMB's reported
overall recovery rate of 84 percent to a 22 percent recovery rate. Other
factors would also suggest the recovery rate is indeed much lower. We
noted other instances where OIG-reported questioned costs exceeded agency
contract amounts identified for recovery. Because these costs were not
specifically identified as contractor costs versus other payment types, we
were unable to determine how much of the OIG-identified questioned costs
related to contract costs.
In addition, another factor that may call into question the reported high
recovery rate is that 5 of the 21 agencies did not review all of their
agency components as part of their recovery audit efforts, and 2
agencies^58 reported that recovery auditing was not cost beneficial. For
example, HUD determined that based on its review of $206.6 million in
contract payments, none were found to be improper. Thus, HUD determined
that pursuit of an ongoing recovery auditing program was not cost
beneficial or necessary. Because section 831 of the National Defense
Authorization Act requires agencies to carry out a cost-effective program
for identifying errors made in paying contractors and for recovering
amounts erroneously paid to contractors, agencies have determined that
they may opt out of conducting a recovery audit if it is not deemed to be
cost beneficial. However, neither of the two agencies that determined it
was not cost beneficial to conduct a recovery audit provided support in
their fiscal year 2005 PARs for this determination.
Conclusions
Improper payments are a serious problem. Agencies are working on this
issue at different paces, and OMB has provided important leadership.
Because the extent of the problem remains significantly understated, the
level of effort necessary to address the full extent of improper payments
is as yet unknown. We recognize that measuring improper payments and
designing and implementing actions to reduce them are not simple tasks and
will not be easily accomplished. The ultimate success of the executive
branch's effort to reduce improper payments depends, in part, on each
agency's continuing diligence and commitment to meeting the requirements
of IPIA and the related OMB guidance. Full and reasonable disclosure of
the extent of the problem could be enhanced by modifying the act's
underlying criteria used to identify which programs and activities are
susceptible to significant improper payments. OMB's implementing guidance
can also be strengthened in several key areas. In this regard, in addition
to the recommendations in this report, we reiterate that OMB require those
agencies that did not address the IPIA requirements or did not perform
risk assessments of all of their programs and activities to establish time
frames and identify resources needed to perform risk assessments and
satisfy reporting requirements. We also reiterate that OMB develop a plan
to address the resource needs of those agencies that did not perform risk
assessments or satisfy reporting requirements. With the ongoing imbalance
between revenues and outlays across the federal government, and the
Congress's and the American public's increasing demands for accountability
over taxpayer funds, identifying, reducing, and recovering improper
payments become even more critical. Fulfilling the requirements of IPIA
will require sustained attention to implementation on the part of OMB and
the agencies, as well as continued congressional oversight to monitor
whether desired results are being achieved.
Matter for Congressional Consideration
To help ensure the complete disclosure and transparency of governmentwide
improper payments, the Congress should consider amending existing IPIA
provisions to define specific criteria, such as a dollar threshold,
agencies should use to identify which programs and activities are
susceptible to significant improper payments.
Recommendations for Executive Action
We are making four recommendations to OMB to help further the progress
toward meeting the goals of IPIA and ensuring the integrity of payments.
Specifically, we recommend that the Director, Office of Management and
Budget,
oexpand OMB's IPIA implementing guidance to describe in greater detail
ofactors that agencies should consider when conducting their annual risk
assessments, such as program complexity, operational changes, findings
from investigative reports, and financial statement and performance audit
reports, and
ofactors agencies should use when reporting improper payments in their
PARs, such as (1) provide a baseline of what agencies should include when
reporting on causes, corrective actions, and manager accountability and
(2) require that applicable agencies cite the specific law or regulation
in their PARs when describing statutory barriers that may limit the
agencies' corrective actions for reducing improper payments;
oenforce existing guidance requiring agencies to use a statistically valid
sampling methodology to calculate improper payment estimates;
ogather from agencies the dollar amount of payments that agencies make
under statute or judicial determinations that later are determined to be
overpayments in order for OMB to assess and determine the magnitude of the
issue and whether additional reporting is warranted; and
omodify existing guidance to require those agencies stating that recovery
auditing over contract payments is not cost beneficial to include their
rationale for this determination.
