Background

Annually, the federal government expends hundreds of billions of dollars  for a variety of grants, transfer payments, and procurement of goods and  services. Because of its size, complexity, weak control environment, and  insufficient preventive controls, the federal government risks disbursing  improper payments. Agency-specific studies and audits have indicated that  improper payments are a widespread and significant problem. They occur  in a variety of programs and activities including those involving contract  management, financial assistance benefits—such as Food Stamps and  Veterans Benefits—and tax refunds. However, some overpayments, by their  nature, are not considered improper payments, such as routine contract  price adjustments.
Legislative efforts have focused on improving the federal government’s  control environment. For example, under the Federal Managers’ Financial  Integrity Act of 1982 and the Federal Financial Management Improvement  Act of 1996, agency managers are responsible for ensuring that adequate  systems of internal controls are developed and implemented. An adequate  system of internal controls, as defined by the Comptroller General’s  internal control standards, which are issued pursuant to the Financial  Integrity Act, should provide reasonable assurance that an agency is  effectively and efficiently using resources, producing reliable financial  reports, and complying with applicable laws and regulations. Accordingly,  cost-effective internal controls should be designed to provide reasonable  assurance regarding prevention of or prompt detection of unauthorized  acquisition, use, or disposition of an agency’s assets.
Recent legislation has provided an impetus for agencies to systematically  measure and reduce the extent of improper payments. For example, with  the advent of the CFO Act, GMRA, and the Results Act, agencies are  challenged to increase attention on identifying and addressing improper  payments. The CFO Act, as expanded by GMRA, requires 24 major  departments/agencies to prepare and have audited agencywide financial  statements, which are intended to report an agency’s stewardship over its  financial resources—including how it expended available funds. The Office  of Management and Budget’s Bulletin 97-01, Form and Content of Agency  Financial Statements, provides implementing guidance on these CFO Act  requirements. In addition, the CFO Act sets expectations for agencies to  routinely produce sound cost and operating performance information.  Effective implementation of this requirement would enable managers to  have timely information for day-to-day management decisions. The CFO  Act also requires OMB to prepare and annually revise a governmentwide 5- year financial management plan and status report that discusses the  activities the executive branch plans to and has undertaken to improve  financial management in the federal government. Additionally, each agency  CFO is responsible for developing annual plans to support the  governmentwide 5-year financial management plan.
The Results Act seeks to improve the effectiveness and efficiency of the  federal government by requiring that agencies develop strategic and annual  performance goals and report on their progress in achieving these goals.  Agency strategic plans are required to include the agency’s mission  statement; identify long-term general goals, including outcome-related  goals and objectives; and describe how the agency intends to achieve these  goals. Agencies are required to consult with the Congress when developing  their strategic plans and consider the views of other interested parties. In  their annual performance plans, agencies are required to set annual goals,  covering each program activity in an agency’s budget, with measurable  target levels of performance. Agencies are also required to issue annual  performance reports that compare actual performance to the annual goals.
Together, these plans and reports are the basis for the federal government  to manage for results. The Results Act is supported by the development of  federal cost accounting standards under the CFO Act, which require  agencies to identify the costs of government activities. These standards  can lead to and support linking costs with achieving performance levels.  This can give managers information for assessing the full costs of goods,  services, and benefits compared to program outputs and results. Such  information can provide the basis for agencies to develop performance  goals to monitor and track improper payments as well as strategies for  preventing such future disbursements.
The risk of improper payments and the government’s ability to prevent  them will continue to be of concern in the future. Under current federal  budget policies, as the baby boom generation leaves the workforce,  spending pressures will grow rapidly due to increased costs of Medicare,  Medicaid, and Social Security. Other federal expenditures are also likely  to increase. Thus, absent improvements over internal controls, the  potential for additional or larger volumes of improper payments will be  present. Figure 1 illustrates the reported and projected trends in federal  expenditures, excluding interest on the public debt, for fiscal years 1978  through 2004.
Historically, the recovery rates for certain programs identified as having  improper payments have been low. Therefore, it is critical that adequate  attention be directed to strengthen controls to prevent improper payments.

	Scope and Methodology

This report is based on our reviews of available major agencies’ fiscal year  1998 financial statement reports prepared under the CFO Act, as expanded  by GMRA. We reviewed these reports to identify amounts of reported  improper payments. We also identified and reviewed recent GAO reports to  identify additional types of programs at risk. We supplemented our review  with IG reports from CFO Act agencies and other information obtained  from a variety of sources, such as agency studies. In addition, we reviewed  these data sources to discern the causes of improper payments. For the  nine agencies that reported improper payments in their financial statement  reports, we reviewed the agencies’ Results Act performance plans for fiscal  year 2000 to determine the extent to which the plans addressed improper  payments. We relied on recent GAO reports and guidance to consider any  impact from potential Year 2000 computing problems on improper  payments. In selected cases, we interviewed agency CFO and IG personnel.  Because of the nature of improper payments, our review would not capture  all reported instances of such payments. As requested, relevant GAO  reports covering our work in these areas for the past 4 fiscal years are  listed at the end of this report.
To gather information on existing financial statement and performance  reporting criteria, we reviewed relevant professional literature, including  the American Institute of Certified Public Accountants’ Codification of  Statements on Auditing Standards and the Federal Accounting Standards  Advisory Board’s (FASAB) Statements of Federal Financial Accounting  Concepts and Standards. In addition, we reviewed OMB Bulletin 97-01,  Form and Content of Agency Financial Statements and OMB Circular A-11,  Part 2, Preparation and Submission of Strategic Plans, Annual Performance  Plans, and Annual Program Performance Reports.
We performed our work from June 1998 through August 1999. Our work  was conducted in accordance with generally accepted government auditing  standards. We provided a draft of this report for comment to the Director of  the Office of Management and Budget (OMB). These comments are  presented and evaluated in the “OMB Comments and Our Evaluation”  section and reprinted in appendix IV.

	Improper Payments Are Widespread Across Government, but the Full Extent Is Unknown

Agency-specific studies performed by GAO, IGs, and others indicate that  improper payments are a widespread and significant problem. However,  efforts by agencies to develop comprehensive estimates have varied. Nine  agencies have taken the initiative to disclose improper payments for 17 of  their programs in their financial statement reports, which has resulted in  the disclosure of important information for oversight and decision-making.  At the same time, the methodologies used by some agencies to estimate  improper payments do not always result in complete estimates, and many  other agencies have not even attempted to identify or estimate improper  payments. As a result, the full extent of improper payments  governmentwide is largely unknown, which hampers efforts to reduce such  payments. Ascertaining the full extent of improper payments  governmentwide is critical to determining related causes. Obtaining these  data would give agencies baseline information for making cost-effective  decisions about enhancing controls to minimize improper use of federal  resources.

		Nine Agencies Reported Improper Payments, but Estimates Are Incomplete

Nine of the CFO Act agencies that had issued their fiscal year 1998 audited  financial statements as of the end of our field work, acknowledged  making improper payments. For fiscal year 1998, HHS, USDA, and HUD  collectively reported improper payments of $14.9 billion as part of their  program expenses in their financial statement reports. HHS’ estimated  improper Medicare benefit payments constitute $12.6 billion of this  amount, which represents 7.1 percent of the $177 billion in Fee-for-Service  payments processed in fiscal year 1998. USDA disclosed $1.4 billion in food  stamp overissuances or approximately 7 percent of its annual program cost  of $20.4 billion. HUD’s excess housing subsidy payments totaled $857 million, or 4.6 percent of its rental assistance payments for this $18.6  billion program. These agencies have made significant progress in  estimating and reporting improper payments for these programs by  implementing methodologies that use statistical sampling. However,  implementing a statistically valid methodology will pose challenges to  agencies for certain programs.
The disclosure methods used by HHS, USDA, HUD, and the other six  agencies varied. Some agencies, such as the Social Security Administration  (SSA), reported known improper payments as receivables and provided  explanatory disclosures in the notes accompanying their financial  statements. Other agencies disclosed explanatory information in other  sections of their financial statement reports, such as in management’s  discussion and analysis or in supplemental data sections. In addition,  reporting within agencies for different programs also varied. For example,  USDA disclosed improper payments of $1.4 billion for the Food Stamp  Program, but only acknowledged making improper payments without  providing a specific amount for its Federal Crop Insurance Corporation  (FCIC).
Three of the nine agencies reported improper payments as expenses for 4  programs, while five agencies reported them as accounts receivable for 10  programs. Three agencies acknowledged making improper payments, but  did not quantify the dollar amounts for three programs. Eleven of the CFO  Act agencies did not report any information related to improper payments  in their financial statement reports. Such inconsistent financial reporting  makes it difficult to quantify the extent of the problem governmentwide  and indicates a need for more guidance. To address this issue, OMB is  contemplating revising its guidance to provide uniform reporting and  disclosure of improper payments by management. In addition, OMB has  made error reduction in the distribution of benefits a Priority Management  Objective, which is monitored by the OMB Director. OMB works with  agencies on an individual basis to address these issues in ways most  appropriate to the individual programs. For example, OMB is working with  ED and the Department of the Treasury to examine ways to implement new  statutory authorization for IRS verification of income of student aid  applicants, in accordance with existing tax and privacy laws.
Table 1 lists the nine agencies and the manner in which they reported  improper payments in their fiscal year 1998 financial statement reports for  the 17 programs identified. See appendix II for a description of these  agencies and/or their programs.
The extent of the problem for certain of these agencies’ programs is  unknown because agencies are not performing comprehensive quality  control reviews to estimate the range and/or identify rates of improper  payments. For example:
SSA reported $2.5 billion in gross receivables as overpayments related  to its Supplemental Security Income (SSI) program—a $27 billion  program annually providing cash assistance to about 7 million  financially needy individuals who are aged, blind, or disabled. These  receivables consist of amounts specifically identified over multiple  years based on SSA’s discussions with recipients and the results of its  efforts in matching data provided by recipients with information from  other federal and state agencies, such as IRS 1099 information, VA  benefits data, and state-maintained earnings and employment data. SSA  reports a statistically based accuracy rate for new SSI awards of 92.5  percent. However, this accuracy rate does not consider the medical  eligibility of recipients. Since the majority of SSI program dollars are  historically directed to recipients with medical disabilities, refining the  methodology to factor in any questions concerning medical risk is  critical to determining improper payments within this program.  According to SSA’s year 2000 performance plan, SSA is developing a  comprehensive mechanism for quantifying dollar errors related to SSI  disability benefit payments. However, no timing for implementation has  yet been determined.
Although HHS reported $12.6 billion in improper payments for its $177 billion Medicare Fee-for-Service program based on a statistically  valid sample, it has not attempted to estimate improper payments for  the $98 billion Medicaid program. The HHS IG reported that the Health  Care Financing Administration (HCFA)—the HHS agency responsible  for overseeing the Medicaid program—has no comprehensive quality  assurance program or other methodology in place for estimating  improper Medicaid payments. Administered by state agencies, Medicaid  provided health care services to approximately 33 million low-income  individuals. The IG recommended that HCFA work with the states to  develop a methodology to determine the range of improper payments in  the Medicaid program. However, developing a statistically valid  methodology to estimate Medicaid improper payments poses a  challenge. Other state-administered or intergovernmental programs also  face difficulties in developing estimates due to the variable nature of the  programs and the need to gain the cooperation of state and local  government officials nationwide. HCFA has recently drafted a strategy  for discussing this issue with states.

