Improper Payments: Federal Executive Branch Agencies' Fiscal Year
2007 Improper Payment Estimate Reporting (23-JAN-08,
GAO-08-377R).
In the fourth year of implementation of the Improper Payments
Information Act of 2002 (IPIA), major executive branch agencies
reported a total improper payment estimate of about $55 billion
for fiscal year 2007. This increase from the prior year estimate
of $41 billion was primarily attributable to a component of the
Medicaid program reporting improper payments for the first time
totaling about $13 billion for fiscal year 2007. We view this
increased reporting as a positive step to improve transparency
over the full magnitude of improper payments across the federal
government. As Congress requested, the objective of this report
is to provide summary data and preliminary analysis of the
improper payment estimates reported by federal executive branch
agencies (federal agencies) in their fiscal year 2007 performance
and accountability reports (PAR) or annual reports.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-377R
ACCNO: A80075
TITLE: Improper Payments: Federal Executive Branch Agencies'
Fiscal Year 2007 Improper Payment Estimate Reporting
DATE: 01/23/2008
SUBJECT: Accountability
Data integrity
Erroneous payments
Executive agencies
Federal/state relations
Financial management
Financial statements
Performance measures
Program evaluation
Reporting requirements
State-administered programs
Program management
Payments
Medicaid
Executive agency oversight
Transparency
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GAO-08-377R
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January 23, 2008
The Honorable Tom Carper
Chairman
The Honorable Tom Coburn Ranking Member
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security
Committee on Homeland Security and Governmental Affairs
United States Senate
Subject: Improper Payments: Federal Executive Branch Agencies' Fiscal Year
2007 Improper Payment Estimate Reporting
In the fourth year of implementation of the Improper Payments Information
Act of 2002^1 (IPIA), major executive branch agencies reported a total
improper payment estimate of about $55 billion for fiscal year 2007. (See
the enclosure for further details.) This increase from the prior year
estimate of $41 billion^2 was primarily attributable to a component of the
Medicaid program reporting improper payments for the first time totaling
about $13 billion for fiscal year 2007. We view this increased reporting
as a positive step to improve transparency over the full magnitude of
improper payments across the federal government.
As you requested, the objective of this report is to provide summary data
and preliminary analysis of the improper payment estimates reported by
federal executive branch agencies (federal agencies) in their fiscal year
2007 performance and accountability reports (PAR) or annual reports. We
obtained this information during our audit of the U.S. Consolidated
Financial Statements for the fiscal year ending September 30, 2007.^3 We
reviewed improper payment information reported in the fiscal year 2007
PARs or annual reports by 30 of the 35 federal agencies, including
government corporations, that the Department of the Treasury determined to
be significant to the U.S. government's consolidated financial statements.
The remaining 5 agencies are either federal corporations with a different
year-end reporting date or had not issued their PAR or annual reports as
of the end of our fieldwork for the consolidated audit.
^1Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
^2In their fiscal year 2007 performance and accountability reports or
annual reports, certain federal agencies updated their fiscal year 2006
improper payment estimates to reflect changes since issuance of their
fiscal year 2006 PARs or annual reports. These updates decreased the
governmentwide improper payment estimate for fiscal year 2006 from $42
billion to $41 billion.
^3See GAO's report on its audit of the federal government's fiscal year
2007 financial statements that was incorporated in the 2007 Financial
Report of the United States Government published by the Department of the
Treasury.
Of the 30 agencies included in our review, 21 agencies reported improper
payment estimates in their PAR. Of the remaining 9 agencies that did not
report estimates, 8 reported they did not have any programs or activities
susceptible to significant improper payments, and the reporting for
another agency did not include any information about whether it had
programs susceptible to significant improper payments. We did not
independently validate the data reported in these agencies' PARs or annual
reports. However, consistent with our reporting objective, we are
providing agency-reported data as descriptive information that will inform
interested parties about the relative magnitude of governmentwide improper
payments and other improper payment-related information. We believe the
data to be sufficiently reliable for this purpose. We provided a draft of
this report to the Office of Management and Budget (OMB) for its review
and comment. OMB provided technical comments that we incorporated as
appropriate. We conducted this performance audit from November 2007 to
January 2008, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
The fiscal year 2007 estimate of about $55 billion represents improper
payments for 78 programs in 21 agencies, an increase from the 20 agencies
and 60 programs that made up the fiscal year 2006 estimate. The $55
billion estimate also represents about 2 percent of total fiscal year 2007
federal executive branch agencies' government outlays of almost $2.8
trillion and largely consists of improper payments made in eight programs
(as shown in fig. 1). Collectively, the eight programs account for about
$48 billion or approximately 88 percent of the total estimate.