Agency Comments and Our Evaluation
We received written comments on a draft of this report from OMB, and have
reprinted them in appendix IV. OMB generally agreed with our
recommendations and also agreed with our assessment that challenges remain
in meeting the goals of IPIA. In its comments, OMB emphasized that
progress in estimating and reporting improper payments had been made by
agencies in fiscal year 2005 and highlighted initiatives underway to
measure improper payments in other programs susceptible to significant
improper payments. OMB pointed out that agencies estimated improper
payments for 17 additional programs for fiscal year 2005, and that this
number will increase by 10 programs for fiscal year 2006. OMB also said
that beginning with fiscal year 2007, it expects HHS to begin reporting
component error rates for its Medicaid, Temporary Assistance for Needy
Families, and State Children's Health Insurance programs.
OMB stated that there has been substantial progress in that 85 percent of
the cost for the programs identified as high risk ($1.3 trillion of the
$1.5 trillion) reported an error measurement rate for fiscal year 2005.
While we agree with OMB that there has been progress, as discussed in this
report, we continue to question the validity of certain agencies' risk
assessment methodologies used to identify, estimate, and report improper
payments for all risk susceptible programs and are concerned with how OMB
defines high risk programs for purposes of agencies' improper payment
reporting. OMB's definition of programs susceptible to significant
improper payments covers only those agencies with programs that exceed the
criteria of 2.5 percent of program outlays and $10 million to estimate
improper payments. Our continuing concern with OMB's criteria relates to
those agencies with large program outlays that have improper payment
estimates that exceed the $10 million threshold but not the 2.5 percent of
program payments threshold. Applying the 2.5 percent threshold criteria to
large programs could exclude potentially billions of dollars of improper
payments from being reported.
According to OMB, the rationale for its threshold criteria is to ensure
that agencies focus their resources on programs with the highest levels of
risk for improper payments. OMB commented that going forward, it is now
requiring agencies to track any programs that exceed the $10 million
threshold, but have an error rate of less than 2.5 percent. OMB stated
that this tracking facilitates a framework that would appropriately
mitigate the risk that high risk programs will be left out of IPIA
reporting activities. We view this as a positive step. Although OMB's
recently revised implementing guidance was outside the scope of this
review, our preliminary assessment found no mention of this tracking
requirement. The guidance does state that OMB may determine on a
case-by-case basis that certain programs that do not meet the threshold
requirements may still be subject to the annual PAR improper payment
reporting requirement. In light of OMB's stated intention to require
agencies to track such programs, we believe it is key that the revised
implementing guidance clearly reflects this tracking requirement and that
agencies be required to publicly report this information as part of their
annual improper payments reporting. Visibility of this type of information
would help facilitate the Congress's understanding of the nature and
extent of the governmentwide improper payments problem. To this end, we
included a matter for congressional consideration to amend IPIA to
eliminate any uncertainties regarding the identification of programs and
activities that are susceptible to significant improper payments.
In its comments, OMB also mentioned that alternative sampling
methodologies for deriving program component error rates are acceptable
interim error measurements for select programs until comprehensive
statistical estimates are completed. We would consider this a pragmatic
approach for working with agencies to determine and implement appropriate
and evolving methodologies for improving the sophistication of improper
payment estimates for these programs. Realistically, larger, complex
agency programs may require additional time to plan and implement actions
to fully measure their improper payments, such as the programs cited by
OMB as using alternative methodologies--Earned Income Tax Credit and
National School Lunch and Breakfast--as well as initiating reporting of
component error rates in the future--Medicaid, Temporary Assistance for
Needy Families, and State Children's Health Insurance Program. It will be
important that agencies make good use of this additional time. OMB had
specifically required a number of agencies just now starting to report or
planning to do so shortly, to report selected improper payment information
since 2002, several years before the legislative reporting requirements in
IPIA became effective. Until agencies begin to fully measure and report
improper payments for these large programs, the extent of the problem and
level of effort necessary to control these losses are as yet unknown.
We are sending copies of this report to the Director, Office of Management
and Budget; appropriate congressional committees; and other interested
parties. We will also make copies available to others upon request. In
addition, the report is available at no charge on GAO's Web site at
http://www.gao.gov .
Please contact me at (202) 512-9095 or williamsm1@gao.gov if you or
your staffs have any questions about this report. 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 listed in
appendix V.
