United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Federal Financial Management, 

Government Information, Federal Services, and 

International Security, Committee on Homeland Security 

and Governmental Affairs, U.S. Senate 

IMPROPER PAYMENTS

Agencies’ Efforts to Address 

Improper Payment and 

Recovery Auditing 

Requirements Continue 

Statement of McCoy Williams, Director 

Financial Management and Assurance 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, March 29, 2007

 

GAO-07-635T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 29, 2007

IMPROPER PAYMENTS

Agencies’ Efforts to Address Improper 

Payment and Recovery Auditing 

Requirements Continue 

Highlights of GAO-07-635T, a testimony 

before the Subcommittee on Federal 

Financial Management, Government 

Information, Federal Services, and 

International Security, Committee on 

Homeland Security and Governmental 

Affairs, U.S. Senate 

The federal government is 

accountable for how its agencies

and grantees spend hundreds of

billions of taxpayer dollars and is 

responsible for safeguarding those 

funds against improper payments 

as well as for recouping those

funds when improper payments

occur. The Congress enacted the 

Improper Payments Information 

Act of 2002 (IPIA) and the 

Recovery Auditing Act to address 

these issues. Fiscal year 2006

marked the 3rd year that agencies 

were required to report improper 

payment and recovery audit 

information in their Performance 

and Accountability Reports. 

GAO was asked to testify on the

progress agencies have made in

these areas. Specifically, GAO

focused on (1) trends in agencies’ 

reporting under IPIA from fiscal 

years 2004 through 2006, 

(2) challenges in reporting

improper payment information and 

improving internal control, and 

(3) agencies’ reporting of recovery

auditing efforts. This testimony is 

based on GAO’s previous reports 

on agencies’ efforts to implement

IPIA requirements for fiscal years 

2005 and 2004 and current review 

of available fiscal year 2006 

improper payment and recovery

auditing information. The Office of

Management and Budget (OMB) 

provided technical comments that

were incorporated as appropriate. 

GAO identified several key trends related to IPIA reporting requirements. 

• Risk assessments. For fiscal years 2004 through 2006, some

agencies still had not instituted systematic methods of reviewing all 

programs and activities or had not identified all programs 

susceptible to significant improper payments. Further, certain 

agencies’ risk assessments appeared questionable. GAO also noted 

that OMB’s recently revised IPIA implementing guidance, which

allows certain agencies to perform risk assessments every 3 years 

instead of annually, may result in fewer agencies conducting risk 

assessments in the future. 

• Improper payment estimates. Since fiscal year 2004, agencies

have made some progress in reporting improper payment 

information. The number of programs reporting improper payment 

estimates for fiscal year 2004 totaled 41, compared to 60 programs 

for fiscal year 2006. The total improper payments dollar estimate 

was $45 billion in fiscal year 2004, $38 billion in fiscal year 2005, and 

about $42 billion in fiscal year 2006. 

• Noncompliance issues. Although not currently required by IPIA to 

do so, some agency auditors continued to report problems related to 

agencies' risk assessments, definition of programs for IPIA purposes, 

sampling methodologies, lack of reporting for all risk-susceptible 

programs, and supporting documentation. 

Although showing progress under OMB’s continuing leadership, agencies’ 

fiscal year 2006 reporting under IPIA does not yet reflect the full scope of 

improper payments. Major challenges remain in meeting the goals of the act 

and ultimately improving the integrity of payments. First, some agencies

have not yet reported for all risk-susceptible programs. For example, the 

fiscal year 2006 total improper payment estimate of about $42 billion did not 

include any amounts for 13 risk-susceptible programs that had fiscal year 

2006 outlays totaling about $329 billion. Second, certain methodologies used 

to estimate improper payments did not result in accurate estimates. Finally, 

GAO noted that internal control weaknesses continued to plague programs 

susceptible to significant improper payments. 

From fiscal years 2004 through 2006, the number of agencies reporting 

recovery auditing information for contract overpayments and the dollar 

amounts identified for recovery and actually recovered increased. For fiscal 

year 2004, 12 agencies reported recovering about $53 million, compared to 

18 agencies that reported recovering about $256 million for fiscal year 2006. 

Given the large volume and complexity of federal contract payments and 

historically low recovery rates for certain programs, GAO emphasized that it 

is much more efficient to pay bills properly in the first place. Effective 

internal control calls for a sound, ongoing invoice review and approval 

process as the first line of defense in preventing erroneous payments. 

www.gao.gov/cgi-bin/getrpt?GAO-07-635T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-9095 or 

williamsm1@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the governmentwide problem of 

improper payments in federal programs and activities and agencies’ efforts 

to address key requirements of the Improper Payments Information Act of 

2002 (IPIA)1 and Section 831 of the National Defense Authorization Act for

Fiscal Year 2002, commonly known as the Recovery Auditing Act.2

 Since 

fiscal year 2000, we have issued a number of reports and testimonies 

aimed at raising the level of attention given to improper payments. Our 

work over the past several years has demonstrated that improper 

payments are a long-standing, widespread, and significant problem in the 

federal government. IPIA has increased visibility over improper payments3

by requiring executive agency heads, based on guidance from the Office of 

Management and Budget (OMB),4

 to identify programs and activities 

susceptible to significant improper payments,5

 estimate amounts 

improperly paid, and report on the amounts of improper payments and 

their actions to reduce them. Similarly, the Recovery Auditing Act 

provides an impetus for applicable agencies to systematically identify and 

recover contract overpayments. This act requires, among others things, 

that all executive branch agencies entering into contracts with a total 

value exceeding $500 million in a fiscal year to have cost-effective 

programs for identifying errors in paying contractors and for recovering 

amounts erroneously paid. As the steward of taxpayer dollars, the federal

government is accountable for how its agencies and grantees spend 

hundreds of billions of taxpayer dollars and is responsible for 

safeguarding those funds against improper payments as well as having

 1

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). 

2

Section 831 of the National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 

107-107, div. A, title VIII, § 831, 115 Stat. 1012, 1186 (Dec. 28, 2001) (codified at 31 U.S.C. §§

3561-3567). 

3

IPIA defines improper payments as any payment that should not have been made or that

was made in an incorrect amount (including overpayments and underpayments) under

statutory, contractual, administrative, or other legally applicable requirements. It includes 

any payment to an ineligible recipient, any payment for an ineligible service, any duplicate 

payment, payments for services not received, and any payment that does not account for 

credit for applicable discounts.

4

OMB Memorandum M-06-23, “Issuance of Appendix C to OMB Circular No. A-123” (Aug. 

10, 2006). 

5

OMB’s guidance defines significant improper payments as those in any particular program

that exceed both 2.5 percent of program payments and $10 million annually. 

Page 1 GAO-07-635T 
mechanisms in place to recoup those funds when improper payments 

occur. 

OMB has played a key role in the oversight of the governmentwide 

improper payments problem. In 2005, OMB established Eliminating 

Improper Payments as a new program-specific initiative under the 

President’s Management Agenda (PMA). This separate PMA program 

initiative helps to ensure that agency managers are held accountable for 

meeting the goals of IPIA and are, therefore, dedicating the necessary 

attention and resources to meeting IPIA requirements. OMB continues its 

commitment to identify all improper payments governmentwide by 

working with agencies to establish corrective action plans to address their 

root causes. OMB also annually reports6

 on agencies’ efforts to address 

IPIA and Recovery Auditing Act requirements. 

Today, my testimony will focus on three key areas: 

• trends in agencies’ reporting under IPIA for fiscal years 2004 through 

2006, 

• challenges in reporting improper payment information and improving 

internal control, and 

• agencies’ reporting of recovery auditing efforts to recoup improper 

payments. 

This testimony is based on our previous reports on agencies’ efforts to 

implement IPIA requirements for fiscal years 2005 and 20047

 and our 

current review of available fiscal year 2006 improper payment information 

reported by 36 of the 38 federal agencies that the Department of the 

Treasury (Treasury) determined to be significant to the U.S. government’s 

consolidated financial statements. (See app. I for a list of the 38 agencies.)

The remaining 2 federal government corporations have a different yearend reporting date and had not issued their annual reports as of the end of

our fieldwork. We reviewed improper payment information reported in the 

36 agencies’ fiscal year 2006 performance and accountability reports 

(PAR) or annual reports. We also reviewed OMB guidance on 

 6

Office of Management and Budget, Improving the Accuracy and Integrity of Federal 

Payments, (Washington, D.C.: Jan. 31, 2007). 