Figure 1: Fiscal Year 2007 Improper Payment Estimates by Program (dollars
in billions)
The largest estimate was related to the Department of Health and Human
Services' (HHS) Medicaid program with estimated improper payments of about
$13 billion. However, the $13 billion improper payment estimate relates
only to the fee-for-service component of the Medicaid program^4 and is
based on 6 months of fee-for-service claims^5 processed by the states,
rather than a complete fiscal year.^6 HHS reported that in fiscal year
2008, it expects to report a comprehensive national Medicaid error rate
that includes not only its fee-for-service, but also its managed care,^7
and eligibility components.
Our review found that some agencies still have not developed improper
payment estimates for all of their programs and activities identified as
susceptible to significant improper payments. As shown in table 1, the
fiscal year 2007 total improper payment estimate did not include any
amounts for 14 programs, with fiscal year 2007 outlays totaling about $170
billion.
^4Fee-for-service is a traditional method of medical services under which
providers are paid for each service rendered.
^5The fiscal year 2007 Medicaid estimate is based on fiscal year 2006
processed claims.
^6Generally, OMB requires agencies to use a 12-month reporting period when
estimating improper payments.
^7Managed care is any system of delivering health services through a
specified network of doctors and hospitals that agree to comply with the
care approaches established by a care-management process.
Table 1: Risk-Susceptible Programs That Did Not Report Improper Payment
Estimates for Fiscal Year 2007
1;
Agency--program: Agency--program: Department of Health and Human
Services--Child Care and Development Fund[A];
Fiscal year 2007 outlays (dollars in billions): $4.9;
Target date for reporting improper payment estimate: 2008.
2;
Agency--program: Department of Health and Human Services--Medicare
Advantage;
Fiscal year 2007 outlays (dollars in billions): $75.1;
Target date for reporting improper payment estimate: Did not report
target date.
3;
Agency--program: Department of Health and Human Services--Medicare
Prescription Drug Benefit;
Fiscal year 2007 outlays (dollars in billions): $49.3;
Target date for reporting improper payment estimate: Did not report
target date.
4;
Agency--program: Department of Health and Human Services--State
Children's Health Insurance Program[A];
Fiscal year 2007 outlays (dollars in billions): $6.3;
Target date for reporting improper payment estimate: 2008.
5;
Agency--program: Department of Health and Human Services--Temporary
Assistance for Needy Families[A];
Fiscal year 2007 outlays (dollars in billions): $17.3;
Target date for reporting improper payment estimate: 2008.
6;
Agency--program: Department of Homeland Security--Federal Emergency
Management Agency--Assistance to Firefighters Grants;
Fiscal year 2007 outlays (dollars in billions): $0.5;
Target date for reporting improper payment estimate: 2008.
7;
Agency--program: Department of Homeland Security--Federal Emergency
Management Agency--Homeland Security Grant Program;
Fiscal year 2007 outlays (dollars in billions): $0.8;
Target date for reporting improper payment estimate: 2008.
8;
Agency--program: Department of Homeland Security--Federal Emergency
Management Agency--Infrastructure Protection Program;
Fiscal year 2007 outlays (dollars in billions): $0.12;
Target date for reporting improper payment estimate: 2008.
9;
Agency--program: Department of Homeland Security--Federal Emergency
Management Agency--National Flood Insurance Program;
Fiscal year 2007 outlays (dollars in billions): $1.5;
Target date for reporting improper payment estimate: 2008.
10;
Agency--program: Department of Homeland Security--Federal Emergency
Management Agency--Public Assistance Programs;
Fiscal year 2007 outlays (dollars in billions): $5.1;
Target date for reporting improper payment estimate: 2008.
11;
Agency--program: Department of Homeland Security--Immigration and
Customs Enforcement--Detention and Removal Operations;
Fiscal year 2007 outlays (dollars in billions): $1.2;
Target date for reporting improper payment estimate: 2008.