McCoy Williams
Director, Financial Management and Assurance
List of Requesters
The Honorable Tom Coburn
Chairman
The Honorable Tom Carper
Ranking
Minority Member
Subcommittee on Federal Financial Management, Government Information, and
International Security Committee on Homeland Security and Governmental
Affairs
United States Senate
The Honorable Tom Davis
Chairman
Committee on Government Reform
House of Representatives
The Honorable Todd Platts
Chairman
Subcommittee on Government Management, Finance and Accountability
Committee on Government Reform
House of Representatives
Appendix I
Objectives, Scope, and Methodology
The objectives of this report were to determine (1) the extent to which
agencies have included required improper payment information in their
performance and accountability reports (PAR), (2) the annual improper
payment estimate reported by agencies for fiscal year 2005, (3) whether
the definition and types of improper payments reported in the Improper
Payments Information Act of 2002 (IPIA) and the Office of Management and
Budget's (OMB) implementing guidance provide adequate disclosure of the
extent of improper payments at the agencies, and (4) the reported amount
of improper payments recouped through recovery audits. The scope of our
review included the 35 federal agencies^1 that the Department of the
Treasury determined to be significant to the U.S. government's
consolidated financial statements.
To address the above objectives, we reviewed improper payment information
reported by the 35 agencies in their fiscal year 2005 PARs or annual
reports. We further reviewed and analyzed the provisions of IPIA and OMB's
implementing guidance, as well as OMB's annual report^2 on the results of
agency-specific reports, significant findings, agency accomplishments, and
remaining challenges. We contacted OMB officials for clarification of
reported information as needed. We also reviewed office of inspector
general (OIG) reports, prior GAO reports, and other publicly available
documents for reported improper payments information, including
identifying agency reported improper or potentially fraudulent payments
related to hurricanes Katrina and Rita. In addition, we utilized the
results from our recent testimonies^3 on agencies challenges' in meeting
IPIA reporting requirements.
As part of our review and analysis of agencies' reported improper payment
information in their fiscal year 2005 PARs or annual reports, we
odetermined whether agencies' had reviewed all programs and activities for
risk-susceptible programs and reviewed details of agencies'
risk-assessment methodologies when reported;
oidentified program improper payment estimates, including error amounts
and error rates, a breakdown of overpayments and underpayments, and
program outlays;
oidentified agencies' sampling methodologies used to estimate program
improper payments;
odetermined the extent and level of detail agencies reported on key
improper payment reporting elements, including manager accountability,
causes of improper payments, corrective actions, and statutory barriers;
oconducted an analysis of OMB's assessment criteria--exceeding $10 million
in improper payments and 2.5 percent of program outlays--to identify
programs that met only one of OMB's criteria and thus would not be
required to estimate and report improper payment information based on
these criteria alone;
oanalyzed OIG-reported major management challenges for various programs
and activities; and
oanalyzed the amount of improper payments recouped through agencies'
recovery audit activities.
We did not independently validate the data that agencies reported in their
PARs or annual reports or the data that OMB reported. We are providing the
agency-reported data as descriptive information that will inform
interested parties about the magnitude of governmentwide improper payments
and other related information. We believe the data to be sufficiently
reliable for that purpose. We requested comments on a draft of this report
from the Director of the Office of Management and Budget or his designee.
Written comments were received from the Controller, OMB, dated October 26,
2006. OMB's comments are reprinted in appendix IV. We conducted our work
from April 2006 through September 2006 in accordance with generally
accepted government auditing standards.
Appendix II
Improper Payment Estimates Reported in Agency Fiscal Year 2004 and 2005
PARs or Annual Reports
Source: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports.
^aAgency did not report an annual improper payment estimate or error rate.
^bFiscal year 2004 estimates or error rates were updated to the revised
estimates reported in the fiscal year 2005 PARs.
^cSee table 5 of this report.
^dAgency reported that it had no programs or activities susceptible to
significant improper payments.
^eStudent Financial Assistance--Pell Grants and Federal Family Education
Loan are combined together as Student Financial Assistance in OMB Circular
No. A-11, former section 57.
^fAgency combined with the above program.
^gAgency did not address improper payments or IPIA requirements in its
fiscal year 2005 PAR or annual report.