7

GAO, Improper Payments: Agencies’ Fiscal Year 2005 Reporting under the Improper 

Payments Information Act Remains Incomplete, GAO-07-92 (Washington, D.C.: Nov. 14, 

2006) and Financial Management: Challenges in Meeting Requirements of the Improper 

Payments Information Act, GAO-05-417 (Washington, D.C.: Mar. 31, 2005).

Page 2 GAO-07-635T 
implementation of IPIA and the Recovery Auditing Act and its annual 

report on agencies’ efforts to identify and reduce improper payments. In 

addition, we reviewed GAO reports and agency Office of Inspector 

General (OIG) management challenges reports to identify internal control 

weaknesses and program integrity issues for agency programs reporting 

improper payment estimates for fiscal year 2006. We did not independently

validate the data that agencies reported in their PARs or annual reports or 

the data that OMB reported. However, we are providing agency-reported 

data as descriptive information that will inform interested parties about 

the magnitude of reported governmentwide improper payments and 

amounts recouped through recovery audits and other improper paymentrelated information. We believe the data to be sufficiently reliable for this 

purpose. We provided information on the major findings discussed in this 

statement to OMB. OMB provided technical comments that we have 

incorporated as appropriate. We conducted our work in March 2007 in 

accordance with generally accepted government auditing standards. 

Details on our scope and methodology related to fiscal year 2005 and 2004 

findings can be found in our prior reports.8

I would now like to focus on agencies’ efforts to address select IPIA 

reporting requirements during the first 3 years of IPIA implementation, 

fiscal years 2004 through 2006. Generally, agencies must perform four key 

steps to address the improper payments reporting requirements— 

(1) perform a risk assessment, (2) estimate improper payments for risksusceptible programs and activities, (3) implement a plan to reduce 

improper payments for programs with estimates exceeding $10 million, 

and (4) annually report improper payment estimates and actions to reduce 

them. OMB requires the results of these steps to be reported in the 

agencies’ PARs, in the Management Discussion and Analysis section and 

as a separate appendix, for each fiscal year ending on or after 

September 30, 2004. Today, I will touch on progress made and challenges 

that remain in these areas. 

Significant Trends in 

IPIA Reporting 

Risk Assessments Our past and current reviews of agencies’ reported risk assessments have 

raised questions regarding their adequacy. For fiscal years 2004 through 

2006, we found that some agencies still had not instituted systematic 

methods of reviewing all programs and activities or had not identified all 

 8

GAO-07-92 and GAO-05-417. 

Page 3 GAO-07-635T 
programs susceptible to significant improper payments. We also reported 

that certain agencies’ risk assessments appear questionable. Conducting a 

risk assessment is an essential part of agencies’ efforts to comply with 

IPIA. Risk assessment is a key step in helping to gain a reasonable level of 

assurance that programs are operating as intended and that they are 

achieving their expected outcomes. Done properly, it entails a 

comprehensive review and analysis of program operations to determine if 

risks exist, what those risks are, and the potential or actual effect of those

risks on program operations. The information developed during a risk 

assessment forms the foundation or basis upon which management can 

determine the nature and type of corrective actions needed. It also gives 

management baseline information for measuring progress in reducing 

improper payments. 

• For the first year of reporting under IPIA, we reported in March 2005,9

that of the 29 agencies reviewed, 23 had completed risk assessments 

for all programs and activities for fiscal year 2004. However, for 3 of 

these, agencies’ auditors raised noncompliance issues with the risk 

assessments. For example, agency auditors for the Department of 

Justice (DOJ) and the National Aeronautics and Space Administration 

(NASA) reported that the risk assessments did not consider all 

payment types or programs. The auditor for the Department of 

Homeland Security (DHS) reported that the agency did not institute a 

systematic method of reviewing all programs and identifying those it 

believed were susceptible to significant erroneous payments. 

• Regarding the second year of IPIA reporting, we reported in November 

2006,

10 that the same number of agencies, 23, had performed risk 

assessments of all of their programs and activities based on our review 

of 35 agency PARs or annual reports for fiscal year 2005. Similar to the 

first year of IPIA reporting, we noted that auditors for DOJ and DHS 

again raised noncompliance issues regarding the adequacy of the 

agencies’ risk assessments. We noted other risk assessment 

deficiencies as well. For example, the Department of Agriculture 

(USDA) OIG reported11 that the agency’s risk assessments were not 

adequate to estimate the agency’s susceptibility to improper payments 

 9

GAO-05-417. 

10GAO-07-92. 

11Department of Agriculture, Office of Inspector General, Memorandum for the Secretary,

“Management Challenges,” September 2, 2005. 

Page 4 GAO-07-635T 
because the guidance from the USDA’s Office of the Chief Financial 

Officer (OCFO) was not sufficiently prescriptive and detailed to 

translate into meaningful results. As such, the OIG recommended that 

the USDA OCFO strengthen guidance over its IPIA risk assessments to 

provide reasonable assurance that the requirements of the act are met. 

Further, the OIG stated that USDA should identify risk factors that are 

discrete to the program being assessed and consider information from 

all sources, such as audit reports. 

• For fiscal year 2006, the third year of IPIA reporting, we found that 30

of the 36 agencies had reported performing some type of assessment to 

identify programs and activities susceptible to significant improper 

payments. The remaining 6 agencies either did not report improper 

payments information in their PARs or annual reports, or did not report 

assessing for risk of improper payments for all of their programs and 

activities. Of the 30, 18 agencies reported reviewing all programs and 

activities as part of the risk assessment process, while the remaining 12 

agencies provided enough details that indicated some level of review 

was performed. For example, 1 agency reported that it had evaluated

its major programs based on its developed risk criteria. Although the 

major programs made up a significant portion of the agency’s outlays, 

the agency did not report that it had assessed the remaining programs 

and activities. We also found instances where an agency’s description 

of the risk assessment performed contradicted its assertion that all 

programs and activities had been reviewed. For example, 1 agency 

reported in its PAR that it had assessed all programs and activities, but 

also reported in the same PAR that assessments for two activities had 

not been conducted. Another agency reported that it had assessed all of 

its payment programs, but later stated in its PAR that its risk 

assessment only covered certain types of programs. 

Similar to the previous years, agency auditors continued to find 

inadequacies in agencies’ risk assessments for fiscal year 2006. The DHS 

auditor reported that the agency did not perform a risk assessment for all 

programs and activities. Further, the NASA auditor reported that the 

agency had potentially violated certain requirements of IPIA as NASA had 

been unable to provide the auditor with sufficient documentation to 

support performance of an annual review of all programs and activities 

that the agency administers. 

Other agencies reported improving and refining their risk assessment 

methodologies for fiscal year 2006. For example, USDA’s Farm Service 

Agency reported that it made improvements to its risk assessments and as 

a result, four additional programs were determined to be susceptible to 

Page 5 GAO-07-635T 
significant improper payments. Two other agencies reported redefining 

their programs to conduct their risk assessments. DOJ reported that it 

addressed its noncompliance with IPIA by performing risk assessments in 

its U.S. Marshals Service component. Other agencies identified plans for 

improving future risk assessments. For example, the Office of Personnel 

Management (OPM) reported that it will assess in fiscal year 2007 whether 

any agency payment streams, other than its former OMB Circular No. A-11 

programs,12 are susceptible to significant improper payments. The 

Department of Defense reported that it is developing a program to review 

its intergovernmental payments and payments for afloat and deployed

forces. NASA reported that it plans to perform a risk assessment of the 

agency’s commercial and noncommercial disbursement activities. 

Finally, we noted that the number of agencies conducting risk assessments 

may decrease in future reporting, because OMB’s revised IPIA 

implementing guidance allows agencies to perform risk assessments every 

3 years for those agency programs not deemed susceptible to significant

improper payments. Prior to issuing its revised implementing guidance, 

OMB discussed the proposed changes with us. We advised OMB that the 

provision to perform risk assessments every 3 years for those programs 

not deemed risk-susceptible was inconsistent with the IPIA requirement 

for agencies to review all programs and activities annually. In its fiscal 

year 2006 PAR, the General Services Administration (GSA) reported that

because it does not have any programs or activities susceptible to 

significant improper payments, GSA will perform the next risk assessment 

in fiscal year 2008. Additionally, several programs included in OMB’s 

former Circular No. A-11, reported that OMB had granted them a waiver 

from improper payments reporting because they did not have programs 

susceptible to significant improper payments. These programs included 

the Environmental Protection Agency’s Clean and Drinking Water State 

Revolving Funds, the National Science Foundation’s Research and 

Education Grants and Cooperative Agreements, and the Department of 

Veterans Affairs (VA) Insurance programs. OMB’s previous implementing 

guidance required agencies to annually estimate improper payments for 

 12Prior to the governmentwide IPIA reporting requirements beginning with fiscal year 2004, 

former section 57 of OMB Circular No. A-11 required certain agencies to submit similar 

information, including estimated improper payment target rates, target rates for future 

reductions in these payments, the types and causes of these payments, and variances from

targets and goals established. In addition, these agencies were to provide a description and 

assessment of the current methods for measuring the rate of improper payments and the

quality of data resulting from these methods. 