		Other Programs and Activities Have Improper Payments or Are at Risk

Previous audits conducted by GAO and IGs have identified several other  agencies, such as DOD, ED, and IRS that had improper payments. As  illustrated in figure 2, between fiscal years 1994 and 1998, DOD contractors  voluntarily returned $984 million that DOD’s Defense Finance and  Accounting Service (DFAS) erroneously paid them—resulting from  inadvertent errors, such as paying the same invoice twice or misreading  invoice amounts. As a result, the contractors, as opposed to DOD, were  determining the existence and amount of erroneous payments. As part of  its stewardship duties, DOD is responsible for making these  determinations. However, DOD has not yet made a comprehensive estimate  of improper payments to its contractors, and there are likely more  overpayments that have yet to be identified and returned. With an annual  budget of over $130 billion in purchases involving contractors, DOD would  benefit from estimating the magnitude of improper payments.
ED is another agency with improper payments. ED’s student financial  assistance programs have been designated as high risk since our  governmentwide assessment of vulnerable federal programs began in 1990.  ED provides over $8 billion in grants to assist over 4 million students in  obtaining postsecondary education. As discussed in our January 1999  Performance and Accountability Series, ED-administered student  financial aid programs have a number of features that make them  inherently risky. They provide grants to a population composed largely of  students who would not otherwise have access to the funds necessary for  higher education. ED estimates that $78.9 million, or 1 percent, was  misspent by grantees in fiscal year 1997; however, an ED IG report  indicates that this estimate may be incomplete. A more complete estimate  would allow ED to identify areas of greater risk and target corrective  actions.
Also, the Earned Income Tax Credit (EITC) program—a refundable tax  credit available to low income, working taxpayers—has historically been  vulnerable to high rates of invalid claims. During fiscal year 1998, IRS  reported that it processed EITC claims totaling over $29 billion, including  over $23 billion (79 percent) in refunds. Of the 290,000 EITC tax returns  with indications of errors or irregularities that IRS examiners reviewed,  $448 million (68 percent of the $662 million claimed) was found to be  invalid during fiscal year 1998. The IRS has not disclosed any estimated  improper payments in its financial statement reports. IRS examinations of  tax returns claiming EITC are important control mechanisms for detecting  questionable claims and providing a deterrent to future invalid claims.  However, because examinations are often performed after any related  refunds are disbursed, they are less efficient and effective than preventive  controls designed to identify invalid claims before refunds are made. OMB  has worked with IRS to start a 5-year compliance initiative to minimize  losses in this area. This initiative is intended to increase taxpayer  awareness, strengthen enforcement of EITC requirements, and research  sources of EITC noncompliance. EITC compliance efforts include a  significant focus on pre-refund fraud/error prevention and detection. For  example, the EITC compliance initiative includes recalculation of  erroneous overclaims, identification of questionable returns, and initiation  of many EITC audits, all of which should occur prior to issuing refunds.  However, our work has shown that even in cases where IRS has identified  potentially erroneous claims, it released refunds prior to completing the  reviews.
Other types of federal programs and activities that undergo audits also risk  making improper payments. Internal control deficiencies and other  problems similar to those prevalent in programs that have acknowledged  improper payments suggest that additional federal financial assistance  programs, contract management activities, and other miscellaneous  programs may also be particularly vulnerable to disbursing improper  payments. For example, USDA’s IG reported that the Natural Resources  Conservation Service (NRCS) exhibited significant control weaknesses  when determining if farmers qualified for annual payments under the  Conservation Reserve Program (CRP). CRP, which disbursed $1.7 billion in  fiscal year 1998, provides incentives and financial assistance to farmers and  ranchers to retire environmentally sensitive land from production. Due to  these control weaknesses, the USDA IG noted that CRP risked making  incorrect decisions. These incorrect decisions could result in USDA  disbursing improper payments. Without a measurement of the extent of  improper payments, it is difficult to assess the appropriate level of  management attention needed to mitigate these program risks.
Once agencies have implemented methodologies to estimate the amount of  improper payments, they can use this information to develop error rates.  Agencies may find it useful to compute the dollar amount of errors as a  percentage of program outlays, and the number of transaction errors as a  percentage of the total number of transactions processed. Management  could then use these error rates to evaluate whether further action is  needed to address improper payments.

	Internal Control Weaknesses Cause Improper Payments

Pervasive deficiencies in internal control across the federal government  result in the payment of federal funds for purposes other than those  originally intended. For example, several agencies face challenges in  ensuring adequate controls for assessing beneficiaries’ initial and  continued eligibility due to ineffective data sharing and sources of  information. Also, some agencies have insufficient oversight and  monitoring mechanisms, such as site visits and reviews of appropriate  documentation, to ensure the validity of payments—particularly for federal  financial assistance programs. Systems deficiencies also contribute to  improper payments when accurate or timely data are not always available  for payment decisions. Figure 3 illustrates our categorization of internal  control weaknesses that contribute to improper payments within the 17  programs where agencies reported improper payments.

		Internal Controls Over Eligibility Determinations Are Often Inadequate

As highlighted in our reviews of GAO and IG reports, ensuring adequate  controls over determining beneficiaries’ eligibility often proves difficult for  many agencies. Initial and/or continued eligibility determination problems  were noted for 10 of the 17 programs that reported improper payments. For  instance, initial eligibility for HUD’s Section 8 and Public Housing  programs—providing $18.6 billion in rental assistance for lower income  families in fiscal year 1998—is primarily based on an applicant’s self- reported income. According to HUD’s IG, HUD regulations require owners  and housing authorities to verify the information provided, but this process  often lacks effective controls to ensure that verifications are adequately  performed. In addition, the IG reported that recipients do not always report  complete or accurate information. Consequently, improper payments have  occurred. To improve HUD’s procedures for verifying participant’s income  and correct this long-standing problem, the HUD IG recommended the  following actions: (1) on-site reviews to assess first hand the housing  subsidy administrator’s control environment, (2) confirmations with third  parties, and (3) computerized income verification matching to IRS and SSA  records. As discussed in our January 1999 Performance and Accountability  Series, HUD unveiled a multifaceted plan to identify households’  unreported and/or underreported income in fiscal year 1998. The plan  includes steps to (1) further expand HUD’s computer matching efforts, (2) strengthen recertification policies and procedures, (3) ensure that  HUD’s information systems have accurate and complete data on tenants,  (4) institute penalties, and (5) perform monitoring and oversight functions.  OMB is also working with HUD in reducing payment errors in rental  assistance due to recipient underreporting of income.
In another example, the DOL is challenged to correctly identify eligible  recipients for its Unemployment Insurance (UI) program, which in fiscal  year 1998 provided over 7 million unemployed workers with about $20  billion in temporary financial support to facilitate re-employment. The DOL  IG reported that state-administered claims offices, responsible for  determining eligibility requirements, have ineffective controls to verify  information provided by claimants. Claimants declaring themselves to be  U.S. citizens are not screened for immigration legal status, which in some  cases has resulted in improper payments. For example, ineligible  individuals, including illegal aliens, were paid millions of dollars over an  approximate 2-year time frame because states did not perform up-front  verification of social security numbers provided by claimants. OMB has  worked with DOL to secure a congressional authorization for an integrity  initiative focused on reducing benefit overpayments and improving UI tax  compliance.
Our analysis of GAO and IG reports also showed that, as with initial  eligibility determinations, agencies’ controls are insufficient to ensure the  continuing eligibility of beneficiaries for 8 of the 10 programs with  eligibility determination problems. For example, SSA is mandated to  perform reviews for continued eligibility for program benefits to aid in  preventing fraud, waste, and abuse in the Disability Insurance (DI)  program—a program to provide a continuing income base for more than 6 million disabled workers and eligible members of their families. However,  acknowledged delays in performing these continuing disability reviews  have undermined the effectiveness of this control. Because SSA disburses  approximately $50 billion in disability benefit payments annually, it is  critical that these reviews be performed promptly; otherwise, beneficiaries  who are no longer eligible for this program may inappropriately receive  benefits. SSA has a multiyear plan to become current with all disability  reviews by 2002.
Since 1996, the HUD IG has reported that HUD’s housing subsidy  programs experience improper payments when beneficiaries’ income  status changes and they do not notify housing authorities to adjust their  benefits. Various legal, technical, and administrative obstacles impede  housing authorities from ensuring that tenants report all income sources  during the periodic determination to assess continuing eligibility. HUD has  encouraged housing authorities to computer match with state agencies to  detect unreported income, since housing authorities lack the legislative  authority to access IRS and SSA data. However, little progress has been  made in this area, since most housing authorities do not have the systems  expertise to effectively implement this technique.
In May 1998, the President’s Council on Integrity and Efficiency (PCIE)  issued a report to highlight the need for increased cooperation among  federal agencies in sharing income/financial resource information about  federal program beneficiaries in an effort to improve controls over  eligibility verification. For example, the report indicated that the DOL IG’s  ability to ensure eligibility of Unemployment Insurance Program recipients  could be enhanced by verifying employment status of those recipients with  IRS or SSA wage records. Currently, DOL’s IG must coordinate with states,  requiring subpoena authority in some cases, to obtain this information  from states. Also, governmentwide, there is no omnibus authority for  efficiently and effectively obtaining access to some data. We have work  ongoing on this issue and will report at a later date.