^hAn additional $266 million of improper payments exist for these three
programs. In its PAR, the Department of Housing and Urban Development
(HUD) did not provide a breakout of this amount among the three programs.
^iAgency reported error rate was less than 1 percent or reported error
rate rounded to zero for purposes of this report.
^jAgency reported that the annual improper payment amount or error rate
was zero.
Appendix III
Outlays, Improper Payment Estimates, and Error Rates Reported in Agency
Fiscal Year 2005 PARs or Annual Reports
Sources: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports and OMB.
^aThis number is the disbursements from the agencies' statements of
budgetary resources in their fiscal year 2005 PARs or annual reports.
^bAgency did not report an annual improper payment estimate or error rate.
^cAgency reported that the annual improper payment amount was zero.
^dThe reported overpayments plus the reported underpayments do not equal
the reported total improper payments.
^eSee table 5 of this report.
^fAgency did not provide an estimate breakout between both overpayments
and underpayments.
^gAgency reported it had no programs or activities susceptible to
significant improper payments.
^hStudent Financial Assistance--Pell Grants and Federal Family Education
Loan are combined together as Student Financial Assistance in OMB Circular
No. A-11, former section 57.
^iAgency combined with the above program.
^jAgency did not address improper payments or IPIA.
^kAgency program outlays were not reported in the fiscal year 2005 PARs.
We obtained these amounts from OMB.
^lAn additional $266 million of improper payments exist for these three
programs. In its PAR, HUD did not provide a breakout of this amount among
the three programs. The $266 million is also excluded from the overpayment
and underpayment estimates.
^mAgency reported error rate was less than 1 percent or reported the error
rate rounded to zero for the purposes of this report.
^nThe overpayments plus the underpayments do not add up total improper
payments because many of the programs did not provide a breakout of their
total improper payment estimate between overpayments and underpayments.
Appendix IV
Comments from the Office of Management and Budget
Appendix V
GAO Contact and Staff Acknowledgments
McCoy Williams, (202) 512-9095 or williamsm1@gao.gov
In addition to the contact named above, Carla Lewis, Assistant Director;
Sharon Byrd; Francine DelVecchio; Francis Dymond; Lisa M. Galvan;
Jacquelyn Hamilton; James Maziasz; Christina Quattrociocchi; Donell Ries;
and Autumn Schmid made important contributions to this report.
Related GAO Products
Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs. [36]GAO-06-347 .
Washington, D.C.: April 14, 2006.
Financial Management: Challenges Continue in Meeting Requirements of the
Improper Payments Information Act. [37]GAO-06-581T . Washington, D.C.:
April 5, 2006.
Financial Management: Challenges Remain in Meeting Requirements of the
Improper Payments Information Act. [38]GAO-06-482T . Washington, D.C.:
March 9, 2006.
Financial Management: Challenges in Meeting Governmentwide Improper
Payment Requirements. [39]GAO-05-907T . Washington, D.C.: July 20, 2005.
Financial Management: Challenges in Meeting Requirements of the Improper
Payments Information Act. [40]GAO-05-605T . Washington, D.C.: July 12,
2005.
Financial Management: Challenges in Meeting Requirements of the Improper
Payments Information Act. [41]GAO-05-417 . Washington, D.C.: March 31,
2005.
Financial Management: Fiscal Year 2003 Performance and Accountability
Reports Provide Limited Information on Governmentwide Improper Payments.
[42]GAO-04-631T . Washington, D.C.: April 15, 2004.
Financial Management: Status of the Governmentwide Efforts to Address
Improper Payment Problems. [43]GAO-04-99 . Washington, D.C.: October 17,
2003.
Financial Management: Effective Implementation of the Improper Payments
Information Act of 2002 Is Key to Reducing the Government's Improper
Payments. [44]GAO-03-991T . Washington, D.C.: July 14, 2003.
Financial Management: Challenges Remain in Addressing the Government's
Improper Payments. [45]GAO-03-750T . Washington, D.C.: May 13, 2003.
(195082)
www.gao.gov/cgi-bin/getrpt? [46]GAO-07-92 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact McCoy Williams at (202) 512-9095 or
williamsm1@gao.gov.