Page 6 GAO-07-635T 
their programs that were included in former Circular No. A-11, regardless 

of amount. 

Improper Payment Dollar 

and Error Rate Estimates 

Since fiscal year 2004, agencies have made progress in reporting improper 

payment information. For example, the number of programs reporting 

improper payment estimates for fiscal year 2004 totaled 41, as compared 

to 60 programs reporting for fiscal year 2006, a net increase of 19 

programs.13 The total improper payments dollar estimate was $45 billion in

fiscal year 2004, $38 billion in fiscal year 2005, and about $42 billion14 in 

fiscal year 2006. (See app. II for further details.)

We have previously testified15 before this subcommittee regarding the 

decrease in the total improper payment estimate from $45 billion in fiscal 

year 2004 to $38 billion in fiscal year 2005. Specifically, we reported that 

the $7 billion decrease was primarily attributable to a decrease in the 

Medicare estimate that resulted from increased efforts to educate health 

care providers on the importance of responding to requests for medical 

records to perform detailed statistical reviews. Also, the Department of 

Health and Human Services (HHS) extended the time that providers have 

for responding to documentation requests from 55 days to 90 days. We 

further reported that these changes primarily affected HHS’s processes 

related to its efforts to perform detailed statistical reviews for the 

purposes of calculating an annual improper payment estimate for the 

Medicare program. While this represents a refinement, it may not reflect 

improved accountability over program dollars given that GAO continues to 

designate the Medicare program as a high-risk area. Specifically, in our 

January 2007 report,16 we reported that further action must be taken to 

refine Medicare’s payment methods and collection of data used as a basis 

 13The net increase represents newly reported programs for applicable years as well as

programs that may have reported in one year but not in a subsequent fiscal year. 

14For fiscal year 2006, OMB reported total improper payments of about $41 billion, a 

difference of $1 billion. The difference is primarily attributable to OMB excluding improper 

payment estimates for the Tennessee Valley Authority and agency-reported improper 

payment estimates related to commercial or vendor payments because, according to OMB, 

those estimates are reported in agencies’ recovery auditing amounts. Rounding differences 

also exist. 

15GAO, Improper Payments: Incomplete Reporting under the Improper Payments 

Information Act Masks the Extent of the Problem, GAO-07-254T (Washington, D.C.: Dec. 5,

2006). 

16GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007). 

Page 7 GAO-07-635T 
for setting payment rates and address program integrity weaknesses, 

among others. Also, HHS’s OIG continued to report the integrity of 

Medicare payments as a top management challenge for fiscal year 2006. 

For fiscal year 2006, the total improper payment estimate increased to 

about $42 billion from the reported $38 billion for fiscal year 2005. The 

increase in improper payments was primarily attributable to 15 newly 

reported programs or activities totaling about $2.4 billion, and a $1.6 

billion increase in USDA’s Marketing Assistance Loan program due to 

improvements in how it measured its improper payments. In addition, 

several programs experienced increases in their improper payment 

estimates as a result of lax upfront eligibility controls to facilitate rapid 

benefit delivery to victims devastated by Hurricane Katrina. According to 

OMB, the programs most directly affected included the Federal 

Emergency Management Agency’s Individuals and Households program 

(IHP), Department of Labor’s (Labor) Disaster Unemployment Insurance 

(UI) program, and the Small Business Administration’s Disaster Assistance 

Loan program. For example, Labor identified more than $100 million in 

improper payments related to Hurricane Katrina for the Disaster UI 

program. To respond to the challenges of the Gulf Coast hurricanes, on 

August 29, 2006, the President signed Executive Order 13411, Improving 

Assistance for Disaster Victims, which established a task force on disaster 

coordination responsible for recommending specific actions to improve 

the delivery of federal disaster assistance while strengthening controls 

designed to prevent improper payments and other forms of fraud, waste, 

and abuse. 

Mr. Chairman, I commend agencies’ efforts to decrease improper payment

error rates. For example, from our review of agency programs initially 

reporting error rates in the first year of IPIA implementation, fiscal year 

2004, we noted that of the 32 agency programs with changes in their error 

rates, 18 program error rates, or 56 percent, had declined when compared

to fiscal year 2006. However, it should be noted that in this still-early stage 

of IPIA implementation, a decrease in the reported error rate may not 

signal improved accountability just as an increase may not necessarily 

indicate a greater number of control weaknesses. In some cases, these 

fluctuations may be attributed to changes in the estimating methodology 

used. For example, USDA’s Marketing Assistance Loan program did not 

report an estimate in fiscal year 2004 and reported a small estimate for 

fiscal year 2005. However, with improvements in how it measures 

improper payments, this program estimated an error rate of 20.3 percent 

for fiscal year 2006. The Marketing Assistance Loan program is now in a 

greatly improved position to identify the root causes of these errors and 

Page 8 GAO-07-635T 
ultimately improve the integrity of its payments—the primary goal of IPIA 

reporting. 

Table 1 highlights improper payment error rates for the 8 major programs

that accounted for 86 percent of the $42 billion total improper payment 

estimate for fiscal year 2006. 

Table 1: Reported Improper Payment Error Rates for Major Programs for Fiscal Years 2004 through 2006 

FY 2004 FY 2005 FY 2006 

Agency Program 

Error rate

(percent)

Estimate

(dollars in 

billions)

Error rate

(percent)

Estimate 

(dollars in 

billions) 

Error rate

(percent)

Estimate

(dollars in 

billions)

Health and Human 

Services 

Medicare (Fee-for-Service 

component) 10.1 $21.7 5.2 $12.1 4.4 $10.8

Department of the 

Treasury 

Earned Income Tax Credit 

24.5 9.7 25.5 10.5 25.5 10.7

Department of 

Labor 

Unemployment Insurance 

10.3 3.9 10.1 3.3 10.7 3.4

Social Security

Administration 

Old Age, Survivors, and Disability 

Insurance 0.3 1.7 0.7 3.7 0.6 3.3

Social Security

Administration

Supplemental Security Income

Program 7.3 2.6 7.7 2.9 7.8 3.0

Department of 

Agriculture 

Food Stamp Program 

6.6 1.6 5.9 1.4 5.8 1.6

Department of 

Agriculture 

Marketing Assistance Loan Program 

0.0 0.0 0.7 0.5 20.3 1.6

Housing and 

Urban 

Development 

Public Housing/Rental Assistance 

6.9 1.7 5.6 1.5 5.4 1.5

 Total $42.9 $35.9 $35.9

 Estimate for all programs 45.4 38.4 41.6

 Major programs as a percent of total 

for all programs 94 percent 93 percent 86 percent

Sources: GAO analysis of agencies’ fiscal years 2004 to 2006 PARs and OMB. 

Noncompliance Issues 

with IPIA Continue 

Although they are not specifically required to do so by the act, some 

agency auditors have reported on noncompliance issues related to 

implementation of IPIA since the first year of IPIA reporting. For example, 

for fiscal years 2004 and 2005, we reported17 that agency auditors had 

 17GAO-05-417 and GAO-07-92, respectively. 

Page 9 GAO-07-635T 
identified instances of noncompliance, such as the lack of a systematic 

method for reviewing all programs and risk assessments that did not 

consider all payment types or programs. For fiscal year 2006, agency 

auditors reported instances of noncompliance such as an agency still 

being in its early stages of IPIA implementation or not yet having reported

for all risk-susceptible programs. 

We found that the level of noncompliance and types of issues raised varied 

over the first 3 years of IPIA reporting. From our review of the agency 

auditors’ description of the noncompliance, we classified the findings into 

three categories—full noncompliance, partial noncompliance, and 

potential noncompliance. We noted that agency auditors reported 

problems related to agencies’ risk assessments, the definition of programs 

for IPIA purposes, sampling methodologies, lack of reporting for all risksusceptible programs, and supporting documentation, as shown in table 2. 