		Oversight and Monitoring Controls Are Insufficient

Our analysis of GAO and IG reports showed that insufficient federal  monitoring and oversight of program expenditures exist in 7 of the 17  programs where agencies reported improper payments. Effective federal  monitoring assesses the quality of performance over time. It includes  regular management and supervisory activities, such as periodic  comparisons of expected and actual results and reconciliation of data to its  source. Generally, activities such as site visits, reviews of progress and  financial reports filed by contractors and grantees, and reviews of  contracts and grant agreements are techniques often used by federal  officials to oversee and monitor programs.
The lack of sufficient oversight and monitoring controls can lead to  improper payments by fostering an atmosphere that invites fraud. For  instance, both we and the HHS IG have reported that HCFA’s insufficient  oversight of the Medicare program hampered it from preventing improper  Medicare payments. To fulfill its primary mission of providing health care  coverage for approximately 39 million aged individuals, Medicare pays  contractors to process claims for health care services. These contractors  are responsible for all aspects of claims administration and serve as HCFA’s  front line of defense against fraud and abuse. Yet, vulnerabilities in  contractors’ procedures for paying Medicare claims have provided a lax  environment. This environment permitted unscrupulous providers  opportunities to obtain additional unjustified payments. These activities  include billing for services never rendered, misrepresenting the nature of  services provided, duplicate billing, and providing services that were not  medically necessary. Although HCFA’s most recent estimate of improper  payments in its $177 billion Medicare Fee-for-Service program amounted to  $12.6 billion, this estimate did not consider improper payments made as  part of another $33 billion Medicare Managed Care program. Therefore,  the impact of insufficient monitoring and oversight on improper payments  could be more extensive than current estimates indicate. To enhance  HCFA’s oversight function, the HHS IG recommended that HCFA perform  risk assessments of contractor functions to identify those functions that  significantly affect the improper payment of claims. This would enable  HCFA to target areas and strengthen related controls.
The Agency for International Development (AID), which spent $5.2 billion  in fiscal year 1998 to provide assistance to developing countries, also  suffers from insufficient monitoring and oversight. We reported that AID  does not have accurate information to ensure that its operations and  programs are being managed cost-effectively and efficiently. In addition,  AID’s IG reported weaknesses in monitoring relief and rehabilitation  activities. For example, mission employees in Rwanda, who were asked to  monitor relief and rehabilitation activities, did not have basic  documentation they needed to monitor relief efforts, such as copies of  grant agreements, progress reports, and financial status reports. The  impact of this control deficiency on improper payments was not quantified.
Based on previous GAO and IG reports, insufficient oversight and  monitoring is also present in other programs that have improper payments  but did not report them. For example, according to the ED IG, audits  performed under the Single Audit Act are ED’s principal control for  ensuring that student financial assistance funds were being disbursed to  eligible students in proper amounts. However, the IG noted that ED did not  (1) ensure that all audit reports were received, (2) follow-up on problems  identified, or (3) have a systematic process in place to measure trends in  the misspending by grantees. The IG recommended that the department (1) complete the development of an ongoing process to identify  missing/delinquent audit reports, (2) take corrective actions against  delinquent audit report filers, and (3) develop a systematic methodology to  quantify costs to measure the effectiveness of monitoring efforts and  trends among institutions. The IG also recommended that the department  use a risk management model to determine how to effectively deploy  limited monitoring resources. Without this type of information, the  department is unable to make cost-benefit decisions to determine whether  to strengthen preventive internal controls.

		Systems Deficiencies Exist

Deficiencies in agencies’ automated systems, or the lack of systems,  prevent personnel from accessing reliable and timely information, which is  integral to making disbursement decisions. As a result, improper payments  frequently occur because agency personnel lack needed information, rely  on inaccurate data, and/or do not have timely information. Agency systems  deficiencies have been identified in prior GAO and IG reports for 7 of the 17  programs reporting improper payments. For example, we reported that  interstate duplicate participation in the Food Stamp Program goes  undetected because there is no national system to identify participation in  more than one state. While states may currently learn of some duplicate  participation from SSA or through their own matching efforts with  neighboring states, they rely primarily on applicants and clients to  truthfully identify who resides in their households. USDA’s Food and  Nutrition Service (FNS) manages the Food Stamp Program through  agreements with state agencies. Because USDA’s most current annual  estimate indicates that food stamp overissuances account for over 7  percent of the program’s $20 billion in annual benefit expenses, it is critical  that action be taken to strengthen systems and related controls. FNS is  considering whether to establish a central system to help ensure that  individuals participating in the Food Stamp Program are not being  improperly included in more than one state.
System deficiencies are also a factor for agency programs that did not  disclose improper payments. For example, DOD’s payment process suffers  from nonintegrated computer systems that require data to be entered more  than once in different systems, sometimes manually, which increases the  possibility of erroneous or incomplete data. Also, DOD contracts may have  from 1 to over 1,000 accounting classification reference numbers which  involve extensive data entry, also increasing the chance for errors. As  previously discussed, DOD contractors returned about $984 million  between fiscal years 1994 and 1998 to the DFAS in Columbus, Ohio, as a  result of duplicate and erroneous payments. We also reported that  pervasive weaknesses in access controls in the Air Force vendor payment  system application including inadequate separation of duties and other  internal control deficiencies resulted in fraudulent payments and left DOD  vulnerable to abuse. While no internal control system at DOD, or any other  agency, can guarantee the elimination of improper payments and the  prevention of fraud, resolving DOD’s systems problems and designing  effective solutions to reduce related risks are of critical importance,  particularly since DOD expenditures comprise nearly half of the federal  government’s discretionary spending. We made several recommendations  to resolve these deficiencies, such as suggesting that DOD limit vendor  payment system access levels to those appropriate for the user’s assigned  duties. DOD has a number of initiatives underway to help ensure that  payments are proper—including the development of a standard core  system for procurement. However, the new system is not scheduled to be  fully implemented for several years.
Similar to DOD, ED also lacks a fully functional integrated database to  administer over $7 billion in federal student financial aid programs. As a  result, it remains vulnerable to losses because the department and schools  often do not have accurate, complete, and timely information on program  participants needed to effectively and efficiently operate and manage its  programs. We have reported that a lack of common identifiers for  students and institutions makes it difficult to track them across systems.  Because each system uses different combinations of data fields to uniquely  identify, access, and update student records, duplicate student records  have been identified in key systems. Many of ED’s student financial aid  systems were developed independently over time by multiple contractors.  Consequently, ED relies on various contractors to operate its numerous  systems using different hardware and software. We recommended that  ED (1) develop and enforce a departmentwide systems architecture and (2) ensure that the developed systems architecture addresses systems  integration, common identifiers, and data standards. The Office of Student  Financial Assistance has developed its Modernization Blueprint to guide  the development of an integrated financial aid delivery system, which ED  officials stated depicts the first 3 years of a continuing process of  modernizing its system.

	Program Design Issues Contribute to Improper Payments

Often, the nature of a program can contribute to the disbursement of  improper payments. Many programs have complex program regulations,  and several emphasize expediting payments or have high volumes of  transactions to process. These program design issues inherently increase  the potential for improper payments, yet such payments are virtually  impossible to eliminate. However, strengthening business practices and  developing targets or goals for reducing improper payments can mitigate  the risk of improper payments occurring. Also, measuring progress in  relation to such targets or goals may serve as a measure of the  effectiveness of an agency’s improper payment reduction program.  According to our analysis of GAO and IG reports, program design issues  were present in programs with improper payments as illustrated in figure 4.
Some agencies currently have programs that use targets or goals to aid in  reducing improper payments. One example is the Medicaid program,  wherein states are responsible for determining the eligibility of  beneficiaries and disbursing related federal funds. According to HHS  regulations, states must have a payment error rate no greater than 3  percent due to errors in eligibility determinations or HHS may disallow  medical assistance payments. Another example is the Food Stamp Program  administered by state agencies under USDA regulations. In this program,  USDA may pay 50 percent of each state’s cost of administering the  program. To encourage states to reduce their payment error rates, the  program includes an incentive. This incentive allows USDA to increase the  50 percent reimbursement for administrative costs, by as much as 10  percent, to a total of 60 percent based on reductions in states’ error rates  below 6 percent and on other conditions. State agencies also may be  required to make payments to USDA if their payment error rate exceeds  USDA’s national performance measure. State agencies may be required to  invest in improving their administration of the program rather than making  refunds.

