IMPROPER PAYMENTS

Government-Wide 

Estimates and Reduction 

Strategies

Statement of Beryl H. Davis, Director 

Financial Management and Assurance

Testimony 

Before the Subcommittee on 

Government Operations, Committee on 

Oversight and Government Reform, 

House of Representatives

For Release on Delivery 

Expected at 1:30 p.m. ET

Wednesday, July 9, 2014

GAO-14-737T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-737T, a testimony 

before the Subcommittee on Government 

Operations, Committee on Oversight and 

Government Reform, House of 

Representatives

July 9, 2014

IMPROPER PAYMENTS

Government-Wide Estimates and Reduction 

Strategies

Why GAO Did This Study

Over the past decade, GAO has issued 

numerous reports and testimonies 

highlighting improper payment issues 

across the federal government as well 

as at specific agencies. The Improper 

Payments Information Act of 2002, as 

amended by the Improper Payments 

Elimination and Recovery Act of 2010 

and the Improper Payments 

Elimination and Recovery 

Improvement Act of 2012, requires 

federal executive branch agencies to 

(1) review all programs and activities, 

(2) identify those that may be 

susceptible to significant improper 

payments, (3) estimate the annual 

amount of improper payments for 

those programs and activities, 

(4) implement actions to reduce 

improper payments and set reduction 

targets, and (5) report on the results of 

addressing the foregoing requirements.

In general, reported improper payment 

estimates include payments that 

should not have been made, were 

made in the incorrect amount, or were 

not supported by sufficient 

documentation.

This testimony addresses (1) federal 

agencies’ reported estimates of

improper payments, (2) remaining 

challenges in meeting current 

requirements to estimate and report 

improper payments, and (3) strategies 

for reducing improper payments. This 

testimony is primarily based on GAO’s 

fiscal year 2013 audit of the Financial 

Report of the United States 

Government and prior GAO reports

related to improper payments issued 

over the past 3 years. The testimony 

also includes improper payment 

information recently presented in 

federal agencies’ fiscal year 2013

financial reports. 

What GAO Found

Federal agencies reported an estimated $105.8 billion in improper payments in 

fiscal year 2013, a decrease from the prior year revised estimate of 

$107.1 billion. The fiscal year 2013 estimate was attributable to 84 programs 

spread among 18 agencies. The specific programs included in the governmentwide estimate may change from year to year. For example, with Office of 

Management and Budget (OMB) approval, an agency can obtain relief from 

estimating improper payments if the agency has reported improper payments 

under a certain threshold for at least 2 consecutive years. A net of 10 additional 

programs were added to the government-wide estimate by OMB in fiscal year 

2013 when compared to fiscal year 2012.

For fiscal year 2013, GAO identified the federal government’s inability to 

determine the full extent to which improper payments occur and reasonably 

assure that appropriate actions are taken to reduce them as a material weakness 

in internal control. In addition, existing internal control weaknesses at the agency 

level continued to increase the risk of improper payments occurring. In fiscal year 

2013, four agencies did not report estimates for four risk-susceptible programs, 

including the Department of Health and Human Services’ (HHS) Temporary

Assistance for Needy Families (TANF) program. HHS cited a statutory barrier 

that prevents it from requiring states to estimate improper payments for TANF. 

Estimates reported for two programs were also not included in the governmentwide total because their estimation methodologies were not approved by OMB.

Further, inspectors general reported deficiencies related to compliance with 

criteria listed in the Improper Payments Elimination and Recovery Act of 2010 for 

fiscal year 2013, such as the use of estimation methodologies that were not 

statistically valid.

As GAO has previously found, a number of strategies across government, some 

of which are currently under way, could help to reduce improper payments. For 

example

• Analysis of the root causes of improper payments can help agencies target 

effective corrective actions. Some agencies reported root causes of improper 

payments using three error categories required by OMB (documentation and 

administrative, authentication and medical necessity, and verification). 