Fully addressing these matters should lead to improved reporting under 

IPIA. Although IPIA does not include a separate reporting requirement for 

auditors to assess agencies’ compliance, we noted that those that included

this assessment provided a valuable independent validation of agencies’ 

efforts to implement the act. 

Table 2: Noncompliance Issues Reported by Some Agency Auditors for Fiscal 

Years 2004 through 2006 

Category of 

noncompliance

Fiscal 

year 

2004

Fiscal 

year 

2005

Fiscal 

year 

2006 Type of noncompliance issue

Full 

noncompliance 

3 2 1

Defining programs and activities, risk 

assessment, sampling, early stages of 

IPIA implementation 

Partial 

noncompliance 1 1 4

Not estimating for all risk-susceptible 

programs, risk assessment, sampling 

Potential 

noncompliance 0 0 1

Documentation does not support work 

reportedly performed 

Total 4 3 6

Source: GAO analysis.

From our analysis, we noted that four agencies18 had reported 

noncompliance issues for at least 2 of the 3 IPIA reporting years. For 

example, agency auditors for DHS have reported noncompliance issues for 

 18The four agencies include HHS, DHS, DOJ, and NASA. 

Page 10 GAO-07-635T 
the first 3 years of IPIA reporting. As mentioned earlier in this testimony, 

the first 2 years of noncompliance were primarily caused by inadequate 

risk assessments. For fiscal year 2006, DHS auditors reported that the 

agency had not fully complied with IPIA due to several inadequacies 

related to sampling methodologies, trained staff, and monitoring of results 

to ensure testing was completed for all required programs. DHS auditors 

recommended that the agency follow OMB guidance for fiscal year 2007,

including completing the necessary susceptibility assessments, testing for 

all material programs, and instituting sampling techniques to allow for 

statistical projection of improper payments testing results. 

While showing progress, agencies’ fiscal year 2006 reporting under IPIA 

does not yet reflect the full scope of improper payments across executive

branch agencies. Major challenges remain in meeting the goals of the act 

and ultimately improving the integrity of payments. Specifically, some 

agencies have not yet reported for all risk-susceptible programs, and 

certain methodologies used to estimate improper payments do not result 

in reliable estimates. Also, we noted that management challenges related 

to agencies’ internal control weaknesses continue to plague programs 

susceptible to significant improper payments. 

Challenges Continue 

in Reporting Improper 

Payment Information 

and Improving 

Internal Control

Improper Payments 

Estimate Excludes Several 

Large Risk-Susceptible 

Programs 

The fiscal year 2006 total improper payment estimate of about $42 billion 

did not include any amounts for 13 risk-susceptible programs having fiscal

year 2006 outlays totaling about $329 billion. The Medicaid program 

represents the largest program that has not yet reported, with reported 

outlays of about $183 billion. OMB had specifically required 9 of these 

programs, including the Medicaid program to report selected improper 

payment information for several years before IPIA reporting requirements 

became effective. After passage of IPIA, OMB’s implementing guidance 

required that these programs continue to report improper payment 

information under IPIA. See table 3 for more detailed information. 

Page 11 GAO-07-635T 
Table 3: Risk-Susceptible Programs That Did Not Report Improper Payment 

Estimates and Target Dates for Estimates

Agency/program 

Fiscal year 

2006 outlays 

(dollars in 

billions)

Target date for 

improper payment 

estimate

Previously 

required to

estimate

Department of Agriculture—

National School Lunch and School 

Breakfast Programs (previously 

School Programs) $6.5 2007 X

Federal Communications 

Commission—High Cost Support 

Program 3.8 2007

Federal Communications 

Commission—Universal Service 

Fund’s Schools and Libraries 1.7 2007

Small Business Administration—

504 Certified Development 

Companies 4.3 2007 X

Department of Transportation—

Airport Improvement Program 3.8 2007 X

Department of Transportation—

Capital Investments 3.1 2007 X

Department of Transportation—

Formula Grants 1.9 2007 X

Department of Health and Human 

Services—Child Care and 

Development Fund 4.9 2008a X

Department of Health and Human 

Services—Medicaid 182.9 2008 X

Department of Health and Human 

Services—State Children’s 

Insurance Program 5.8 2008 X

Department of Health and Human 

Services—Temporary Assistance 

for Needy Families 17.4 2008a

X

Department of Health and Human 

Services—Medicare Advantage 55.4

Did not report a target 

date

Department of Health and Human 

Services—Medicare Prescription 

Drug Benefit 37.4

Did not report a target 

date

Total $328.9 9

Sources: OMB and cited agencies’ fiscal year 2006 PARs. 

a

Although not reported in HHS’s fiscal year 2006 PAR, according to OMB, both the Child Care and Development Fund and Temporary 

Assistance for Needy Families programs anticipate reporting a component error measurement in HHS’s fiscal year 2008 PAR. 

Page 12 GAO-07-635T 
Of these 13 programs, 11 reported that they would be able to estimate and 

report on improper payments in the next 2 fiscal years, but could not do so 

for fiscal year 2006. The remaining 2 programs were silent about when 

they would report estimates in the future. As a result, improper payment 

reporting of these programs susceptible to risk remain unknown. 

OMB reported that some of the agencies were unable to determine the rate 

or amount of improper payments because of measurement challenges or 

time and resource constraints, which OMB expects to be resolved in future

reporting years. For example, since fiscal year 2002, HHS has conducted 

pilots at the state level to further its progress toward reporting a national 

improper payments estimate for its Medicaid program. Each state is 

responsible for designing and overseeing its own Medicaid program within 

the federal government structure. This type of program structure presents 

challenges for implementing a methodology to estimate improper 

payments as HHS must work with states to obtain applicable 

documentation used in the calculation. An additional challenge that HHS 

and other agencies with state-administered programs say they face is the 

ability to hold states accountable for meeting targets to reduce and 

recover improper payments in the absence of specific statutory authority. 

In April 2006, we reported19 on the need for federal and state coordination 

to report national improper payment estimates on federal programs as 

state-administered programs and other nonfederal entities receive over 

$400 billion annually in federal funds. Thus, federal agencies and states 

share a responsibility for the prudent use of these funds. 

Certain Methodologies 

Used to Estimate Improper 

Payments Do Not Result in 

Accurate Estimates 

We have previously noted that agencies employed different sampling 

methodologies to estimate improper payments, including statistical 

sampling, nonstatistical sampling, or a combination of the two. OMB’s 

implementing guidance requires that agencies generally use a statistical 

sample to estimate improper payments. Agencies may also use an 

alternative sampling approach provided they obtain OMB approval prior to 

implementation. The advantage of using statistical sampling is that sample 

results can be generalized to the entire population from which the sample 

was taken. Based on our review of fiscal year 2006 reporting, we found 

seven agencies that did not use statistical sampling to estimate improper 

payments for nine programs totaling about $202 million, with program 

 19GAO, Improper Payments: Federal and State Coordination Needed to Report National 

Improper Payment Estimates on Federal Programs, GAO-06-347 (Washington, D.C. Apr.

14, 2006). 

Page 13 GAO-07-635T 
outlays exceeding $88 billion. Given that total outlays for these nine risksusceptible programs exceeded $88 billion for fiscal year 2006, the 

improper payment estimate for these programs would likely have been 

much greater had statistically valid methods been used. 

For example, Labor analyzed fiscal year 2004 audits done under the Single

Audit Act,20 as amended, to identify questioned costs for its Workforce 

Investment Act21 program, which, in turn, were used as a proxy for 

reporting its improper payment estimate. Specifically, the improper 

payment rate was determined by calculating the projected questioned 

costs and dividing this total amount by the corresponding outlays. Using 

this methodology, Labor reported a $6.4 million improper payment 

estimate for fiscal year 2006. We do not believe this is a reasonable proxy 

for improper payment levels because single audits, by themselves, may 

lack the level of detail necessary for achieving IPIA compliance. 

Specifically, single audits generally focus on the largest dollars in an 

auditee’s portfolio. Thus, all programs identified as susceptible to 

improper payments at the federal level may not receive extensive coverage

under a single audit. Consequently, both the depth and level of detail of 

single audit results are, generally, insufficient to identify improper 

payments, estimate improper payments, or both. We noted that Labor’s 

OIG reported the use of single audits as a major management challenge 

because serious deficiencies in single audits, including inadequate 

sampling methodologies have been reported, thus making them unreliable 

for purposes of estimating improper payments. 