12;
Agency--program: Department of Homeland Security--Immigration and
Customs Enforcement--Investigations;
Fiscal year 2007 outlays (dollars in billions): $1.1;
Target date for reporting improper payment estimate: 2008.
13;
Agency--program: Department of Homeland Security--Transportation
Security Administration--Aviation Security--Payroll;
Fiscal year 2007 outlays (dollars in billions): $2.9;
Target date for reporting improper payment estimate: 2008.
14;
Agency--program: Department of Homeland Security--United States Coast
Guard-- Military Payroll;
Fiscal year 2007 outlays (dollars in billions): $3.5;
Target date for reporting improper payment estimate: 2008.
Total;
Agency--program: [Empty];
Fiscal year 2007 outlays (dollars in billions): $169.6;
Target date for reporting improper payment estimate: [Empty].
Source: GAO's analysis of agencies' fiscal year 2007 PARs or annual
reports.
^aOMB required program to submit improper payment information prior to
governmentwide IPIA reporting requirements. See footnote 8 of this report
for a detailed description.
A majority of these programs represent newly identified risk-susceptible
programs reported by the Department of Homeland Security. The completion
of risk-susceptibility assessments on programs is a positive step toward
addressing IPIA requirements. We also found, however, that three HHS
programs had not reported improper payment estimates for fiscal year 2007,
although OMB required these and other programs to report selected improper
payment information for several years before passage of IPIA.^8 After the
enactment of IPIA, OMB's implementing guidance^9 required that these
programs continue to report improper payment information under IPIA.
HHS reported in its fiscal year 2007 PAR that pilot reviews were conducted
in various states for the Temporary Assistance for Needy Families and
Child Care and Development Fund programs and that estimated improper
payment rates for these programs would be reported in fiscal year 2008.
Further, HHS reported that it also expects to report a comprehensive
improper payment estimate rate for the State Children's Health Insurance
Program (SCHIP) that will encompass its fee-for-service, managed care, and
eligibility components. We recognize that measuring improper payments for
these state-administered^10 programs and designing and implementing
actions to reduce or eliminate them are not simple tasks, particularly for
grant programs that rely on administration efforts at the state level.
Consequently, as we previously reported in April 2006,^11 communication,
coordination, and cooperation among federal agencies and the states will
be critical factors in estimating national improper payment rates and
meeting IPIA reporting requirements for state-administered programs.
Conclusion
While federal executive agencies continued to improve their implementation
of IPIA in fiscal year 2007, fulfilling the requirements of IPIA will
require sustained attention to implementation and oversight. Preventing,
identifying, and recovering improper payments, in that order, are what is
needed across the federal government to manage, and ultimately minimize,
such payments. As you have requested, we will continue to analyze the
fiscal year 2007 results and provide updated and more detailed information
of IPIA implementation results.
___________
^8Prior to governmentwide IPIA reporting requirements beginning with
fiscal year 2004, former section 57 of OMB Circular No. A-11 required
certain agencies to submit similar information, including estimated
improper payment target rates, target rates for future reductions in these
payments, the types and causes of these payments, and variances from
established targets and goals. In addition, these agencies were to provide
a description and assessment of the current methods for measuring the rate
of improper payments and the quality of data resulting from these methods.
^9OMB, Circular No. A-123, Appendix C, Requirements for Effective
Measurement and Remediation of Improper Payments (Aug. 10, 2006).
^10The term "state-administered" refers to federal programs that are
managed on a day-to-day basis at the state level to carry out program
objectives.
^11GAO, Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs, GAO-06-347
(Washington, D.C.: Apr. 14, 2006).
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 at no charge on GAO's Web site
at [8]http://www.gao.gov . If you or your staff members have any
questions, please contact me at (202) 512-2600 or [9][email protected] .
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Major contributors
to this report were Carla Lewis, Assistant Director; Donell Ries; and Viny
Talwar.