However, because the three categories are general, more detailed analysis

to understand the root causes could help agencies identify and implement 

more effective corrective actions.

• Designing and implementing strong preventive controls can help defend 

against improper payments, increasing public confidence and avoiding the 

difficult “pay and chase” aspects of recovering improper payments. 

Preventive controls involve activities such as up-front validation of eligibility 

through data sharing, predictive analytic tests, and training programs.

• Implementing effective detection techniques to quickly identify and recover 

improper payments after they have been made is also important to a 

successful reduction strategy. Detection activities include data mining and 

recovery audits. Another area for further exploration is the broader use of 

incentives to encourage and support states in efforts to implement effective 

preventive and detective controls in state-administered programs.

View GAO-14-737T. For more information, 

contact Beryl H. Davis at (202) 512-2623 or 

davisbh@gao.gov.
Page 1 GAO-14-737T 

Chairman Mica, Ranking Member Connolly, and Members of the 

Subcommittee:

Thank you for the opportunity to be here today to discuss the issue of 

improper payments in federal programs and activities, including efforts by 

federal agencies to identify and reduce improper payments.1 As the 

steward of taxpayer dollars, the federal government is accountable for 

how its agencies and grantees spend hundreds of billions of taxpayer 

dollars annually, including safeguarding those expenditures against 

improper payments and establishing mechanisms to recover those funds 

when overpayments occur. It is important to note that reported improper 

payment estimates may or may not represent a loss to the government. 

For example, errors consisting of insufficient or lack of documentation for 

a payment are included in the improper payment estimates. Over the past 

decade, we have issued numerous reports and testimonies highlighting 

improper payment issues across the federal government as well as at 

specific agencies.2

My testimony today will focus on

• federal agencies’ reported estimates of improper payments,

• remaining challenges in meeting current requirements to estimate and 

report improper payments, and

• strategies for reducing improper payments.

In preparing this statement, we primarily drew upon our February 2014 

report on the fiscal year 2013 audit of the Financial Report of the United 

States Government,

3

 1

An improper payment is defined by statute 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 good or service, any duplicate payment, any payment for a good or service not 

received (except for such payments where authorized by law), and any payment that does 

not account for credit for applicable discounts. Office of Management and Budget 

guidance also instructs agencies to report as improper payments any payments for which 

insufficient or no documentation was found.

as well as our other products dealing with improper 

2

See the Related GAO Products list at the end of this statement for a selection of the 

products related to these issues.

3

GAO, Financial Audit: U.S. Government’s Fiscal Years 2013 and 2012 Consolidated 

Financial Statements, GAO-14-319R (Washington, D.C.: Feb. 27, 2014). 
Page 2 GAO-14-737T 

payments issued over the last 3 years. We are also including improper 

payment information recently presented in federal agencies’ fiscal year 

2013 performance and accountability reports (PAR) and agency financial 

reports (AFR).4 The GAO reports cited in this statement each provide 

detailed information on our scope and methodology. The work we 

performed upon which this statement is based was conducted in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The Improper Payments Information Act of 2002 (IPIA)—as amended by 

the Improper Payments Elimination and Recovery Act of 2010 (IPERA) 

and the Improper Payments Elimination and Recovery Improvement Act 

of 2012 (IPERIA)5

—requires federal executive branch agencies to 

(1) review all programs and activities, (2) identify those that may be 

susceptible to significant improper payments,6

 4

An AFR is a report on an agency’s end of fiscal year financial position that includes, but 

is not limited to, financial statements, notes on the financial statements, and a report of the 

independent auditors. A PAR is an AFR combined with an annual performance report, 

which includes information on an agency’s efforts to achieve goals during the past fiscal 

year.

(3) estimate the annual 

amount of improper payments for those programs and activities, 

(4) implement actions to reduce improper payments and set reduction 

targets, and (5) report on the results of addressing the foregoing 

requirements. IPERA also established a requirement for agency 

inspectors general (IG) to report annually on agencies’ compliance with 

criteria listed in IPERA. Under Office of Management and Budget (OMB) 

implementing guidance, these reports should be completed within 120 

5

IPIA, Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), as amended by IPERA, Pub. 