We also found that five agencies used a combination of statistical and

nonstatistical sampling methods to estimate improper payments totaling 

about $11.6 billion for ten programs. For example, VA reported that 

improper payment estimates for its Compensation and Pension programs 

are based on statistical sampling of its quality assurance program together 

with actual amounts of debt incurred that are referred to the VA Debt 

Management Center. In another example, the Railroad Retirement Board 

(RRB) reported that improper payment estimates for its Retirement and 

 2031 U.S.C. §§ 7501-7507. Under the Single Audit Act, as amended, and implementing 

guidance, independent auditors audit state and local governments and nonprofit 

organizations that expend $500,000 or more in federal awards to assess, among other

things, compliance with laws, regulations, and the provisions of contracts or grant 

agreements material to the entities’ major federal programs.

21Pub. L. No. 105-220, 112 Stat. 936 (Aug. 7, 1998). 

Page 14 GAO-07-635T 
Survivors Benefits program and Railroad Unemployment Insurance 

Benefits program were based on a statistical sample of railroad retirement 

awards and unemployment and sickness insurance claims as well as 

special studies and audits that were not entirely statistically based. In its 

fiscal year 2006 PAR, RRB reported that in May 2005, its general counsel 

issued a legal opinion that since the levels of improper payments did not 

exceed OMB’s designated thresholds—exceeding $10 million and 2.5 

percent of program payments—the agency was not required to conduct 

statistical sampling. We noted that both of these programs were required 

to report improper payment information for several years before IPIA 

reporting requirements became effective. After passage of IPIA, OMB’s 

implementing guidance required that these programs continue to report 

improper payment information under IPIA, including using statistical 

sampling to estimate improper payments. 

In addition, we noted instances where agencies estimated improper 

payments for only one component of the risk-susceptible program. For 

example, HHS’s Medicare program is the largest of the programs 

constituting the total improper payment estimate, with an estimate of 

$10.8 billion for fiscal year 2006. However, this estimate represents 

payment errors only for its fee-for-service program component. HHS has 

not yet begun to estimate improper payments for its managed care 

component (also known as Medicare Advantage), with outlays totaling 

about $55 billion, or 14 percent of Medicare program outlays. HHS’s 

auditor, an independent public accounting firm that audited its financial 

statements for fiscal year 2006, identified Medicare’s managed care 

benefits payment cycle as a reportable condition in its report on internal 

controls. The auditor found that HHS lacks a comprehensive control 

environment in which the risk of inaccurate payments is not sufficiently 

mitigated. Specifically, HHS had inadequate procedures to review and 

process managed care payments, lacked documentation and procedures to 

determine eligibility of new providers, and provided inadequate oversight 

of managed care organizations. In its fiscal year 2006 PAR, HHS reported 

that a methodology to estimate improper payments for the Medicare 

Advantage program was in the initial stage of development. During fiscal 

year 2007, HHS plans to perform a comprehensive risk assessment for the 

Medicare Advantage program to determine potential areas vulnerable to 

payment errors. HHS anticipates reporting on the measurement project 

and select findings in its fiscal year 2008 PAR. However, HHS has not yet 

provided a target date for reporting an improper payment estimate for its 

Medicare Advantage program. 

Page 15 GAO-07-635T 
Agency OIGs reported management challenges in the annual PARs related 

to agencies’ internal control weaknesses that continue to plague programs 

susceptible to significant improper payments. In accordance with OMB 

Circular No. A-136, OIGs are required to highlight issues that the OIGs 

consider to be the most serious management and performance challenges

facing agencies. Management challenges involving internal control have a 

direct effect on program integrity and improper payment issues, and thus a 

review of the OIGs’ statements on management challenges can be 

instructive in this regard. Generally, improper payments result from a lack

of or an inadequate system of internal control, but some result from 

program design issues. 

Improved Internal Control 

Is Key to Resolving 

Improper Payments 

Internal control is a major part of managing an organization. It comprises 

the plans, methods, and procedures used to meet missions, goals, and 

objectives and supports performance-based management. Internal control 

also serves as the first line of defense in safeguarding assets and 

preventing and detecting errors and fraud. Our Standards for Internal 

Control in the Federal Government provide a road map for entities to 

establish control for all aspects of their operations and a basis against 

which entities’ control structures can be evaluated.22 Also, our executive 

guide on strategies to manage improper payments focuses on internal 

control standards as they relate to reducing improper payments.23

We found that over half of the programs reporting improper payment 

estimates also had reported management challenges that could increase 

the risk of improper payments, including challenges related to internal 

controls. For example, in the Department of Education’s (Education) 

fiscal year 2006 PAR, the Education OIG reported that recent audits, 

inspections, and investigations continue to uncover problems with 

program control and oversight of program participants, placing billions of 

taxpayer dollars at risk of waste, fraud, abuse, and noncompliance. The 

OIG concluded that only by improving effective oversight of its operations 

and demanding accountability by its managers, staff, contractors, and 

grantees can the agency be an effective steward of the billions of taxpayer 

dollars supporting its programs and operations. Education’s OIG also 

reported that identifying and correcting improper payments remains a 

 22GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 

23GAO, Strategies to Manage Improper Payments: Learning From Public and Private 

Sector Organizations, GAO-02-69G (Washington, D.C.: October 2001).

Page 16 GAO-07-635T 
challenge for the agency due to ineffective oversight and monitoring of its 

policies, programs, and participants.

Another example involved an agency’s systems used to detect fraudulent 

activity. Specifically, Treasury’s OIG reported that some tax credits, such 

as the Earned Income Tax Credit, provide opportunities for abuse in 

income tax claims. In past years, the Internal Revenue Service (IRS) used 

its Web-based Electronic Fraud Detection System (EFDS) to search for 

signs of fraud at the time that tax returns are filed to help eliminate the 

issuing of questionable refunds. For its 2005 processing year,24 IRS stopped 

over $412 million in improper payments. However, IRS was unable to 

utilize EFDS for the 2006 processing year25 because the contractor it had 

hired to update the fraud detection program could not produce a working 

program within the established timeframe. Because IRS believed that the 

contractor would deliver the updated program, it had not developed a 

contingency plan nor taken any action to return to the old system. As a 

result, the Treasury OIG reported that more than $300 million in fraudulent 

refunds may have been issued in 2006. We identified this issue as a 

material weakness during our audit of IRS’s fiscal years 2005 and 2006

financial statements.26

Section 831 of the National Defense Authorization Act for Fiscal Year 2002 

provides an impetus for applicable agencies to systematically identify and 

recover contract overpayments. The act requires that agencies that enter 

into contracts with a total value in excess of $500 million in a fiscal year 

carry out a cost-effective program for identifying and recovering amounts 

erroneously paid to contractors. The law authorizes federal agencies to 

retain recovered funds to cover in-house administrative costs as well as to 

pay contractors, such as collection agencies. Any residual recoveries, net 

of these program costs, shall be credited back to the original appropriation 

from which the improper payment was made, subject to restrictions as 

described in the legislation. 

Agencies’ Reporting 

of Recovery Auditing 

Information 

 24A processing year is the calendar year in which tax returns and related data are 

processed. 

25During processing year 2006, IRS processed primarily 2005 tax returns. 

26GAO, Financial Audit: IRS’s Fiscal Years 2006 and 2005 Financial Statements, GAO07-136 (Washington, D.C.: Nov. 9, 2006). 

Page 17 GAO-07-635T 
Recovery auditing is a method that agencies can use to recoup detected 

improper payments. Recovery auditing is a detective control to help 

determine whether contractor costs were proper. Specifically, it focuses 

on the identification of erroneous invoices, discounts offered but not 

received, improper late penalty payments, incorrect shipping costs, and 

multiple payments for single invoices. Recovery auditing can be conducted 

in-house or contracted out to recovery audit firms. The techniques used in

recovery auditing offer the opportunity for identifying weaknesses in 

agency internal controls, which can be modified or upgraded to be more 

effective in preventing improper payments before they occur for 

subsequent contract outlays. 

I would like to emphasize that effective internal control calls for a sound, 

ongoing invoice review and approval process as the first line of defense in

preventing unallowable contract costs. Given the large volume and 

complexity of federal payments and historically low recovery rates for 

certain programs, it is much more efficient and effective to pay bills and 

provide benefits properly in the first place. Prevention is always preferred 

to detection and collection. Aside from minimizing overpayments, 

preventing improper payments increases public confidence in the 

administration of benefit programs and avoids the difficulties associated 

with the “pay and chase” aspects of recovering improper payments. 