		Complex Program Regulations Increase Risk of Improper Payments

Program complexity inherently increases the risk of improper payments.  Previous GAO and IG reports disclosed this condition for 11 of the 17  programs with reported improper payments. For example, the complexity  of state Medicaid programs provide challenges for federal oversight  because of the variations in managing these programs on a state-by-state  basis. Medicaid—the primary source of health care for 12 percent of the  U.S. population—provides matching grants to states based on formulas  encompassing states’ per capita income. States have a variety of options for  program administration. They can elect to administer the program at the  state or county level. Also, they can operate a fee-for-service program, a  managed care program, or some combination of the two. States may also  elect to operate their claims processing systems directly or contract with  private vendors. Because of the size of this program—it disbursed nearly  $98 billion in federal funds during fiscal year 1998—it is critical that HCFA  comprehensively estimate its improper payments to assess its risk and  determine appropriate actions to strengthen oversight controls. Such  actions would help to ensure that HCFA is fulfilling its stewardship  responsibilities for this program.
Block grants present unique challenges to providing adequate  accountability for federal funds. Block grants give states flexibility to adapt  funded activities to fit state and local needs and devolve major  responsibilities to the states themselves to oversee these programs. Under  the Temporary Assistance for Needy Families (TANF) block grant, states  are authorized to collectively spend up to $16.5 billion annually to provide  assistance to needy families and promote work activities. To implement  TANF, states and localities determine the range of services and eligibility  criteria.
Many states manage the TANF, Food Stamp, and Medicaid programs  through local offices, and depending upon the state, the same staff may be  determining eligibility and benefit levels for all three programs. These  programs’ eligibility rules and income tests are complex and differ from  one another; thus, although all three programs consider assets and  household income and size, the extent to which they do so varies. A  requirement that recipients notify the staff when their income changes  further complicates eligibility determinations—staff must use three sets of  eligibility criteria to recalculate benefit levels. Given the complexity and  diversity of eligibility rules among these three programs, it is a challenge at  all levels of government to adequately oversee these programs, and  improper payments are sometimes made.

		Speed of Service Issues, Coupled With Resource Constraints, Impact Improper Payments

Many programs’ missions emphasize speed of service. As a result, errors  are more likely to occur, resulting in improper payments. We considered  this condition to exist for 6 of the 17 programs with reported improper  payments. It is also present in agencies that had improper payments but did  not report them. For example, IRS’ ability to successfully meet the financial  management challenges it faces must be balanced with the competing  demands placed on its resources by its customer service and tax law  compliance responsibilities. IRS is mandated to process tax refunds within  45 days of receipt of a tax return. If the refund is not processed within this  time, IRS must remit interest payments to the taxpayer. However, IRS’  systems were not designed to handle this volume of information within  these time frames. Further, we reported that IRS lacks critical preventive  controls, such as comparing the information on tax returns to third-party  data such as W-2s (Wage and Tax Statements) in a timely manner. As a  result, the agency is unable to identify and correct discrepancies between  these documents that allow duplicate refunds to be issued. Although IRS  has detective (post-refund) controls in place, they often occur months after  the returns are submitted and processed. Insufficient preventive controls  expose the government to potentially significant losses due to  inappropriate disbursement of refunds. According to IRS records, IRS’  investigators identified over $17 million in alleged fraudulent refunds that  had been disbursed during the first 9 months of calendar year 1998.  However, the full magnitude of improper payments disbursed by IRS is  unknown.
The Federal Emergency Management Agency’s (FEMA) Disaster Relief  program is another example of how providing service—in this case,  providing assistance to disaster victims—as quickly as possible increases  the risk of improper payments being made. FEMA provided over $2.2 billion in disaster relief in fiscal year 1998 to assist individuals,  families, communities, and states in responding to and recovering from  disasters, such as floods, hurricanes, and tornadoes. FEMA has set  demanding performance goals for its disaster assistance activities, from  acting within 12 hours on requests to supply disaster victims with water,  food, and shelter, to processing disaster housing applications from eligible  individuals within an average of 8 days. The IG has noted that achieving  these goals will require FEMA to streamline operations and apply new  technology to reduce waste and duplication of benefits. In past years, the  IG has identified specific cases of individuals filing false claims to obtain  FEMA disaster assistance; however, the full extent of this problem has not  been quantified.
We recognize that delivering services expeditiously while ensuring that the  right amount is paid to the right person poses a significant challenge for  many agencies. Without state-of-the-art information management systems  and appropriate sharing of data, agency personnel cannot readily access  needed information for payment decisions and thus are hampered from  preventing improper payments. Due to the diverse nature of programs,  consulting with congressional oversight bodies would assist agencies when  establishing targets and goals to reduce improper payments without  impairing service delivery and be an important means of obtaining  agreement with the Congress as to expected results for each program.

		Large Volumes of Transactions Increase Risk of Improper Payments

A significant volume of claims or payments is also a factor that contributes  to improper payments, especially when compounded with resource  constraints. Large volumes of claims were identified in 4 of the 17  programs with reported improper payments. For example, in a single year,  Medicare contractors process over 800 million claims with limited time for  processing. IRS is another agency with large volumes of activity. For  instance, in fiscal year 1998, it processed 1.4 billion tax and information  returns, with 88 million involving refunds. Given the high volume of  transactions, inadvertent clerical errors are more likely and they could  result in improper payments.

	Potential Year 2000 Problem Increases the Need for Effective Internal Controls

While implementing effective internal controls is and will be an ongoing  concern, the Year 2000 problem presents a unique challenge to ensuring  effective payments controls. Many of the federal government’s computer  systems were originally designed and developed 20 to 25 years ago, are  poorly documented, and use a wide variety of computer languages, many of  which are obsolete. Some applications include thousands, tens of  thousands, and even millions of lines of code, each of which must be  examined for date-format problems. Moreover, federal programs are also  vulnerable to Year 2000 risks stemming from items outside of their control,  such as the Year 2000 compliance of critical business partners. Unless  corrected, Year 2000 failures may have a costly, widespread impact on  federal, state, and local governments—including the extent to which  improper payments are made.
These many risks increase the possibility that Year 2000 induced failures  could result in increased number and amounts of improper payments as  agencies attempt to sustain their core business functions. Further,  nonexistent or ineffective internal controls, as previously discussed,  increase this risk. Accordingly, the federal government could potentially  distribute additional improper payments.
While the Year 2000 problem increases the risk of improper payments, as  we reported earlier this year, it also provides the opportunity to  institutionalize valuable lessons, such as the importance of reliable  processes and reasonable controls. Our Year 2000 enterprise readiness  guide calls on agencies to develop and implement policies, guidelines, and  procedures in such critical areas as configuration management, quality  assurance, risk management, project scheduling and tracking, and  performance metrics. To address the Year 2000 problem, several agencies  have implemented such policies. For example, HCFA has implemented  policies and procedures related to configuration management, quality  assurance, risk management, project scheduling and tracking, and  performance metrics for its internal systems.

	Most Agency Performance Plans Do Not Comprehensively Address Improper Payments

As previously discussed, nine agencies acknowledged making improper  payments in 17 programs for fiscal year 1998. These agencies’ fiscal year  2000 performance plans, under the Results Act, included performance  goals and strategies that address key internal control weaknesses in four  programs. For nine programs, the respective agencies did not  comprehensively address improper payments in their plans. Improper  payments were not addressed at all for the remaining four programs.  Appendix III contains our assessment of the extent to which each agency  reporting improper payments addressed them in its performance plan. For  these and other agencies at risk, the first step in addressing improper  payments is to identify the magnitude of these payments. Agencies can  then analyze the characteristics of these cases to identify the  circumstances and root causes leading to the improper payments. Using  this analysis, agencies can make cost-benefit decisions on systems and  other internal control improvements to mitigate the risk of improper  payments and implement performance goals to manage for results.
The use of appropriate performance goals relating to improper payments  can focus management attention on reducing such payments. For example,  HHS has reported a national estimate of improper payments in its Medicare  Fee-for-Service benefits since fiscal year 1996. For fiscal year 1998, HHS  reported estimated improper payments of $12.6 billion, or more than 7  percent, in Medicare Fee-for-Service benefits—down from about $20  billion, or 11 percent, reported for fiscal year 1997 and $23.2 billion, or 14  percent, for fiscal year 1996. As discussed earlier, HCFA would also benefit  from identifying improper payments and establishing related performance  goals for its $98 billion Medicaid program.
Analysis of improper Medicare payments, as part of the financial statement  preparation and audit process, helped lead to the implementation of  several initiatives intended to identify and reduce improper payments.  These initiatives included prepayment reviews of selected claims, an  increase in the overall level of prepay and postpay claims reviews, and  medical reviews of providers identified as having nonstandard billing  practices. Annual estimates of improper payments in future audited  financial statements will provide information on the progress of these  initiatives.
Without a systematic measurement of the extent of the problem,  management cannot determine (1) if the problem is significant enough to  require corrective action, (2) how much to invest in internal controls or (3) the success of efforts implemented to reduce improper payments. In  fiscal year 1998, VA piloted a new measurement system to determine the  accuracy of veterans’ benefit payments—the Systematic Technical  Accuracy Review (STAR) system. Using the STAR system, the Veterans  Benefits Administration (VBA)—a component of VA—determined that its  regional offices were accurate only 64 percent of the time when making  initial benefit decisions. This measure indicated that VBA should focus  additional attention on ensuring that correct decisions are made the first  time. Using the 64 percent as a baseline, VBA established a goal of  achieving a 93 percent accuracy rate by fiscal year 2004. Although it is too  early to determine whether VBA’s efforts to meet its accuracy improvement  goal will be successful, the new STAR system represents an important step  forward by VBA in identifying and correcting the causes of errors and  having a baseline against which to measure results and progress.
Currently, there is no governmentwide guidance on how to develop  mechanisms for identifying and estimating improper payments, which  would help agencies to identify whether a need exists to address improper  payments in their annual strategic and performance planning processes.  Developing such mechanisms would enable each agency’s management to  better understand the full extent of its problem. With these mechanisms in  place, appropriate cost-beneficial corrective actions could be designed and  implemented.
Although no governmentwide guidance exists for identifying and  estimating improper payments, the CFO and Results Acts provide a  framework for OMB and agencies to report on efforts to minimize improper  payments. Under the CFO Act, OMB is required to prepare and annually  revise a governmentwide 5-year financial management plan and status  report that discusses the activities the executive branch has undertaken to  improve financial management in the federal government. Each agency  CFO is responsible for developing annual agency-specific plans to support  the governmentwide 5-year financial management plan. The CFO Act also  requires OMB to provide the governmentwide 5-year plan and status report  to appropriate congressional committees. This reporting process keeps the  appropriate congressional committees informed of agencies’ efforts to  improve accountability and stewardship over federal funds.
As discussed earlier, under the Results Act, agencies are required to  prepare strategic plans that identify goals and objectives at least every 3  years. Complementing the strategic plans are annual performance plans  that set annual goals with measurable target levels of performance, and  annual performance reports that compare actual performance to the  annual goals. The Results Act also requires that OMB annually prepare a  governmentwide performance plan as a part of the President’s budget. The  agency performance plans are the foundation for OMB’s governmentwide  plan.
The framework afforded by the CFO and Results Acts suggests that  agencies have a variety of mechanisms for reporting on improper  payments, depending upon the magnitude or significance of those  payments. OMB calls for mission-critical management problems—those  which prospectively and realistically threaten achievement of major  program goals—to be discussed in agencies’ strategic plans and also in  their annual performance plans under the Results Act. In our view,  improper payments can reasonably be considered mission-critical  problems for certain programs, including the 17 programs with reported  improper payments discussed in this report. For example, for programs  providing financial assistance benefits, such as the Food Stamp Program,  maintaining integrity and accuracy in the payment of benefits is critical to  the missions of the programs. For those agencies where these payments  are not deemed mission critical, an appropriate vehicle for managing  improper payments would be agency 5-year financial management plans  developed under the auspices of the CFO Act, or other vehicles such as  action plans. Figure 5 shows how the CFO and Results Acts provide a  broad structure under which agencies can report the status of their efforts  to reduce improper payments.
We evaluated the extent to which agencies that reported improper  payments in their financial statement reports also addressed improper  payments in their fiscal year 2000 performance plans. HHS, SSA, VA, and  OPM are four agencies that comprehensively addressed improper  payments using this framework. These agencies’ performance plans  included both performance goals and strategies for minimizing improper  payments for the Medicare Fee-for-Service, Old Age and Survivors  Insurance, Veterans Benefits, and Federal Employees’ Life Insurance  programs. As shown in figure 6, these programs represent 24 percent of  those that reported improper payments or 61 percent of the total program  dollars for the 17 programs. In contrast, 7 of the 17 programs (42 percent)  did not or only cursorily addressed improper payments in their  performance plans, and 34 percent addressed them in a moderate (i.e., less  than comprehensive) manner. Some of the nine agencies we reviewed may  have addressed these issues in their 5-year financial management,  component, or other agency action plans. However, only HHS’ performance  plan contained a reference or “pointer” to another plan that addressed  improper payments. Because some agencies do not appear to be  addressing improper payments in their performance plans, they may not  consider the prevention of improper payments a priority or focus adequate  attention on this issue.
OMB Circular A-11, Part 2, which serves as implementing guidance for  agencies in preparing and submitting Results Act strategic and  performance plans, states that agency plans should include goals for  resolving mission-critical management problems. Circular A-11 also directs  agencies to describe actions taken to address and resolve these issues in  their performance plans by developing performance goals and discussing  strategies. We have also advocated that agencies address mission-critical  management problems, in their performance plans, by developing  performance goals and discussing strategies.
Our analysis indicates that additional guidance on improper payments may  be helpful to agency managers. Without an appropriate methodology in  place for estimating and reporting improper payments, the Congress,  agency managers, and the public are not aware of the full extent of this  problem. As a result, agency managers cannot effectively use performance  goals for managing improper payments.