L. No. 111-204, 124 Stat. 2224 (July 22, 2010), and IPERIA, Pub. L. No. 112-248, 126 

Stat. 2390 (Jan. 10, 2013), and codified as amended at 31 U.S.C. § 3321 note. 

6

For fiscal year 2014 and beyond, “significant improper payments” is defined as gross 

annual improper payments in the program exceeding (1) both 1.5 percent of program 

outlays and $10 million of all program or activity payments during the fiscal year reported 

or (2) $100 million (regardless of the improper payment error rate).

Background
Page 3 GAO-14-737T 

days of the publication of the federal agencies’ annual PARs or AFRs.7

IPERIA also enacted into law a Do Not Pay (DNP) initiative, elements of 

which were already being developed under executive branch authority. 

DNP is a web-based, centralized data-matching service that allows 

agencies to review multiple databases to determine a recipient’s award or 

payment eligibility prior to making payments. In addition to the laws and 

guidance noted above, the Disaster Relief Appropriations Act of 2013 

requires that all funding received under the act be deemed susceptible to 

significant improper payments and consequently requires agencies to 

estimate improper payments, implement corrective actions, and report on 

their results for these funds.8

OMB continues to play a key role in the oversight of government-wide 

improper payments. OMB has set a goal of reaching a government-wide 

improper payment error rate of 3 percent or less by the end of fiscal year 

2016. Further, OMB has established guidance for federal agencies on 

reporting, reducing, and recovering improper payments as required by 

IPIA and IPERA and on protecting privacy while reducing improper 

payments with the DNP initiative.9 IPERIA requires that OMB issue 

guidance to agencies for improving estimates of improper payments. 

OMB has reported that it plans to revise its guidance related to improper 

payments.

 7

Generally, agencies are required to issue their PARs or AFRs by November 15. Fiscal 

year 2013 marked the third year for which IGs were required to issue an annual report on 

agencies’ compliance with criteria listed in IPERA.

8

Pub. L. No. 113-2, div. A, § 904(b) 127 Stat. 4 (Jan. 29, 2013).

9

Office of Management and Budget, Revised, Financial Reporting Requirements, OMB 

Circular No. A-136 (Oct. 21, 2013); Protecting Privacy while Reducing Improper Payments 

with the Do Not Pay Initiative, OMB Memorandum M-13-20 (Washington, D.C.: Aug. 16, 

2013); Issuance of Revised Parts I and II to Appendix C of OMB Circular A-123, OMB 

Memorandum M-11-16 (Washington, D.C.: Apr. 14, 2011); Increasing Efforts to Recapture 

Improper Payments by Intensifying and Expanding Payment Recapture Audits, OMB 

Memorandum M-11-04 (Washington, D.C.: Nov. 16, 2010); and Issuance of Part III to 

OMB Circular A-123, Appendix C, OMB Memorandum M-10-13 (Washington, D.C.: 

Mar. 22, 2010).
Page 4 GAO-14-737T 

Federal agency improper payment estimates totaled $105.8 billion in 

fiscal year 2013,10 a decrease of $1.3 billion from the prior year’s revised 

estimate of $107.1 billion.11

Table 1: Improper Payment Dollar Estimates: Five Programs with the Highest 

Reported Amounts in Fiscal Year 2013

The decrease in the fiscal year 2013 estimate 

is attributed primarily to a decrease in program outlays for the Department 

of Labor’s (DOL) Unemployment Insurance program and decreases in 

reported error rates for fiscal year 2013 for the Department of Health and 

Human Services’ (HHS) Medicaid and Medicare Advantage (Part C) 

programs. The $105.8 billion in estimated federal improper payments 

reported for fiscal year 2013 was attributable to 84 programs spread 

among 18 agencies. Five of these 84 programs account for most of the 

$105.8 billion of reported improper payments. Specifically, these five 

programs accounted for about $82.9 billion or 78 percent of the total 

estimated improper payments agencies reported for fiscal year 2013. 