Without strong preventive controls, agencies’ internal control activities 

over payments to contractors will not be effective in reducing the risk of 

improper payments. 

Beginning with fiscal year 2004, OMB required that applicable agencies 

publicly report on their recovery auditing efforts as part of their PAR 

reporting of improper payment information. Agencies are required to 

discuss any contract types excluded from review and justification for 

doing so. Agencies are also required to report, in table format, various 

amounts related to contracts subject to review and actually reviewed, 

contract amounts identified for recovery and actually recovered, and prior 

year amounts. 

From fiscal year 2004 to 2006, we noted that the number of agencies 

reporting recovery auditing information and the dollar amounts identified 

for recovery and actually recovered had increased, as shown in table 4.

Page 18 GAO-07-635T 
Table 4: Improper Payment Amounts Identified and Recovered for Fiscal Years 2004 to 2006 

Fiscal year 2004 Fiscal year 2005 Fiscal year 2006 

 

Department or

agency 

Agencyreported 

amount 

identified for 

recovery 

Agencyreported 

amount 

recovered

Agencyreported 

amount 

identified for 

recovery

Agencyreported 

amount 

recovered 

Agencyreported 

amount 

identified for 

recovery 

Agencyreported 

amount 

recovered

1 Agency for

International 

Development did not report did not report $5,900,000 $5,782,000 $17,100,000 $17,090,000

2 Department of

Agriculture $2,000 $2,000 333,000 189,000 379,000 538,000a

3 Department of

Commerce did not report did not report 96,354 84,551 96,000 96,000

4 Department of

Defense 6,300,000 6,300,000 473,000,000 418,500,000 195,300,000 137,900,000

5 Department of

Education 269,000 79,000 274,367 112,506 did not report did not report

6 Department of

Energy 6,000,000 6,000,000 10,600,000 9,500,000 11,900,000 10,300,000

7 Environmental

Protection Agency did not report did not report 130,000 130,000 1,102,000 0b

8 General Services

Administration 14,409,000 11,117,000 26,638,654 8,317,187 46,721,742 45,917,920

9 Department of Health 

and Human Services did not report did not report 2,100,000 14,430 1,600,000c

40,000c

10 Department of

Homeland Security did not report did not report 2,191,000 1,207,000 502,000,000c

6,016,000c

11 Department of

Housing and Urban 

Development 227,000 40,000

reported not 

cost beneficial

reported not 

cost beneficial

reported not 

cost beneficial

reported not 

cost beneficial

12 Department of the 

Interior 231,000 231,000 1,548,620 195,479 4,407,345 505,743

13 Department of Justice 973,000 780,000 1,044,320 765,086 1,851,709 1,734,421

14 Department of Labor 

did not report did not report

reported not 

cost beneficial

reported not 

cost beneficial

reported not 

cost beneficial

reported not 

cost beneficial

15 National Aeronautics

and Space 

Administration did not report did not report 617,442 617,442 256,255 139,420

16 Social Security

Administration 5,000 5,000 317,000 50,000 178,000 178,000

17 Department of State did not report did not report 5,350,000 5,190,000 2,397,200 2,276,700

18 Tennessee Valley

Authority did not report did not report 909,573 443,763 6,793,581d

1,202,651

Page 19 GAO-07-635T 
Fiscal year 2004 Fiscal year 2005 Fiscal year 2006 

 

Department or

agency 

Agencyreported 

amount 

identified for 

recovery 

Agencyreported 

amount 

recovered

Agencyreported 

amount 

identified for 

recovery

Agencyreported 

amount 

recovered 

Agencyreported 

amount 

identified for 

recovery 

Agencyreported 

amount 

recovered

19 Department of

Transportation 216,000 216,000 2,663,984 2,663,984 6,450,993 45,109

20 Department of the 

Treasury 855,000 669,000 428,977 364,680 2,305,424 1,442,708

21 Department of

Veterans Affairs 29,500,000 27,300,000 23,001,137 12,957,264 39,155,454 30,378,423

 Total $58,987,000 $52,739,000 $557,144,428 $467,084,372 $839,994,703 $255,801,095

Sources: OMB and agencies’ fiscal year 2005 and 2006 PARs. 

a

According to USDA, amount recovered in fiscal year 2006 include some recoveries identified in fiscal 

year 2005. 

b

Agency did not report an amount recovered in its PAR. According to OMB, only four improper 

payments were identified and dollars were not statistically significant. 

c

We obtained this amount from OMB. 

d

This amount represents the agency-reported amount of $1,208,498 and an additional $5,585,083 

identified from Tennessee Valley Authority’s (TVA) OIG contract compliance audits, which is also 

included in the annual report. TVA noted that there is a partial overlap between these two amounts, 

but could not identify the overlapped amount. 

 

We are pleased that progress has been made over the past 3 fiscal years to

identify amounts for recovery and those amounts actually recovered. We 

also noted that the rate of recovery of contract overpayments for fiscal 

year 2006, about 30 percent, had substantially decreased from the prior 

year reported recovery rate of 84 percent. In our November 2006 report,27

we raised questions regarding the overall high recovery rate of 84 percent 

and found discrepancies, such as the contract costs identified for recovery 

were considerably lower than the corresponding OIG amount identified 

from that year’s audit reviews. We determined that the discrepancies 

significantly decreased the overall recovery rate from 84 percent to 22

percent. Although we have not performed a detailed review of the 

agencies’ recovery rates for fiscal year 2006, the reported overall recovery 

rate of 30 percent may provide a more realistic view of agencies’ recovery 

audit efforts. 

 27GAO-07-92. 

Page 20 GAO-07-635T 
From our review, we noted that 12 agencies reported recovering about 

$53 million for fiscal year 2004 compared to 18 agencies that reported 

recovering about $256 million for fiscal year 2006. In addition to the 18 

agencies, we found that 3 agencies—Education, the Department of 

Housing and Urban Development (HUD), and Labor—did not report 

recovery auditing information for fiscal year 2006. Education reported that 

it reviewed all of its vendor payments from fiscal years 1998 to 2005 and 

found that potential recoveries were minimal. During fiscal year 2007, 

Education plans to review fiscal year 2006 contract payments. Education 

also noted that its purchase card and travel card programs are subject to 

monthly reviews and reconciliations to identify potential misuse or abuse. 

HUD and Labor reported that based on their recovery audit results, a 

recovery auditing program was not cost-beneficial or necessary, similar to 

what they reported for fiscal year 2005. Specifically, in fiscal year 2006,

HUD reported that its recovery audit contractor had determined that 

procedures and systems in place provide strong controls for processing 

contract payments. Labor reported that from its statistical sample of 50

transactions, no improper payments were found, and therefore recovery 

audit efforts were not necessary. In addition, we noted that of the 18 

agencies reporting for fiscal year 2006, 3 agencies had conducted in-house 

recovery audits, 8 agencies reported they contracted out their recovery 

audit services, another 6 agencies reported using both in-house and 

recovery audit contractors to perform recovery auditing, and the 

remaining 1 agency was silent. 

In closing, we recognize that measuring improper payments and designing 

and implementing actions to reduce them are not simple tasks and will not 

be easily accomplished. Further, while internal control should be 

maintained as the front-line defense against improper payments, recovery 

auditing holds promise as a cost-effective means of identifying contractor

overpayments. 

Concluding 

Observations 

Given today’s budgetary pressures and the American public’s increasing 

demands for accountability over taxpayer funds, oversight hearings such 

as this one today and the continuing leadership of OMB under the PMA, 

help keep agencies focused on the goals of IPIA and being accountable for

results. Preventing, identifying, and recovering improper payments in that 

order are what is needed across government. Fulfilling the requirements of 

IPIA will require sustained attention to implementation and oversight to 

monitor whether desired results are being achieved. 

Page 21 GAO-07-635T 
Mr. Chairman, this concludes my statement. I would be pleased to respond 

to any questions that you or other members of the subcommittee may 

have. 

Contact and 

Acknowledgments 

For more information regarding this testimony, please contact McCoy 

Williams, Director, Financial Management and Assurance, at 

(202) 512-9095 or by e-mail at williamsm1@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this testimony. Individuals making key contributions to this 

testimony included Carla Lewis, Assistant Director; Francine DelVecchio;

Christina Quattrociocchi; Heather Rasmussen; Donell Ries; and Viny 

Talwar. 