	Conclusions

Although reported amounts of improper payments totaled $19.1 billion in  fiscal year 1998, many agencies are not identifying, estimating, and  reporting the nature and extent of improper payments. As a result, the  magnitude is largely unknown. Based on previous audit reports, inadequate  internal control and program design issues are the primary causes of  improper payments for numerous federal programs. Compounding this  problem, some agencies have not recognized the need to address and  resolve mission-critical improper payment problems by discussing steps  taken in their strategic plans and incorporating appropriate goals into their  performance plans.
Economic and demographic projections indicate that federal expenditures  in certain programs will grow significantly. With billions of dollars at risk,  agencies will need to continually and closely safeguard those resources  entrusted to them and assign a high priority to reducing fraud, waste, and  abuse. A first step for some agencies will involve developing mechanisms  to identify, estimate, and report the nature and extent of improper  payments annually. Without this fundamental knowledge, agencies cannot  be fully informed about the magnitude, trends, and types of payment errors  occurring within their programs. As a result, most agencies cannot make  informed cost-benefit decisions about strengthening their internal controls  to minimize future improper payments or effectively develop goals and  strategies to reduce them. Consulting with congressional oversight  committees on the development of these goals and strategies is also  important to obtaining consensus on how to address this multibillion dollar  problem.

	Recommendations

To assist agencies in estimating and managing improper payments, we  recommend that the Director of the Office of Management and Budget,  through the Deputy Director for Management and OMB’s Office of Federal  Financial Management, within the framework of the CFO and Results Acts:
Develop and issue guidance to executive agencies to assist them in (1) developing and implementing a methodology for annually estimating  and reporting improper payments for major federal programs and (2) developing goals and strategies to address improper payments in  their annual performance plans.
Require agencies to (1) include a description of steps being taken to  address improper payments in their strategic and annual performance  plans when the level of improper payments is mission critical and (2) consult with congressional oversight committees, as appropriate, on  the projected target levels and goals for estimating and reducing  improper payments, as presented in the agencies’ annual performance  plan.

	OMB Comments and Our Evaluation

In commenting on a draft of this report, OMB agreed that its focus on  improper payments should be expanded. OMB agreed with our first  recommendation calling for guidance to assist agencies in developing and  implementing a methodology for annually estimating and reporting  improper payments for major federal programs and developing goals and  strategies to address improper payments in their annual performance  plans.
Regarding the first element of our second recommendation, OMB  expressed concern that it may be inappropriate for agency strategic plans  to always include a general goal or objective for reducing improper  payments. OMB said it would expect agencies to include goals or  objectives in their strategic plans if the level of improper payments was  determined to be mission critical. We agree. As stated in our report, it was  not our intention that goals or objectives for reducing improper payments  be universally included in agency strategic plans. Specifically, within the  framework of the CFO and Results Acts, and as shown in figure 5, judgment  needs to be exercised so that only mission-critical management problems  are addressed in agency strategic and performance plans. To avoid any  misconception regarding this issue, we have clarified our recommendation  accordingly.
With regard to our recommendation to consult with the Congress on  specific goals and targets for improper payments, OMB noted that  congressional consultation is required by the Results Act and said that  agencies interact with the Congress throughout the year as part of the  normal appropriations and oversight processes. OMB stated that this level  of interaction provides the opportunity for both the agency and the  Congress to raise and discuss improper payment issues and should be  adequate. In this regard, it will be important that these interactions take  place. As discussed in our report, several agencies have not reported  improper payments in their performance plans even when they could  reasonably be considered mission critical. OMB’s comments are reprinted  in appendix IV. OMB also provided informal technical comments, which we  have incorporated as appropriate.
As agreed with your office, unless you publicly announce contents of this  report earlier, we will not distribute it until 30 days from its date. Then, we  will send copies to Senator Joseph Lieberman, Ranking Minority Member,  Senate Committee on Governmental Affairs; Representative Dan Burton,  Chairman, and Representative Henry A. Waxman, Ranking Minority  Member, House Committee on Government Reform; Senator Pete V.  Domenici, Chairman, and Senator Frank R. Lautenberg, Ranking Minority  Member, Senate Committee on the Budget; Representative John R. Kasich,  Chairman, and Representative John M. Spratt, Jr., Ranking Minority  Member, House Committee on the Budget. We will also send copies to the  Honorable Jacob J. Lew, Director of the Office of Management and Budget;  the heads of the 24 CFO agencies; and respective agency CFOs and  Inspectors General. Copies will also be made available to others upon  request.
This report was prepared under the direction of Gloria L. Jarmon, Director,  Health, Education, and Human Services Accounting and Financial  Management, who may be reached at (202) 512-4476 or by e-mail at  jarmong.aimd@gao.gov  if you or your staff have any questions. Staff  contacts and other key contributors to this letter are listed in appendix V.

Executive Departments and Agencies Covered by the CFO Act

Agencies/Programs/Activities With Reported Improper Payments Included in the Agencies’ Fiscal Year 1998 Financial Statements

	Agency for International Development

The U.S. Agency for International Development (AID) was established in  1961 pursuant to the Foreign Assistance Act of 1961. AID manages U.S.  foreign economic and humanitarian assistance programs and helps  countries recover from disaster, escape poverty, and become more  democratic. AID’s mission is to contribute to U.S. national interests by  supporting the people of developing and transitional countries in their  efforts to achieve enduring economic and social progress and to participate  more fully in resolving the problems of their countries and the world. In  fiscal year 1998, AID’s total outlays for its various programs were $5.2 billion.

	Department of Agriculture

		Federal Crop Insurance Corporation

The Federal Crop Insurance Program was established in 1938 by the  Federal Crop Insurance Act to protect crop farmers from unavoidable risks  associated with adverse weather, plant diseases, and insect infestations.  The USDA Risk Management Agency administers the Federal Crop  Insurance Program through the Federal Crop Insurance Corporation  (FCIC), a government-owned corporation. The federal government retains  a portion of the insurance risk for all policies and pays private insurance  companies a fee that is intended to reimburse them for the reasonable  expenses associated with selling and servicing crop insurance to farmers.  In fiscal year 1998, FCIC had over 1 million crop insurance policies in force,  with total premiums of $1.9 billion.

		Food Stamp Program

The Food Stamp Program (FSP), enacted by the Food Stamp Act of 1964, is  the nation’s principal food assistance program. FSP enables low-income  households to obtain a more nutritious diet by issuing monthly allotments  of coupons or electronic benefits redeemable for food at retail stores.  Eligibility and allotment amounts are based on household size and income  as well as on assets, housing costs, work requirements, and other factors.  In fiscal year 1998, 19.8 million individuals per month were provided food  stamps for total annual program costs of $20.4 billion.