Table 1 lists the five programs with the highest reported improper 

payment estimates for fiscal year 2013.

Fiscal year 2013 reported improper 

payment estimates

Program Agency

Dollars

(in billions)

Error rate

(percentage of outlays)

Medicare Fee-for-Service HHS $36.0 10.1

Earned Income Tax Credit Department of 

the Treasury

14.5 24.0

Medicaid HHS 14.4 5.8

Medicare Advantage (Part C) HHS 11.8 9.5

Unemployment Insurance DOL 6.2 9.3

Source: GAO summary of agencies’ data. | GAO-14-737T

 10This $105.8 billion estimate does not include the Department of Defense’s Defense 

Finance and Accounting Service Commercial Pay program because of concerns regarding 

the reliability of its improper payment estimate, which we discuss later in this statement. 

The government-wide improper payment estimate for fiscal year 2013 including this 

program is $105.9 billion.

11In their fiscal year 2013 PARs and AFRs, three federal agencies updated their fiscal 

year 2012 improper payment estimates to reflect changes since issuance of their fiscal 

year 2012 PARs and AFRs. These updates decreased the government-wide improper 

payment estimate for fiscal year 2012 from $107.7 billion to $107.1 billion and from 4.4 

percent of program outlays to 4.3 percent.

OMB and Agencies 

Reported Estimates 

of Improper 

Payments
Page 5 GAO-14-737T 

OMB reported a government-wide improper payment error rate of 3.5 

percent of program outlays in fiscal year 2013 when including the 

Department of Defense’s (DOD) Defense Finance and Accounting 

Service (DFAS) Commercial Pay program,12 a decrease from 3.7 percent 

in fiscal year 2012. When excluding the DFAS Commercial Pay program, 

the reported government-wide error rate was 4.0 percent of program 

outlays in fiscal year 2013 compared to the revised 4.3 percent reported 

in fiscal year 2012. In May 2013, we reported on major deficiencies in 

DOD’s process for estimating fiscal year 2012 improper payments in the 

DFAS Commercial Pay program and recommended that DOD (1) develop 

key quality assurance procedures to ensure the completeness and 

accuracy of sampled populations and (2) revise its sampling procedures 

to meet OMB guidance and generally accepted statistical standards and 

produce a statistically valid error rate and dollar estimate with appropriate 

confidence intervals.13

Additionally, in fiscal year 2013, federal agencies reported improper 

payment error rates for seven risk-susceptible programs—accounting for 

more than 50 percent of the government-wide improper payment 

estimate—that exceeded 10 percent. As shown in table 2, the seven 

programs with error rates exceeding 10 percent ranged from 10.1 percent 

to 25.3 percent. Under IPERA, an agency reporting an improper payment 

rate of 10 percent or greater for any risk-susceptible program or activity 

must submit a plan to Congress describing the actions that the agency 

will take to reduce improper payment rates below 10 percent.

According to its fiscal year 2013 AFR, DOD is 

reevaluating its sampling methodology for fiscal year 2014 for the DFAS 

Commercial Pay program based on our recommendations. Consequently, 

the fiscal year 2013 improper payment estimate for the DFAS 

Commercial Pay program may not be reliable.

 12DFAS is responsible for providing professional, financial, and accounting services to 

DOD and other federal agencies. It delivers mission-essential payroll, contract and vendor 

pay, and accounting services. For fiscal year 2013, DOD reported outlays of 

approximately $353 billion for the DFAS Commercial Pay program.