Page 22 GAO-07-635T 
Page 23 GAO-07-635T 

 Department or agency Program or activity 

1 Agency for International 

Development 

1 Cash Transfers

 2 Cooperative Agreements, Grants, and 

Contracts 

2 Department of Agriculture 3 Child and Adult Care Food Program 

 4 Conservation Reserve Program 

5 Direct and Counter-Cyclical Payments 

6 Disaster Programs

7 Farm Security and Rural Investment 

8 Federal Crop Insurance Corporation 

9 Food Stamp Program 

10 Loan Deficiency Payments 

11 Marketing Assistance Loan Program 

12 Milk Income Loss Contract Program 

13 National School Lunch and School 

Breakfast Programs (previously School 

Programs) 

14 Noninsured Assistance Program 

15 Rental Assistance Program 

16 Wildland Fire Suppression Management 

 17 Women, Infants, and Children 

3 Department of Commerce 18 All programs and activities 

4 Department of Defense 19 Civilian Pay 

 20 Commercial Pay 

21 Military Health Benefits

22 Military Pay

23 Military Retirement Fund 

 24 Travel Pay 

5 Department of Education 25 Student Financial Assistance—Federal 

Family Education Loan 

 26 Student Financial Assistance—Pell 

Grants 

 27 Title I 

6 Department of Energy 28 Payment programs 

7 Environmental Protection Agency 29 Clean Water State Revolving Funds 

 30 Drinking Water State Revolving Funds 

Appendix I: Agencies and Related Programs 

Included in Our Review of Fiscal Year 2006 

Performance and Accountability Reports and 

Annual Reports
 Department or agency Program or activity 

8 Export-Import Bank of the United 

States 

31 All programs and activities 

9 Farm Credit System Insurance 

Corporationa

32 All programs and activities 

10 Federal Communications

Commission 

33 High Cost Support Program 

 34 Universal Service Fund’s Schools and 

Libraries 

11 Federal Deposit Insurance 

Corporation 

35 All programs and activities 

12 Federal Trade Commission 36 All programs and activities 

13 General Services Administration 37 All programs and activities 

14 Department of Health and Human 

Services 

38 Child Care and Development Fund 

 39 Foster Care—Title IV-E 

40 Head Start

41 Medicaid

42 Medicare Advantage

43 Medicare Fee-for-Service

44 Medicare Prescription Drug Benefit 

45 State Children’s Insurance Program 

 46 Temporary Assistance for Needy 

Families 

15 Department of Homeland Security 47 Individuals and Households Program 

 48 Vendor Payments 

16 Department of Housing and Urban 

Development 

49 Community Development Block Grant 

 50 Federal Housing Administration’s Single 

Family Acquired Asset Management 

System 

51 Low Income Public Housing 

52 Public Housing Capital Fund 

53 Section 8—Project Based 

 54 Section 8—Tenant Based 

17 Department of the Interior 55 All programs and activities 

18 Department of Justice 56 All programs and activities 

19 Department of Labor 57 Federal Employees’ Compensation Act 

 58 Unemployment Insurance 

 59 Workforce Investment Act 

20 National Aeronautics and Space 

Administration

60 All programs and activities 

Page 24 GAO-07-635T 
 Department or agency Program or activity 

21 National Archives and Records 

Administration

61 All programs and activities 

22 National Credit Union 

Administrationa

62 All programs and activities 

23 National Science Foundation 63 Research and Education Grants and 

Cooperative Agreements 

24 National Transportation Safety

Board 

64 All programs and activities 

25 Nuclear Regulatory Commission 65 All programs and activities 

26 Office of Personnel Management 66 Federal Employees Group Life Insurance

 67 Federal Employees Health Benefits 

Program 

 68 Retirement Program (Civil Service 

Retirement System and Federal 

Employees Retirement System) 

27 Pension Benefit Guaranty 

Corporation 

69 All programs and activities 

28 U.S. Postal Service 70 All programs and activities 

29 Railroad Retirement Board 71 Railroad Unemployment Insurance 

Benefits 

 72 Retirement and Survivors Benefits 

30 Securities and Exchange 

Commission 

73 All programs and activities 

31 Small Business Administration 74 504 Certified Development Companies 

 75 7(a) Business Loan Program

76 Disaster Assistance

 77 Small Business Investment Companies 

32 Smithsonian Institution 78 All programs and activities 

33 Social Security Administration 79 Old Age and Survivors’ Insurance 

80 Disability Insurance

81 Supplemental Security Income Program 

34 Department of State 82 International Information Program—U.S. 

Speaker Specialist Program 

 83 International Narcotic and Law 

Enforcement Affairs—Narcotics Program

84 Structures and Equipment

 85 Vendor payments 

35 Tennessee Valley Authority 86 Payment programs 

36 Department of Transportation 87 Airport Improvement Program

 88 Federal Transit—Capital Investment 

Grants 

Page 25 GAO-07-635T 
 Department or agency Program or activity 

89 Federal Transit—Formula Grants 

 90 Highway Planning and Construction 

37 Department of the Treasury 91 Earned Income Tax Credit 

38 Department of Veterans Affairs 92 Compensation

 93 Dependency and Indemnity 

Compensation

94 Education programs

95 Insurance programs

96 Loan Guaranty

97 Pension

 98 Vocational Rehabilitation 

Sources: GAO’s analysis of cited agencies’ fiscal year 2006 performance and accountability reports and annual reports. 

a

Agency PAR or annual report was not available as of the end of fieldwork.

Page 26 GAO-07-635T 
Page 27 GAO-07-635T 

 

Department or agency 

 

Program or activity 

2005 Total 

estimate

(dollars in 

millions) 

2005 Error 

rate 

(percent) 

2006 Total 

estimate

(dollars in 

millions) 

2006 Error 

rate

(percent)

1 Agency for International 

Development 

1 Cash Transfers 0.9a0.1a7.0 0.8

2 Cooperative Agreements,

Grants, and Contracts 

0.2a 0.0a, b 15.1 0.2

2 Department of

Agriculture 

3 Child and Adult Care Food 

Program 

0.0c0.0c16.0 1.8

4 Conservation Reserve

Program 

0.0c0.0c64.0 3.5

5 Direct and Counter-Cyclical

Payments 

0.0c0.0c424.0 5.0

6 Disaster Programs 0.0c0.0c291.0 12.3

7 Farm Security and Rural 

Investment 

16.0 1.6 3.0 0.2

8 Federal Crop Insurance

Corporation 

28.0 0.9 62.0 1.9

9 Food Stamp Program 1,432.0 5.9 1,645.0 5.8

10 Loan Deficiency Payments 5.0 1.0 443.0 9.3 

11 Marketing Assistance Loan 

Program (previously 

Commodity Loan Programs) 

45.0 0.7 1,611.0 20.3

12 Milk Income Loss Contract 

Program 

0.2 0.1 0.0c0.0c

13 National School Lunch and 

School Breakfast Programs 

(previously School Programs)

d

0.0 0.0 0.0 0.0

14 Noninsured Assistance

Program 

0.0c0.0c25.0 22.9

15 Rental Assistance Program 27.0 3.2 22.0 3.5 

16 Wildland Fire Suppression

Management 

18.0a3.7a7.0 2.5

 17 Women, Infants, and Children 0.0c0.0c21.0 0.6

3 Department of

Commerce 

18 All programs and activitiese0.0 0.0 0.0 0.0 

4 Department of Defense 19 Civilian Pay 0.0c0.0c62.8 0.1

20 Commercial Pay 0.0c0.0c550.0 0.2

21 Military Health Benefits 87.8a1.2a140.0 2.0

22 Military Pay 432.0 0.6 65.9 0.1

23 Military Retirement Fund 49.3 0.1 48.8 0.1

Appendix II: Improper Payment Estimates 

Reported in Agency Fiscal Year 2005 and 2006 

Performance and Accountability Reports or Annual 

Reports 
 

Department or agency 

 

Program or activity 

2005 Total 

estimate

(dollars in 

millions) 

2005 Error 

rate 

(percent) 

2006 Total 

estimate

(dollars in 

millions) 

2006 Error 

rate

(percent)

 24 Travel Pay 0.0c0.0c8.0 1.0

5 Department of Education 25 Student Financial Assistance— 

Federal Family Education 

Loan 

190.0a2.2a401.0 2.2

26 Student Financial Assistance—

Pell Grants 

444.0a3.5a422.0 3.5

27 Title I 149.0 1.2 25.2 0.2

6 Department of Energy 28 Payment programs 14.5 0.1 18.4 0.1

7 Environmental

Protection Agency 

29 Clean Water State Revolving 

Funds 

3.0a 0.1a 3.5 0.2

 