McCoy Williams
Managing Director, Financial Management and Assurance
Enclosure
Enclosure
Improper Payment Estimates Reported in Federal Executive Branch Agencies'
Fiscal Year 2007 Performance and Accountability Reports or Annual Reports
Fiscal
year 2007
Total
estimate Fiscal
(dollars year 2007
Department or in Error rate
agency Program or activity millions) (percent)
1 Agency for 1 Cash Transfers 3.0 0.2
International
Development
2 Cooperative Agreements, Grants, 96.0 1.2
and Contracts
2 Department of 3 Child and Adult Care Food 12.0 1.7
Agriculture Program
4 Conservation Reserve Program 9.0 0.5
5 Conservation Security Program 1.0 0.5
(previously Farm Security and
Rural Investment)
6 Direct and Counter-Cyclical 37.0 0.4
Payments
7 Federal Crop Insurance 63.0 2.7
Corporation Program Fund
8 Food Stamp Program 1,794.0 6.0
9 Loan Deficiency Payments 18.0 0.5
10 Marketing Assistance Loan 458.0 7.5
Program
11 Milk Income Loss Contract 8.0 2.2
Program
12 Miscellaneous Disaster Programs 25.0 6.8
13 National School Lunch Program 1,402.0 16.3
14 Noninsured Assistance Program 8.0 13.1
15 Rental Assistance Program 26.0 3.1
16 School Breakfast Programs 520.0 24.9
17 Wildland Fire Suppression 13.0 1.0
Management
18 Special Supplemental Nutrition 25.0 0.7
Program for Women, Infants, and
Children
3 Department of All programs and activities 0.0^a 0.0^a
Commerce
4 Department of 19 Civilian Pay 74.6 0.3
Defense
Commercial Pay 0.0^a 0.0^a
20 Military Health Benefits 156.0 2.0
21 Military Pay 370.0 0.5
22 Military Retirement Fund 48.7 0.1
23 Travel Pay 43.6 1.0
5 Department of 24 Federal Student Aid--Federal 2.0 0.0^b
Education Family Education Loan
25 Federal Student Aid--Pell 433.0 3.5
Grants
26 Title I 87.6 0.7
6 Department of 27 Payment programs 19.7 0.1
Energy
7 Environmental 28 Clean Water State Revolving 1.6 0.1
Protection Funds
Agency
29 Drinking Water State Revolving 0.0^c 0.0^c
Funds
8 Export-Import All programs and activities 0.0^d 0.0^d
Bank of the
United States
9 Federal 30 Universal Service Fund--High 620.0 16.5
Communications Cost Support Program
Commission
31 Universal Service Fund--Low 75.5 9.5
Income Program
32 Universal Service Fund--Schools 210.0 12.9
and Libraries
10 General All programs and activities 0.0^a 0.0^a
Services
Administration
11 Department of Child Care and Development Fund 0.0^e 0.0^e
Health and
Human Services
33 Foster Care 51.6 3.3
34 Head Start 88.0 1.3
35 Medicaid 12,900.0 18.5
Medicare Advantage 0.0^e 0.0^e
36 Medicare Fee-for-service 10,800.0 3.9
Medicare Prescription Drug 0.0^e 0.0^e
Benefit
State Children's Health 0.0^e 0.0^e
Insurance Program
Temporary Assistance for Needy 0.0^e 0.0^e
Families
12 Department of 37 Customs and Border 9.0 0.1
Homeland Protection--Custodial--Refund &
Security Drawback and Continued Dumping
& Subsidy Offset Act & Payments
to Wool Manufacturers
Federal Emergency Management 0.0^e 0.0^e
Agency--Assistance to
Firefighters Grants
Federal Emergency Management 0.0^e 0.0^e
Agency--Homeland Security Grant
Program
38 Federal Emergency Management 88.0 9.5
Agency--Individuals and
Households Program
Federal Emergency Management 0.0^e 0.0^e
Agency--Infrastructure
Protection Program
Federal Emergency Management 0.0^e 0.0^e
Agency--National Flood
Insurance Program
Federal Emergency Management 0.0^e 0.0^e
Agency--Public Assistance
Programs
39 Federal Emergency Management 42.0 2.4
Agency--Vendor payments
Immigration and Customs 0.0^e 0.0^e
Enforcement--Detention and
Removal Operations
40 Immigration and Customs 4.8 0.7
Enforcement--Federal Protective
Service
Immigration and Customs 0.0^e 0.0^e
Enforcement--Investigations
Transportation Security 0.0^e 0.0^e