13GAO, DOD Financial Management: Significant Improvements Needed in Efforts to 

Address Improper Payment Requirements, GAO-13-227 (Washington, D.C.: May 13, 

2013).
Page 6 GAO-14-737T 

Table 2: Improper Payment Error Rates: Seven Programs with Error Rates 

Exceeding 10 Percent in Fiscal Year 2013

Fiscal year 2013 reported improper 

payment estimates

Program Agency

Error rate

(percentage of outlays)

Dollars

(in millions)

School Breakfast Department of 

Agriculture (USDA)

25.3 $831.0

Earned Income Tax 

Credit

Department of the 

Treasury

24.0 14,500.0

Disaster Assistance 

Loans

Small Business 

Administration (SBA)

18.4 121.1

State Home Per 

Diem Grants

Department of 

Veterans Affairs

15.9 135.2

School Lunch USDA 15.7 1,774.0

Contract 

Disbursements

SBA 11.6 14.1

Medicare Fee-forServiceHHS 10.1 36,033.0

Source: GAO summary of agencies’ data. | GAO-14-737T

Since the implementation of IPIA in 2004, federal agencies have 

continued to identify new programs or activities as risk susceptible and to 

report estimated improper payment amounts. Federal agencies have also 

identified programs or activities that they have determined to no longer be 

risk susceptible and therefore did not report improper payment estimates 

for these programs. For example, with OMB approval an agency can 

obtain relief from estimating improper payments if the agency has 

reported improper payments under the threshold for significant improper 

payments at least 2 consecutive years. Consequently, the specific 

programs included in the government-wide improper payment estimate 

may change from year to year. For example, a net of 10 additional 

programs were added to the government-wide estimate by OMB in fiscal 

year 2013 when compared to fiscal year 2012.14

 14This total includes DOD’s DFAS Commercial Pay program.

Most notably, the 

Department of Education’s improper payment estimate for the Direct Loan 

program, approximately $1.1 billion, was included in the government-wide 

improper payment estimate for the first time in fiscal year 2013. We view 
Page 7 GAO-14-737T 

these agencies’ efforts as a positive step toward increasing the 

transparency of the magnitude of improper payments.

In addition, agencies have continued efforts to recover improper 

payments, for example through recovery audits.15 OMB reported that 

government-wide, agencies recovered over $22 billion in overpayments 

through recovery audits and other methods in fiscal year 2013.

In our fiscal year 2013 audit of the Financial Report of the United States 

Government, we reported the issue of improper payments as a material 

weakness in internal control because the federal government is unable to 

determine the full extent to which improper payments occur and 

reasonably assure that appropriate actions are taken to reduce them.16

We found that not all agencies have developed improper payment 

estimates for all of the programs and activities they identified as 

susceptible to significant improper payments. Specifically, four federal 

agencies did not report fiscal year 2013 estimated improper payment 

amounts for four risk-susceptible programs.

At 

the agency level, we also found that existing internal control 

weaknesses—such as financial system limitations and information system 

control weaknesses—heighten the risk of improper payments occurring.

17 For example, HHS’s fiscal 

year 2013 reporting cited statutory limitations for its state-administered 

Temporary Assistance for Needy Families (TANF) program,18

 15According to OMB guidance, a recovery audit is a review and analysis of an agency’s or 

program’s accounting and financial records, supporting documentation, and other 

pertinent information supporting its payments that is specifically designed to identify 

overpayments.

which 

prohibited it from requiring states to participate in developing an improper 

payment estimate for the TANF program. Despite these limitations, HHS 

16GAO-14-319R.

17The four risk-susceptible programs that did not report a required improper payments 

estimate for fiscal year 2013 were HHS’s Temporary Assistance for Needy Families 

program, the Department of Agriculture’s (USDA) Loan Deficiency Payments, the Federal 

Communications Commission’s Universal Service Fund – Lifeline program, and the 

National Science Foundation’s Research and Related Activities and Education and 

Human Resources program.

18The term state-administered refers to federal programs that are managed on a day-today basis at the state level to carry out program objectives. 