 

30 Drinking Water State Revolving

Funds 

0.0f0.0f0.0f0.0f

8 Export-Import Bank of 

the United Statesg

31 All programs and activities 0.0 0.0 0.0 0.0 

9 Farm Credit System 

Insurance Corporation

32 All programs and activities 0.0g0.0g0.0h 0.0h

10 Federal

Communications 

Commission

33 High Cost Support Programd0.0 0.0 0.0 0.0

 34 Universal Service Fund’s 

Schools and Librariesd

0.0 0.0 0.0 0.0 

11 Federal Deposit

Insurance Corporationg

35 All programs and activities 0.0 0.0 0.0 0.0 

12 Federal Trade

Commission 

36 All programs and activities 0.0i0.0i0.0e0.0e

13 General Services

Administration

37 All programs and activitiese0.0 0.0 0.0 0.0 

14 Department of Health 

and Human Services

38 Child Care and Development 

Fundd

0.0 0.0 0.0 0.0 

39 Foster Care—Title IV-E 152.0a8.6a134.0 7.7

40 Head Start 109.0a1.6 210.0 3.1

41 Medicaidd0.0 0.0 0.0 0.0 

42 Medicare Advantaged0.0 0.0 0.0 0.0 

43 Medicare Fee-for-Service 12,100.0 5.2 10,800.0 4.4 

44 Medicare Prescription Drug 

Benefitd

0.0 0.0 0.0 0.0 

45 State Children’s Insurance 

Programd

0.0 0.0 0.0 0.0 

Page 28 GAO-07-635T 
 

Department or agency 

 

Program or activity 

2005 Total 

estimate

(dollars in 

millions) 

2005 Error 

rate 

(percent) 

2006 Total 

estimate

(dollars in 

millions) 

2006 Error 

rate

(percent)

 46 Temporary Assistance for 

Needy Families

d

0.0 0.0 0.0 0.0 

15 Department of

Homeland Security

47 Individuals and Households 

Program

397.0a8.6a334.0 8.6

 48 Vendor payments 494.0a7.4a502.0 7.4

16 Department of Housing 

and Urban Development 

49 Community Development

Block Grant (Entitlement 

Grants, States/Small Cities) 

8.0a0.2a4.4 0.1

50 Federal Housing

Administration’s Single Family

Acquired Asset Management 

System 

2.2 0.6 0.0j0.0j

51 Low Income Public Housing 326.0 5.6 378.5 1.4 

52 Public Housing Capital Fund 133.5 5.1 0.0j0.0j

53 Section 8—Project Based 324.0 0.0f362.6 1.3

 54 Section 8—Tenant Based 551.0 0.0f723.2 2.7

17 Department of the 

Interior

55 All programs and activitiese0.0 0.0 0.0 0.0 

18 Department of Justice 56 All programs and activitiese0.0 0.0 0.0 0.0 

19 Department of Labor 57 Federal Employees’

Compensation Act 

3.3 0.1 0.3 0.0b

58 Unemployment Insurance 3,267.0 10.1 3,376.0 10.7 

 59 Workforce Investment Act 7.8a0.2 6.4 0.2

20 National Aeronautics

and Space 

Administration

60 All programs and activitiese0.0 0.0 0.0 0.0 

21 National Archives and 

Records Administration 

61 All programs and activities 0.0i0.0i0.0e0.0e

22 National Credit Union 

Administration

62 All programs and activities 0.0g 0.0g 0.0h0.0h

23 National Science

Foundation 

63 Research and Education 

Grants and Cooperative 

Agreements

1.1 0.0b0.0j0.0j

24 National Transportation

Safety Board 

64 All programs and activities 0.0i0.0i0.0g0.0g

25 Nuclear Regulatory

Commission

65 All programs and activitiese0.0 0.0 0.0 0.0 

Page 29 GAO-07-635T 
 

Department or agency 

 

Program or activity 

2005 Total 

estimate

(dollars in 

millions) 

2005 Error 

rate 

(percent) 

2006 Total 

estimate

(dollars in 

millions) 

2006 Error 

rate

(percent)

26 Office of Personnel 

Management

66 Federal Employees Group Life 

Insurance 

3.4a0.3a0.8 0.1 

67 Federal Employees Health 

Benefits Program 

196.7a0.7a 62.5 0.2 

 68 Retirement Program (Civil 

Service Retirement System 

and Federal Employees 

Retirement System)

153.0a0.3a253.5 0.4 

27 Pension Benefit

Guaranty Corporation 

69 All programs and activities 0.0g0.0g0.0e0.0e

28 U.S. Postal Serviceg70 All programs and activities 0.0 0.0 0.0 0.0 

29 Railroad Retirement

Board 

71 Railroad Unemployment

Insurance Benefits

2.6a2.3a2.7 2.3

 72 Retirement and Survivors 

Benefits 

151.8a1.7a157.0 1.7

30 Securities and Exchange 

Commission

73 All programs and activitiese0.0 0.0 0.0 0.0

31 Small Business

Administration 

74 504 Certified Development 

Companiesd 

0.0 0.0 0.0 0.0

75 7(a) Business Loan Program 8.7a1.4a10.2 1.6

76 Disaster Assistance 1.6 0.1 89.4 0.8

 77 Small Business Investment 

Companies

125.0a4.7a0.0c0.0c

32 Smithsonian Institutiong78 All programs and activities 0.0 0.0 0.0 0.0

33 Social Security

Administration

79 Old Age and Survivors’ 

Insurance

3,681.0 0.7 3,280.0 0.6

80 Disability Insurance 0.0f0.0f0.0f0.0f

 81 Supplemental Security Income

Program

2,910.0 7.7 3,028.0 7.8

34 Department of State 82 International Information

Program—U.S. Speaker and 

Specialist Program

1.9 81.2 6.7k23.8

83 International Narcotic and Law 

Enforcement Affairs—

Narcotics Program

0.6 0.0b12.4k4.0

84 Structures and Equipment 0.2 0.0b0.0j0.0j

 85 Vendor payments 0.4 0.0b0.0j0.0j

35 Tennessee Valley

Authority

86 Payment programs 36.3 0.5 7.5 0.1

Page 30 GAO-07-635T 
 

Department or agency 

 

Program or activity 

2005 Total 

estimate

(dollars in 

millions) 

2005 Error 

rate 

(percent) 

2006 Total 

estimate

(dollars in 

millions) 

2006 Error 

rate

(percent)

36 Department of

Transportation 

87 Airport Improvement Program 0.0l0.0l0.0d0.0d

88 Federal Transit—Capital

Investment Grants 

0.0l0.0l0.0d0.0d

89 Federal Transit—Formula

Grants 

0.0l0.0l0.0d0.0d

 90 Highway Planning and 

Construction 

0.0l0.0l30.2 0.2

37 Department of the 

Treasury

91 Earned Income Tax Credit 10,500.0 25.5 10,700.0 25.5

38 Department of Veterans 

Affairs

92 Compensation 306.0a1.1 324.6 1.0

93 Dependency and Indemnity 

Compensation 

0.0f0.0f0.0f0.0f

94 Education programs 32.3a1.2a67.2 2.2

95 Insurance programs 0.3 0.0b0.0j0.0j

96 Loan Guaranty 3.5a0.3a0.9 0.1

97 Pension 370.9a10.9a370.6 10.7

 98 Vocational Rehabilitation 6.2a1.1a6.0 1.0

 Total $39,310.2 $41,643.3 

Sources: GAO prior report and analysis of cited agencies’ fiscal year 2006 PARs or annual reports. 

a

Fiscal year 2005 estimates or error rates were updated to the revised estimates reported in the fiscal

year 2006 PARs or annual reports. 

b

Agency reported error rate was less than one percent or reported the error rate rounded to zero for 

purposes of this testimony.

c

Agency did not report an annual improper payment estimate or error rate. 

d

See table 3 of this testimony. 

e

Agency reported that it had no programs or activities susceptible to significant improper payments. 

f

Agency combined with the program above. 

g

Agency did not address improper payments or IPIA in its PAR or annual report for fiscal year 2005, 

fiscal year 2006, or both. 

h

Agency PAR or annual report was not available as of the end of fieldwork. 

i

Fiscal year 2006 was the first year this agency was included in our scope of review.

j

Agency reported program no longer susceptible to significant improper payments. 

k

We obtained this amount from OMB. 

l

Agency reported that the annual improper payment amount or error rate was zero. 

Page 31 GAO-07-635T (195112) 
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