Administration--Aviation
Security--Payroll
41 United States Coast 0.0^b 0.0^b
Guard--Contract Payments
United States Coast 0.0^e 0.0^e
Guard--Military Payroll
13 Department of Community Development Block 0.0^a 0.0^a
Housing and Grant (Entitlement Grants,
Urban States/Small Cities)
Development
42 Low Income Public Housing 322.9 1.2
43 Section 8--Project Based 410.8 1.5
44 Section 8--Tenant Based 785.4 2.9
14 Department of All programs and activities 0.0^a 0.0^a
the Interior
15 Department of All programs and activities 0.0^a 0.0^a
Justice
16 Department of 45 Federal Employees' Compensation 2.6 0.1
Labor Act
46 Unemployment Insurance 3,248.0 10.3
47 Workforce Investment Act 2.9 0.1
17 National All programs and activities 0.0^a 0.0^a
Aeronautics and
Space
Administration
18 National Research and Education Grants 0.0^a 0.0^a
Science and Cooperative Agreements
Foundation
19 Nuclear All programs and activities 0.0^a 0.0^a
Regulatory
Commission
20 Office of 48 Federal Employees Group Life 0.8 0.0^b
Personnel Insurance
Management
49 Federal Employees Health 168.7 0.5
Benefits Program
50 Retirement Program (Civil 253.5 0.4
Service Retirement System and
Federal Employees Retirement
System)
21 Pension Benefit All programs and activities 0.0^a 0.0^a
Guaranty
Corporation
22 Railroad 51 Railroad Unemployment Insurance 2.9 2.6
Retirement Benefits
Board
52 Retirement and Survivors 133.3 1.4
Benefits
23 Securities and 53 Disgorgements and Penalties 0.0^f 0.0^f
Exchange
Commission
54 Operational Vendor Payments 0.0^b 0.0^b
24 Small Business 55 504 Certified Development 0.0^f 0.0^f
Administration Companies (Debentures)
56 504 Certified Development 0.0^f 0.0^f
Companies (Guaranties)
57 7(a) Business Loan Program 2.6 0.4
(Guaranty Purchases)
58 7(a) Business Loan Program 0.0^f 0.0^f
(Guaranty Approvals)
59 Disaster Assistance 4.5 0.6
60 Small Business Investment 4.0 0.2
Companies
25 Social Security 61 Old Age and Survivors' 2,504.0 0.4
Administration Insurance
62 Disability Insurance 0.0^c 0.0^c
63 Supplemental Security Income 4,089.0 10.1
Program
26 Department of 64 Business Class Travel and 0.6 4.0
State Sensitive Payments
65 International Information .9 4.0
Program--U.S. Speaker and
Specialist Program
International Narcotic and Law 0.0^a 0.0^a
Enforcement Affairs--Narcotics
Program
27 Tennessee 66 Payment programs 6.6 0.1
Valley
Authority
28 Department of 67 Airport Improvement Program 0.0^f 0.0^f
Transportation
68 Federal Transit--Capital 0.6 1.1
Investment Grants
69 Federal Transit--Formula Grants 4.3 0.3
70 Highway Planning and 55.2 0.2
Construction
29 Department of 71 Earned Income Tax Credit 11,350.0 25.5
the Treasury
30 Department of 72 Compensation 240.8 0.8
Veterans
Affairs
73 Dependency and Indemnity 0.0^c 0.0^c
Compensation
74 Education programs 101.0 3.7
75 Loan Guaranty 4.7 0.5
76 Non-VA Care Fee 92.6 5.9
77 Pensions 303.9 8.6
78 Vocational Rehabilitation 4.0 0.7
Total 54,744.8
Source: GAO analysis of cited agencies' fiscal year 2007 PARs or annual
reports.
^aAgency reported that it had no programs or activities susceptible to
significant improper payments or agency did not report estimate for this
program.
^bAgency error rate was less than 1 percent or error rate rounded to zero
for purposes of this report.
^cAgency combined this program with the program listed above.
^dAgency did not address improper payments or IPIA in its fiscal year 2007
PAR or annual report.
^eAgency reported that it would estimate improper payments in the future
for this program.
^fAgency reported that the annual improper payment amount or error rate
was zero.
(195130)
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