Challenges in 

Achieving Complete 

and Accurate 

Reporting of Improper 

Payments
Page 8 GAO-14-737T 

reported that the agency has taken actions to assist states in reducing 

improper payments, such as providing guidance related to appropriate 

uses of TANF program funds. For fiscal year 2013, the TANF program 

reported outlays of about $16.5 billion.

In addition, two programs that reported estimates in fiscal year 2013 were 

not included in the government-wide totals because their estimation 

methodologies were not approved by OMB. The two excluded programs 

were the Department of Transportation’s High-Speed Intercity Passenger 

Rail program, with fiscal year 2013 outlays of $2.3 billion, and the 

Railroad Retirement Board’s Railroad Unemployment Insurance program, 

with fiscal year 2013 outlays of $119.2 million.

Compliance with statutory requirements is another challenge for some 

federal agencies. For fiscal year 2013, two agency auditors reported on 

compliance issues with IPIA and IPERA as part of their 2013 financial 

statement audits. Specifically, auditors of the Department of Agriculture 

(USDA) reported noncompliance with the requirements of IPERA 

regarding the design of program internal controls related to improper 

payments. HHS auditors reported that, as previously noted, HHS did not 

report an improper payment estimate for its TANF program for fiscal year 

2013. In addition to noncompliance reported in financial statement audits, 

various IGs reported deficiencies related to compliance with the criteria 

listed in IPERA for fiscal year 2013 at their respective federal agencies, 

including risk-susceptible programs that did not have reported improper 

payment estimates, estimation methodologies that were not statistically 

valid, and risk assessments that may not accurately assess the risk of 

improper payment.

As reported in our March 2014 update to items identified in our annual 

reports on fragmentation, overlap, and duplication, to determine the full 

extent of improper payments government-wide and to more effectively 

recover and reduce them, continued agency attention is needed to 

(1) identify programs susceptible to improper payments, (2) develop 

reliable improper payment estimation methodologies, (3) report on 

improper payments as required, and (4) implement effective corrective 

actions based on root cause analysis.19

 19GAO, General Government: Governmentwide Improper Payments, accessed June 28, 

2014, http://gao.gov/duplication/action_tracker/Governmentwide_Improper_Payments. 
Page 9 GAO-14-737T 

As previously reported, there are a number of strategies that can help 

agencies in reducing improper payments, including analyzing the root 

causes of improper payments and implementing effective preventive and 

detective controls.20 Designed and implemented effectively, these 

strategies could help advance the federal government’s efforts to reduce 

improper payments.

Agencies cited a number of causes for the estimated $105.8 billion in 

reported improper payment estimates for fiscal year 2013, including 

insufficient documentation, incorrect calculations, and duplicate 

payments. According to OMB guidance,21 agencies are required to 

classify the root causes of estimated improper payments into three 

general categories for reporting purposes: (1) documentation and 

administrative errors, (2) authentication and medical necessity errors, and 

(3) verification errors.22

 20GAO, Improper Payments: Moving Forward with Governmentwide Reduction Strategies. 

While some agencies reported the causes of 

improper payments for their respective programs in their fiscal year 2013 

financial reports using these categories, a more detailed analysis beyond 

these general categories regarding the root causes can help agencies to 

identify and implement more effective preventive, detective, and 

corrective actions in the various programs. For example, in its fiscal year 

2013 AFR, HHS reported diagnosis coding errors as a root cause of 

improper payments in its Medicaid program and cited corrective actions 

GAO-12-405T (Washington, D.C.: Feb. 7, 2012).

21Office of Management and Budget, Financial Reporting Requirements, Circular No. A136 Revised (Oct. 21, 2013), and Issuance of Part III to OMB Circular A-123, Appendix C, 

OMB Memorandum M-10-13 (Washington, D.C.: Mar. 22, 2010).