	Administration for Children and Families

The Administration for Children and Families (ACF), a division of the  Department of Health and Human Services, is responsible for almost 50  programs that promote the economic and social well being of families,  children, individuals, and communities. Three programs do most of ACF’s  spending: TANF, Foster Care, and Head Start.
Temporary Assistance for Needy Families (TANF) block grants were  created by the Personal Responsibility and Work Opportunity  Reconciliation Act of 1996 to replace the Aid to Families with Dependent  Children (AFDC) Program. Specified goals of TANF include providing  assistance to needy families and ending the dependence of needy parents  on government benefits by promoting job preparation, work, and marriage.  Over $16 billion in federal assistance is available to states each year  through 2002 to fund the TANF program. While states have flexibility over  the design and implementation of their welfare programs, they must  impose several federal requirements, including work requirements and  time limits on aid.

		Foster Care

Foster Care was originally created in 1961 under title IV of the Social  Security Act. The Foster Care Program is a permanently authorized  entitlement program that provides matching funds to states for  maintenance of eligible children in foster care homes, private nonprofit  child care facilities, or public child care institutions. In fiscal year 1998,  over half a million children were supported by the Foster Care Program  with total federal outlays of $4.5 billion.

		Head Start

The Head Start Program was created in 1965 as part of the war on poverty  to improve the social competence of children in low-income families. To  support the social competence goal, Head Start programs deliver a broad  range of services to children. These services include educational, medical,  nutritional, mental health, dental, and social services. Head Start  regulations require that at least 90 percent of the children enrolled in each  program be from low-income families. ACF awards Head Start grants  directly to local grantees who operate programs in all 50 states, the District  of Columbia, Puerto Rico, and the U.S. territories. In fiscal year 1998, over  800,000 children participated in Head Start programs, and federal outlays  totaled $3.3 billion.

	Health Care Financing Administration

		Medicaid

Medicaid, established in 1965 by Title XIX of the Social Security Act, is a  federal-state matching entitlement program that pays for medical  assistance for certain vulnerable and needy individuals and families with  low incomes and resources. In 1998, it provided health care assistance to 33  million persons, at a cost of about $98 billion to the federal government.  The Health Care Financing Administration (HCFA) is responsible for the  overall management of Medicaid; however, each state is responsible for  managing its own program. Within broad federal statutory and regulatory  guidelines, each state: (1) establishes its own eligibility standards, (2) determines the types and range of services, (3) sets the rate of payment  for services, and (4) administers its own program.

		Medicare Fee-for-Service

Authorized by Title XVIII of the Social Security Act in 1965, Medicare is the  nation’s largest health insurance program, covering an estimated 39.6  million elderly and disabled at a cost of about $210 billion annually. The  Medicare Program is administered by HCFA. While some beneficiaries  participate in Medicare’s $33 billion Managed Care program, most receive  their health care from the $177 billion Fee-for-Service portion of Medicare.  HCFA contracts with over 40 insurance companies to process fee-for- service claims. Although contractors are the program’s front line of defense  against fraud, abuse, and erroneous payments, HCFA is responsible for  overseeing these contractors and for assuring that claims are paid  accurately and efficiently.

	Department of Housing and Urban Development

		Housing Subsidy Programs

Housing and Urban Development’s (HUD) Public Housing and Section 8  programs were established by the U.S. Housing Act of 1937 and the  Housing and Community Development Act of 1974 (revising Section 8 of  the U.S. Housing Act of 1937), respectively. These programs help eligible  low-income families obtain decent, safe, and sanitary housing by paying a  portion of their rent.
HUD’s Public Housing Program is operated by approximately 3,200 public  housing authorities (PHA), which operate under state and local laws and  are funded by HUD. Public housing provides affordable shelter for low- income families comprised of citizens or eligible immigrants. Through the  operating subsidy program, HUD provides an annual subsidy to help PHAs  pay some of the cost of operating and maintaining public housing units. In  fiscal year 1998, more than 1.2 million public housing units were under  management, with a net cost of about $3.1 billion.
The Section 8 programs assist low-income families. Residents in subsidized  units generally pay 30 percent of their income for rent, and HUD pays the  balance. Section 8 has two assistance programs: project-based and tenant- based assistance. Tenant-based assistance is linked to specific individuals;  the project-based assistance is linked to housing units. In fiscal year 1998,  the Section 8 programs assisted approximately 3 million households and  had net costs of $15.5 billion.

	Department of Labor

		Federal Employees’ Compensation Act

Enacted in 1916, the Federal Employees’ Compensation Act (FECA)  provides workers’ compensation coverage to federal employees for work- related injuries or disease. FECA, administered by the U.S. Department of  Labor, authorizes the government to compensate federal employees when  they are temporarily or permanently disabled due to injury or disease  sustained while performing their duties. In fiscal year 1998, the Department  of Labor received 165,000 federal injury reports and issued benefit  payments of more than $1.9 billion.

		Unemployment Insurance

Unemployment Insurance, enacted by Title IX of the Social Security Act of  1935, as amended, is the nation’s response to the adverse effects of  unemployment. The program’s mission is to provide unemployed workers  with temporary income support and to facilitate re-employment. By doing  so, the program helps stabilize the economy. In fiscal year 1998, over 7  million unemployed workers received approximately $20 billion from the  program.
The program is administered by the states through a network of local  claims offices and central offices in each state. These offices also are  responsible for the collection of taxes from all subject employers. The  program is financed through collections of taxes from employers by both  the federal and state governments. In addition, each state is responsible for  determining eligibility requirements and levels of compensation, including  the length of time benefits are paid.

	Office of Personnel Management

		Federal Employees’ Health Benefits Program

The Federal Employees’ Health Benefits Program (FEHBP) was  established by the Federal Employees Health Benefits Act of 1959 for the  purpose of making basic hospital and medical protection available to active  federal employees, annuitants, and their families through plans offered by  carriers participating in the FEHBP. In fiscal year 1998, there were 2.3 million federal civilian employees and 1.8 million annuitants enrolled in  the FEHBP. In total, FEHBP covers about 9 million individuals. Annual  premiums are over $16.3 billion, with the government paying up to 75  percent of the premiums and employees paying the remaining portion.

		Federal Employees’ Group Life Insurance Program

The Federal Employees’ Group Life Insurance (FEGLI) Program was  established in 1954 by the Federal Employees’ Group Life Insurance Act to  provide federal employees and annuitants with group term life insurance.  The program is administered pursuant to a contract with a life insurance  company. In fiscal year 1998, FEGLI covered 90 percent of eligible  employees and annuitants, as well as many of their family members, and  had $1.6 billion in net outlays.

		Retirement Program

The Retirement Program is a defined benefit retirement plan and includes  two components: (1) the Civil Service Retirement System (CSRS), created  in 1920 by the Civil Service Retirement Act and (2) the Federal Employees’  Retirement System (FERS), established in 1986 by the Federal Employees’  Retirement System Act. CSRS is a stand-alone retirement plan intended to  pay benefits for long-service federal employees. CSRS covers most federal  employees hired before 1984 and is closed to new members. FERS covers  most employees first hired after December 31, 1983, and provides benefits  to the survivors of deceased FERS annuitants and employees. Using Social  Security as a base, FERS provides an additional defined benefit and a  voluntary thrift savings plan. OPM administers only the defined benefit  component of FERS. In fiscal year 1998, OPM had over $43 billion in  outlays, with over 2 million annuitants in CSRS, and approximately 100,000  in FERS.

	Social Security Administration

		Old Age and Survivors Insurance

In 1935, the Social Security Act established a program to help protect aged  Americans against the loss of income due to retirement. The 1939  amendments added protection for survivors of deceased retirees by  creating the Old Age and Survivors Insurance (OASI) Program. Employee  and employer payroll tax contributions under the Federal Insurance  Contributions Act (FICA) and the Self-Employment Contributions Act  (SECA) finance this program. Administration of the program lies with the  Social Security Administration (SSA). In fiscal year 1998, SSA directly  disbursed $324 billion to approximately 38 million beneficiaries under this  program.

		Disability Insurance

In 1956, the Social Security Act was amended to protect disabled workers  against loss of income due to disability through creation of the Disability  Insurance (DI) Program. In 1958, amendments to the act expanded benefits  to include dependents of disabled workers. As a result, the DI Program  provides a continuing income base for eligible workers who have qualifying  disabilities and for eligible members of their families before those workers  reach retirement age. As authorized by the act, workers are considered  disabled if they have severe physical or mental conditions that prevent  them from engaging in substantial gainful activity. The condition must be  expected to last for a continuous period of at least 12 months or to result in  death. Once DI beneficiaries reach age 65, they and their families are  converted to the OASI Program. The DI Program is financed by employee  and employer payroll tax contributions under FICA and SECA. SSA, using  assistance from 54 state Disability Determination Services to make  required medical and vocational decisions, is responsible for administering  the DI Program. In fiscal year 1998, SSA disbursed approximately  $48 billion in monthly cash payments to about 6 million beneficiaries.

		Supplemental Security Income

In 1972, amendments to the Social Security Act established the  Supplemental Security Income (SSI) Program. SSI provides cash assistance  to financially needy individuals who are aged, blind, or disabled. General  tax revenues finance this program. Many states supplement the federal SSI  payment, choosing either to have SSA administer the supplement or to pay  it directly. In fiscal year 1998, SSA disbursed approximately  $27 billion in federal SSI payments to about 7 million recipients. Also, SSA  disbursed approximately $3 billion in state supplemental payments during  fiscal year 1998.

	Department of the Treasury

		Customs Drawbacks/Refunds

Refunds are payments made to importers/exporters for overpayments or  duplicate payments of duties, taxes, and fees when goods are originally  imported into the United States. A drawback is a refund of duties and/or  excise taxes already paid to Customs on imported goods which were either  (1) never entered into the commerce of the United States because they  were either re-exported or destroyed under Customs’ supervision, or (2) used (or substituted) in a process to manufacture articles which were  exported from the United States or destroyed under Customs’ supervision  without being used.
The Congress initially passed legislation authorizing drawbacks in 1789,  citing the need to facilitate American commerce and manufacturing.  Drawback privileges are provided by the Tariff Act of 1930. The rationale  for drawbacks has always been to encourage American commerce or  manufacturing, or both. It permits the American manufacturer to compete  in foreign markets without the handicap of including in the costs, and  consequently in the sales price, the duty paid on imported merchandise.  Drawbacks are generally processed in Customs’ port offices across the  nation. In fiscal year 1998, net outlays related to drawbacks and refunds  were over $1.3 billion.