Highlights of [47]GAO-07-92 , a report to congressional requesters
November 2006
IMPROPER PAYMENTS
Agencies' Fiscal Year 2005 Reporting under the Improper Payments
Information Act Remains Incomplete
Fiscal year 2005 marked the second year that executive agencies were
required to report improper payment information under the Improper
Payments Information Act of 2002 (IPIA). As a steward of taxpayer dollars,
the federal government is accountable for how its agencies and grantees
spend billions of taxpayer dollars and is responsible for safeguarding
those funds against improper payments.
GAO was asked to determine the progress agencies have made in their
improper payment reporting and the total amount of improper payments
recouped through recovery auditing. To accomplish this, GAO reviewed
improper payment information reported by 35 agencies in their fiscal year
2005 performance and accountability or annual reports.
[48]What GAO Recommends
GAO suggests that the Congress consider amending IPIA provisions to define
specific criteria agencies should use to ensure that the full extent of
improper payments is being captured. GAO also makes four recommendations
to the Office of Management and Budget (OMB) to facilitate agencies'
progress in ensuring accurate and complete improper payments and recovery
auditing reporting. OMB generally agreed with GAO's recommendations and
outlined actions planned and under way for continued progress.
While making progress, agencies' fiscal year 2005 reporting under IPIA
does not yet reflect the full scope of improper payments across executive
branch agencies. Major challenges remain in meeting the goals of the act
and ultimately improving the integrity of payments. GAO found that these
challenges continue to hinder full reporting of improper payment
information because of the following three factors:
o Existing reporting incomplete. Although 18 agencies collectively
identified and estimated improper payments for 57 programs and
activities totaling $38 billion, some agencies still had not
instituted systematic methods of reviewing all programs, resulting
in their identification of none or only a few programs as
susceptible to significant improper payments. In many cases, these
same agencies had well-known and documented financial management
weaknesses as well as fraudulent, improper, and questionable
payments. Further, improper payment estimates totaling about $389
million for 9 programs were not based on a valid statistical
sampling methodology as required. Higher estimates would have been
expected had the correct methods been used, given that total
outlays for these 9 programs exceeded $58.2 billion.
o Large programs still not included. Improper payment estimates
for 10 risk-susceptible programs with outlays totaling over $234
billion still have not been provided. Most of these programs were
subject to OMB reporting requirements that preceded IPIA.
o Threshold criteria limit reporting. The act includes broad
criteria to identify risk-susceptible programs. OMB's implementing
guidance includes more specific criteria that limit the disclosure
and transparency of agencies' improper payments.
With regard to agencies' recovery audit efforts, GAO found that the data
reported may present an overly optimistic view of these efforts. While 21
agencies were required to report on their recovery audit efforts, GAO
identified discrepancies in several agencies' information and found
limited reviews over contract payments. For example, for fiscal year 2005,
the National Aeronautics and Space Administration (NASA) reported that it
had identified and recovered $617,442 in contract payments, a 100 percent
recovery rate. Yet, the NASA Office of Inspector General reported it had
identified over $515 million in questioned contract costs during fiscal
year 2005, of which NASA management decided to pursue recovery of $51
million. Had this amount been compared to the $617,442 NASA actually
recovered, its recovery rate would drop from the reported 100 percent to
1.2 percent. In addition, we noted that 5 of the 21 agencies did not
review all of their agency components as part of their recovery audit
efforts while 2 agencies reported that recovery auditing was not cost
beneficial without reporting any details to support this determination.
References
Visible links
36. http://www.gao.gov/cgi-bin/getrpt?GAO-06-347
37. http://www.gao.gov/cgi-bin/getrpt?GAO-06-581T
38. http://www.gao.gov/cgi-bin/getrpt?GAO-06-482T
39. http://www.gao.gov/cgi-bin/getrpt?GAO-05-907T
40. http://www.gao.gov/cgi-bin/getrpt?GAO-05-605T
41. http://www.gao.gov/cgi-bin/getrpt?GAO-05-417
42. http://www.gao.gov/cgi-bin/getrpt?GAO-04-631T
43. http://www.gao.gov/cgi-bin/getrpt?GAO-04-99
44. http://www.gao.gov/cgi-bin/getrpt?GAO-03-991T
45. http://www.gao.gov/cgi-bin/getrpt?GAO-03-750T
46. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
47. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
*** End of document. ***