22OMB defines these error types as: Documentation and Administrative Errors - Errors 

caused by the absence of supporting documentation necessary to verify the accuracy of a 

payment or errors caused by incorrect inputting, classifying, or processing of applications 

or payments by a relevant Federal agency, State agency, or third party who is not the 

beneficiary; Authentication and Medical Necessity Errors - Errors caused by an inability to 

authenticate eligibility criteria through third-party databases or other resources because no 

databases or other resources exist, or providing a service that was not medically 

necessary given the patient’s condition; and Verification Errors - Errors caused by the 

failure or inability to verify recipient information, including earnings, income, assets, or 

work status, even though verifying information does exist in third-party databases or other 

resources (in this situation, as contrasted with “authentication” errors, the “inability” to 

verify may arise due to legal or other restrictions that effectively deny access to an existing 

database or resource), or errors due to beneficiaries failing to report correct information to 

an agency.

Strategies to Reduce 

Improper Payments

Identifying and Analyzing 

Root Causes of Improper 

Payments
Page 10 GAO-14-737T 

related to provider communication and education. OMB has reported 

plans to develop more granular categories of improper payments in an 

upcoming revision to its guidance.

Implementing strong preventive controls can serve as the frontline 

defense against improper payments. Proactively 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 overpayments.23 Many agencies and programs are 

in the process of implementing preventive controls to avoid improper 

payments, including overpayments and underpayments.24

Up-front eligibility validation through data sharing. Data sharing 

allows entities that make payments—to contractors, vendors, participants 

in benefit programs, and others—to compare information from different 

sources to help ensure that payments are appropriate. When effectively 

implemented, data sharing can be particularly useful in confirming initial 

or continuing eligibility of participants in benefit programs and in 

identifying improper payments that have already been made. Analyses 

and reporting on the extent to which agencies are participating in datasharing activities, and additional data-sharing efforts that agencies are 

currently pursuing or would like to pursue can help to advance the federal 

government’s efforts to reduce improper payments.

Preventive 

controls may involve a variety of activities such as up-front validation of 

eligibility, predictive analytic tests, and training programs. Further, 

addressing program design issues that are a factor in causing improper 

payments is an effective preventive strategy to be considered. The 

following are examples of preventive strategies, some of which are 

currently under way.

 23“Pay and chase” refers to the labor-intensive and time-consuming practice of trying to 

recover overpayments once they have already been made rather than preventing 

improper payments in the first place.

24Underpayments are also included in the total improper payment estimates because, 

according to OMB guidance, the portion of all amounts paid improperly should be included 

when calculating a program’s annual improper payment amount. For example, according 

to the guidance, if a $100 payment was owed, but the agency erroneously paid $90, then 

$10 should be considered an improper payment.

Designing and 

Implementing Effective 

Preventive Controls to 

Avoid Improper Payments
Page 11 GAO-14-737T 

One example of data sharing is agencies’ use of the Do Not Pay (DNP) 

initiative. DNP is a web-based, centralized data-matching service that 

allows agencies to review multiple databases to determine a recipient’s 

award or payment eligibility prior to making payments. IPERIA requires 

entities to review prepayment and preaward procedures and ensure a 

thorough review of available databases to determine program or award 

eligibility before the release of any federal funds. IPERIA lists five 

databases that should be included in the DNP initiative and allows for the 

inclusion of other databases designated by OMB in consultation with the 

appropriate agencies.25

Predictive analytic technologies. The analytic technologies used by 

HHS’s Centers for Medicare & Medicaid Services (CMS) are examples of 

preventive techniques that may be useful for other programs to consider. 

The Small Business Jobs Act of 2010 requires CMS to use predictive 

modeling and other analytic techniques—known as predictive analytic 

technologies—both to identify and to prevent improper payments under 

the Medicare Fee-for-Service program.

In August 2013, the Director of OMB issued 

Memorandum No. M-13-20 (M-13-20), Protecting Privacy while Reducing 

Improper Payments with the Do Not Pay Initiative. As required by IPERIA, 

M-13-20 sets forth implementation guidance for the DNP initiative to help 

ensure that the federal government’s efforts to reduce improper payments 

comply with privacy laws and policies.