	Department of Veterans Affairs

In 1930, the Congress consolidated and coordinated various veterans’  programs with the establishment of the Veterans Administration. The  Department of Veterans Affairs (VA) was established as a Cabinet level  department in March 1989. VA’s mission is to administer the laws providing  benefits and other services to veterans and their dependents and the  beneficiaries of veterans. The Veterans Benefits Administration (VBA)  administers VA’s nonmedical programs, which provide financial and other  assistance to veterans, their dependents, and survivors. The compensation  and pension (C&P) program is VBA’s largest, and in fiscal year 1998, VA  paid approximately $20 billion in C&P benefits to more than 3 million  veterans and their survivors.

Assessment of Performance Plans for Those Agencies Reporting Improper Payments

None: Agency performance plan does not address the issue of improper payments for this program.
Cursory: Agency performance plan addresses the need to minimize improper payments but does not  provide any substantive performance goals or strategies to minimize improper payments in this  program.
Moderate: Agency performance plan has either performance goals to address improper payments or  strategies to minimize improper payments in this program, but not both, or lacks a comprehensive  approach.
Comprehensive: Agency performance plan has performance goals and strategies that address key  internal controls to minimize improper payments in this program.

Comments From the Office of Management and Budget

GAO Contact and Staff Acknowledgements

	GAO Contact

	Acknowledgements

Staff making key contributions to this report are Kwabena Ansong, Kay  Daly, Margaret Davis, Marie Kinney, Meg Mills, and Ruth Sessions as well  many other staff throughout GAO who contributed to selected sections of  this report.

Related GAO Products

The following lists prior GAO products dealing with improper payments, or  overpayments dating back to fiscal year 1996, as requested by the  Chairman.
Crop Insurance: USDA Needs a Better Estimate of Improper Payments to  Strengthen Controls Over Claims (GAO/RCED-99-266, September 22, 1999).
Medicare: HCFA Oversight Allows Contractor Improprieties to Continue  Undetected (GAO/T-HEHS/OSI-99-174, September 9, 1999).
Food Assistance: Efforts to Control Fraud and Abuse in the WIC Program  Can Be Strengthened (GAO/RCED-99-224, August 30, 1999).
DOD Information Security: Serious Weaknesses Continue to Place Defense  Operations at Risk (GAO/AIMD-99-107, August 26, 1999).
Defense Health Care: Claims Processing Improvements Are Under Way but  Further Enhancements Are Needed (GAO/HEHS-99-128, August 23, 1999).
Medicare Fraud and Abuse: DOJ’s Implementation of False Claims Act  Guidance in National Initiatives Varies (GAO/HEHS-99-170, August 6, 1999).
Defense Health Care: Improvements Needed to Reduce Vulnerability to  Fraud and Abuse (GAO/HEHS-99-142, July 30, 1999).
Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their  Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).
Medicare: HCFA Should Exercise Greater Oversight of Claims  Administration Contractors (GAO/T-HEHS/OSI-99-167, July 14, 1999).
Department of Energy: Need to Address Longstanding Management  Weaknesses (GAO/T-RCED-99-255, July 13, 1999).
Food Stamp Program: Households Collect Benefits for Persons  Disqualified for Intentional Program Violations (GAO/RCED-99-180, July 8,  1999).
Recovery Auditing: Reducing Overpayments, Achieving Accountability, and  the Government Waste Corrections Act of 1999 (GAO/T-NSIAD-99-213,  June 29, 1999).
Food Stamp Program: Relatively Few Improper Benefits Provided to  Individuals in Long-Term Care Facilities (GAO/RCED-99-151, June 4, 1999).
Medicare Subvention Demonstration: DOD Data Limitations May Require  Adjustments and Raise Broader Concerns (GAO/HEHS-99-39, May 28,  1999).
Medicare: Early Evidence of Compliance Program Effectiveness Is  Inconclusive (GAO/HEHS-99-59, April 15, 1999).
Auditing the Nation’s Finances: Fiscal Year 1998 Results Highlight Major  Issues Needing Resolution (GAO-T-AIMD-99-131, March 31, 1999).
Financial Audit: Fiscal Year 1998 Financial Report of the U.S. Government  (GAO/AIMD-99-130, March 31, 1999).
Contract Management: DOD is Examining Opportunities to Further Use  Recovery Auditing (GAO/NSIAD-99-78, March 17, 1999).
Veterans’ Benefits Claims: Further Improvements Needed in Claims- Processing Accuracy (GAO/HEHS-99-35, March 1, 1999).
Medicare Managed Care: Better Risk Adjustment Expected to Reduce  Excess Payments Overall While Making Them Fairer to Individual Plans  (GAO/T-HEHS-99-72, February 25, 1999).
Direct Student Loans: Overpayments During the Department of Education’s  Conversion to a New Payment System (GAO/HEHS-99-44R, February 17,  1999).
HCFA Management: Agency Faces Multiple Challenges in Managing Its  Transition to the 21st Century (GAO/T-HEHS-99-58, February 11, 1999).
Social Security: What the President’s Proposal Does and Does Not Do  (GAO/T-AIMD/HEHS-99-76, February 9, 1999).
Supplemental Security Income: Long-Standing Issues Require More Active  Management and Program Oversight (GAO/T-HEHS-99-51, February 3,  1999).
Medicare Home Health Agencies: Role of Surety Bonds in Increasing  Scrutiny and Reducing Overpayments (GAO/HEHS-99-23, January 29,  1999).
Financial Management: Problems in Accounting for Navy Transactions  Impair Funds Control and Financial Reporting (GAO/AIMD-99-19, January 19, 1999).
Supplemental Security Income: Increased Receipt and Reporting of Child  Support Could Reduce Payments (GAO/HEHS-99-11, January 12, 1999).
Internal Controls: Reporting Air Force Vendor Payment System  Weaknesses Under the Federal Managers’ Financial Integrity Act  (GAO/AIMD-99-33R, December 21, 1998).
Contract Management: Recovery Auditing Offers Potential to Identify  Overpayments (GAO/NSIAD-99-12, December 3, 1998).
Student Loans: Improvements in the Direct Loan Consolidation Process  (GAO/HEHS-99-19R, November 10, 1998).
Internal Revenue Service: Immediate and Long-Term Actions Needed to  Improve Financial Management (GAO/AIMD-99-16, October 30, 1998).
DOD Procurement Fraud: Fraud by an Air Force Contracting Official  (GAO/OSI-98-15, September 23, 1998).
Year 2000 Computing Crisis: Progress Made at Department of Labor, But  Key Systems at Risk (GAO/T-AIMD-98-303, September 17, 1998).
Fraud, Waste, and Abuse: The Cost of Mismanagement (GAO/AIMD- 98-265R, September 14, 1998).
Supplemental Security Income: Action Needed on Long-Standing Problems  Affecting Program Integrity (GAO/HEHS-98-158, September 14, 1998).
Welfare Reform: Early Fiscal Effects of the TANF Block Grant (GAO/AIMD- 98-137, August 18, 1998).
Food Assistance: Computerized Information Matching Could Reduce Fraud  and Abuse in the Food Stamp Program (GAO/T-RCED-98-254, August 5,  1998).
Earned Income Credit: IRS’ Tax Year 1994 Compliance Study and Recent  Efforts to Reduce Noncompliance (GAO/GGD-98-150, July 28, 1998).
Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating  and Using Unexpended Balances Are Ineffective (GAO/RCED-98-202, July  22, 1998).
Medicare: Application of the False Claims Act to Hospital Billing Practices  (GAO/HEHS-98-195, July 10, 1998).
Welfare Reform: States Are Restructuring Programs to Reduce Welfare  Dependence (GAO/HEHS-98-109, June 17, 1998).
Head Start: Challenges Faced in Demonstrating Program Results and  Responding to Societal Changes (GAO/T-HEHS-98-183, June 9, 1998).
Medicare: Health Care Fraud and Abuse Control Program Financial Report  for Fiscal Year 1997 (GAO/AIMD-98-157, June 1, 1998).
Medicare Billing: Commercial System Will Allow HCFA to Save Money,  Combat Fraud and Abuse (GAO/T-AIMD-98-166, May 19, 1998).
Computer Security: Pervasive, Serious Weaknesses Jeopardize State  Department Operations (GAO/AIMD-98-145, May 18, 1998).
Medicare: Need to Overhaul Costly Payment System for Medical  Equipment and Supplies (GAO/HEHS-98-102, May 12, 1998).
Social Security: Better Payment Controls for Benefit Reduction Provisions  Could Save Millions (GAO/HEHS-98-76, April 30, 1998).
Food Assistance: Observations on Reducing Fraud and Abuse in the Food  Stamp Program (GAO/T-RCED-98-167, April 23, 1998).
Direct Student Loans: Efforts to Resolve Lender’s Problems With  Consolidations are Under Way (GAO/HEHS-98-103, April 21, 1998).
Supplemental Security Income: Organizational Culture and Management  Inattention Place Program at Continued Risk (GAO/T-HEHS-98-146,  April 21, 1998).
Department of Defense: Financial Audits Highlight Continuing Challenges  to Correct Serious Financial Management Problems (GAO/T-AIMD/NSIAD- 98-158, April 16, 1998).
Medicare Billing: Commercial Systems Could Save Hundreds of Millions  Annually (GAO/AIMD-98-91, April 15, 1998).
Internal Control: Essential for Safeguarding Assets, Compliance with Laws  and Regulations, and Reliable Financial Reporting (GAO/T-AIMD-98-125,  April 1, 1998).
Financial Audit: 1997 Consolidated Financial Statements of the United  States Government (GAO/AIMD-98-127, March 31, 1998).
Head Start Programs: Participant Characteristics, Services, and Funding  (GAO/HEHS-98-65, March 31, 1998).
Supplemental Security Income: Opportunities Exist for Improving Payment  Accuracy (GAO/HEHS-98-75, March 27, 1998).
Food Stamp Program: Information on Trafficking Food Stamp Benefits  (GAO/RCED-98-77, March 26, 1998).
Medicare Home Health Benefit: Congressional and HCFA Actions Begin to  Address Chronic Oversight Weaknesses (GAO/T-HEHS-98-117, March 19,  1998).
CFO Act Financial Audits: Programmatic and Budgetary Implications of  Navy Financial Data Deficiencies (GAO/AIMD-98-56, March 16, 1998).
Medicare: HCFA Can Improve Methods for Revising Physician Practice  Expense Payments (GAO/HEHS-98-79, February 27, 1998).
Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial  Statements (GAO/AIMD-98-77, February 26, 1998).
Medicaid: Early Implications of Welfare Reform for Beneficiaries and  States (GAO/HEHS-98-62, February 24, 1998).
Food Stamp Overpayments: Thousands of Deceased Individuals Are Being  Counted as Household Members (GAO/RCED-98-53, February 11, 1998).
Financial Management: Seven DOD Initiatives That Affect the Contract  Payment Process (GAO/AIMD-98-40, January 30, 1998).
Managing for Results: The Statutory Framework for Performance-Based  Management and Accountability (GAO/GGD/AIMD-98-52, January 28,  1998).
Illegal Aliens: Extent of Welfare Benefits Received on Behalf of U.S. Citizen  Children (GAO/HEHS-98-30, November 19, 1997).
Inspectors General: Contracting Actions By Treasury Office of Inspector  General (GAO/OSI-98-1, October 31, 1997).
Food Assistance: Reducing Food Stamp Benefit Overpayments and  Trafficking (GAO/T-RCED-98-37, October 30, 1997).
DOD Procurement: Funds Returned by Defense Contractors (GAO/NSIAD- 98-46R, October 28, 1997).
Medicare Home Health: Differences in Service Use by HMO and Fee-for- Service Providers (GAO/HEHS-98-8, October 21, 1997).
Disaster Assistance: Guidance Needed for FEMA’s “Fast Track” Housing  Assistance Process (GAO/RCED-98-1, October 17, 1997).
VA Medical Care: Increasing Recoveries From Private Health Insurers Will  Prove Difficult (GAO/HEHS-98-4, October 17, 1997).
Medicare: Recent Legislation to Minimize Fraud and Abuse Requires  Effective Implementation (GAO/T-HEHS-98-9, October 9, 1997).
Budget Issues: Budgeting For Federal Insurance Programs (GAO/AIMD- 97-16, September 30, 1997).
Medicare Automated Systems: Weaknesses in Managing Information  Technology Hinder Fight Against Fraud and Abuse (GAO/T-AIMD-97-176,  September 29, 1997).
Food Assistance: A Variety of Practices May Lower the Costs of WIC  (GAO/RCED-97-225, September 17, 1997).
Medicare: Control Over Fraud and Abuse Remains Elusive (GAO/T-HEHS- 97-165, June 26, 1997).
Supplemental Security Income: Timely Data Could Prevent Millions in  Overpayments to Nursing Home Residents (GAO/HEHS-97-62, June 3,  1997).
DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions of  Dollars in Waste (GAO/T-NSIAD/AIMD-97-143, May 1, 1997).
Financial Management: Improved Reporting Needed for DOD Problem  Disbursements (GAO/AIMD-97-59, May 1, 1997).
Medicare HMOs: HCFA Can Promptly Eliminate Hundreds of Millions in  Excess Payments (GAO/HEHS-97-16, April 25, 1997).
Social Security Disability: SSA Actions to Reduce Backlogs and Achieve  More Consistent Decisions Deserve High Priority (GAO/T-HEHS-97-118,  April 24, 1997).
Crop Insurance: Opportunities Exist to Reduce Government Costs for  Private-Sector Delivery (GAO/RCED-97-70, April 17, 1997).
Nursing Homes: Too Early to Assess New Efforts to Control Fraud and  Abuse (GAO/T-HEHS-97-114, April 16, 1997).
Contract Management: Fixing DOD’s Payment Problems Is Imperative  (GAO/NSIAD-97-37, April 10, 1997).
Financial Management: Improved Management Needed for DOD  Disbursement Process Reforms (GAO/AIMD-97-45, March 31, 1997).
Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded  Providers From Federal Health Programs (GAO/HEHS-97-63, March 31,  1997).
Department of Veterans Affairs: Programmatic and Management  Challenges Facing the Department (GAO/T-HEHS-97-97, March 18, 1997).
Social Security: Disability Programs Lag in Promoting Return to Work  (GAO/HEHS-97-46, March 17, 1997).
Food Stamps: Substantial Overpayments Result From Prisoners Counted  as Household Members (GAO/RCED-97-54, March 10, 1997).
Farm Programs: Finality Rule Should Be Eliminated (GAO/RCED-97-46,  March 7, 1997).
High-Risk Areas: Benefits to Be Gained by Continued Emphasis on  Addressing High-Risk Areas (GAO/T-AIMD-97-54, March 4, 1997).
Supplemental Security Income: Long-Standing Problems Put Program at  Risk for Fraud, Waste and Abuse (GAO/T-HEHS-97-88, March 4, 1997).
Medicare HMOs: HCFA Could Promptly Reduce Excess Payments by  Improving Accuracy of County Payment Rates (GAO-T-HEHS-97-82,  February 27, 1997).
Benefit Fraud With Post Office Boxes (GAO/HEHS-97-54R, February 21,  1997).
Ex-Im Bank’s Retention Allowance Program (GAO/GGD-97-37R,  February 19, 1997).
High-Risk Series (GAO/GGD-97-37R, February 1997).
SSA Disability Redesign: Focus Needed on Initiatives Most Crucial to  Reducing Costs and Time (GAO/HEHS-97-20, December 20, 1996).
Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed  Care (GAO/HEHS-96-184, September 17, 1996).
Supplemental Security Income: SSA Efforts Fall Short in Correcting  Erroneous Payments to Prisoners (GAO/HEHS-96-152, August 30, 1996).
Supplemental Security Income: Administrative and Program Savings  Possible by Directly Accessing State Data (GAO/HEHS-96-163, August 29,  1996).
Unemployment Insurance: Millions in Benefits Overpaid to Military  Reservists (GAO/HEHS-96-101, August 5, 1996).
Department of Education: Status of Actions to Improve the Management of  Student Financial Aid (GAO/HEHS-96-143, July 12, 1996).
Executive Guide: Effectively Implementing the Government Performance  and Results Act (GAO/GGD-96-118, June 1996).
Health Care Fraud: Information-Sharing Proposals to Improve  Enforcement Efforts (GAO/GGD-96-101, May 1, 1996).
SSA Overpayment Recovery (GAO/HEHS-96-104R, April 30, 1996).
Social Security: Issues Involving Benefit Equity for Working Women  (GAO/HEHS-96-55, April 10, 1996).
Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities  (GAO/HEHS-96-18, January 24, 1996).
Unsubstantiated DOE Travel Payments (GAO/RCED-96-58R, December 28,  1995).
Financial Management: Challenges Facing DOD in Meeting the Goals of the  Chief Financial Officers Act (GAO/T-AIMD-96-1, November 14, 1995).
Fraud and Abuse: Medicare Continues to Be Vulnerable to Exploitation by  Unscrupulous Providers (GAO/T-HEHS-96-7, November 2, 1995).
DOD Procurement: Millions in Contract Payment Errors Not Detected and  Resolved Promptly (GAO/NSIAD-96-8, October 6, 1995).
Medicare: Excessive Payments for Medical Supplies Continue Despite  Improvements (GAO/T-HEHS-96-5, October 2, 1995).
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Summary:
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on improper payments in light of the projected future growth of federal expenditures, focusing on the: (1) amounts reported by agencies as improper payments in their fiscal year (FY) 1998 financial statements prepared pursuant to the Chief Financial Officers (FO) Act of 1990; (2) types of federal programs at risk of disbursing improper payments; (3) reported causes of improper payments across the federal government; and (4) extent to which agencies are addressing improper payments in their performance plans under the Government Performance and Results Act of 1993.

What GAO Found

GAO noted that: (1) in their FY 1998 financial reports, nine agencies collectively reported improper payment estimates of $19.1 billion; (2) these improper payment estimates relate to 17 major programs that expended approximately $870 billion; (3) the programs and related improper payment estimates include: (a) Medicare Fee-for-Service ($12.6 billion); (b) Supplemental Security Income ($1,648 million); (c) Food Stamps ($1,425 million); (d) Old Age and Survivors Insurance ($1,154 million); (e) disability insurance ($941 million); (f) housing subsidies ($857 million); and (g) veterans benefits, unemployment insurance, and others ($514 million); (4) also included are the Agency for International Development (AID), Medicaid, and the Federal Crop Insurance Corporation; (5) AID and the agencies administering these programs acknowledged making improper payments in their FY 1998 financial statement, but did not disclose specific dollar amounts; (6) improper payments are much greater than have been disclosed thus far in agency financial statements reports, as shown by GAO's prior audits and those of agency inspectors general; (7) agencies are not performing comprehensive quality control reviews--internal studies or reviews--for certain programs to determine the propriety of program expenditures; (8) as a result, the full extent of the problem--and possible solutions to it--is unknown; (9) comprehensive quality control reviews could also identify the causes of improper payments, which range from inadvertent errors to fraud and abuse; (10) working with the Office of Management and Budget (OMB), some agencies are taking steps to mitigate this risk by focusing attention on identifying, reporting, and reducing improper payments through the discipline of annual audited financial statements and the development of performance goals; (11) however, agencies responsible for 13 of the 17 programs having made improper payments--many of which GAO identified in its High-Risk and Performance and Accountability series issued earlier this year--did not include specific performance goals or strategies to comprehensively address these payments in their FY 2000 performance plans under the Results Act; and (12) as the federal budget grows, more taxpayer dollars are placed at risk, thus increasing the urgency for identifying and preventing these types of payments and providing complete accountability to taxpayers.