26

Training programs for providers, staff, and beneficiaries. Training 

can be a key element in any effort to prevent improper payments from 

occurring. This can include both training staff on how to prevent and 

These predictive analytic 

technologies are to be used to analyze and identify Medicare provider 

networks, billing patterns, and beneficiary utilization patterns and detect 

those that represent a high risk of fraudulent activity. Through such 

analysis, unusual or suspicious patterns or abnormalities can be identified 

and used to prioritize additional review of suspicious transactions before 

payment is made.

 25The five databases specifically listed in IPERIA are (1) Social Security Administration’s 

Death Master File, (2) General Services Administration’s Excluded Parties List System, 

(3) Department of the Treasury’s Debt Check Database, (4) HHS IG’s List of Excluded 

Individuals/Entities, and (5) Department of Housing and Urban Development’s (HUD) 

Credit Alert System or Credit Alert Interactive Voice Response System. According to the 

DNP website, only the first four of these databases are currently available.

26Pub. L. No. 111-240, § 4241 (Sept. 27, 2010). 
Page 12 GAO-14-737T 

detect improper payments and training providers or beneficiaries on 

program requirements. For example, in its fiscal year 2013 AFR, HHS 

reported that it has offered training through its Medicaid Integrity Institute 

to over 4,000 state employees and officials from fiscal years 2008 through 

2013.

Program design review and refinement. To the extent that provider 

enrollment and eligibility verification problems are identified as a 

significant root cause in a specific program, agencies may look to 

establish enhanced controls in this area. For example, CMS has taken 

steps to strengthen standards and procedures for Medicare provider 

enrollment to help reduce the risk of providers intent on defrauding or 

abusing the program.27 Further, exploring whether certain complex or 

inconsistent program requirements—such as eligibility criteria and 

requirements for provider enrollment—contribute to improper payments 

may lend insight to developing effective strategies for enhancing 

compliance and may identify opportunities for streamlining or changing 

eligibility or other program requirements.

Although strong preventive controls remain the frontline defense against 

improper payments, effective detection techniques can help to quickly 

identify and recover those overpayments that do occur. Detection 

activities play a significant role not only in identifying improper payments 

but also in providing data on why these payments were made and, in turn, 

highlighting areas that need strengthened prevention controls. The 

following are examples of key detection techniques.

Data mining. Data mining is a computer-based control activity that 

analyzes diverse data for relationships that have not previously been 

discovered. The central repository of data commonly used to perform 

data mining is called a data warehouse. Data warehouses store tables of 

historical and current information that are logically grouped. As a tool in 

managing improper payments, applying data mining to a data warehouse 

allows an organization to efficiently query the system to identify potential 

improper payments, such as multiple payments for an individual invoice to 

an individual recipient on a certain date, or to the same address. For 

 27GAO, Medicare: Further Action Could Improve Improper Payment Prevention and 

Recoupment Efforts. GAO-14-619T (Washington, D.C.: May 20, 2014). 

Implementing Effective 

Detective Controls to 

Identify and Recover 

Overpayments
Page 13 GAO-14-737T 

example, CMS has established One Program Integrity, a web-based 

portal intended to provide CMS staff and contractors with a single source 

of access to Medicare and other data needed to help detect improper 

payments as well as tools for analyzing those data.

Recovery auditing. While internal control should be maintained to help 

prevent improper payments, recovery auditing is used to identify and 

recover overpayments. IPERA requires agencies to conduct recovery 

audits, if cost effective, for each program or activity that expends 

$1 million or more annually. In its fiscal year 2013 AFR, HHS reported 

that the Medicare Fee-for-Service recovery audit program identified 

approximately $4.2 billion and recovered $3.7 billion in overpayments by 

the end of the fiscal year. Medicare recovery audit contractors are paid a 

contingency fee based on both the percentage of overpayments collected 

and underpayments identified.

It is important to note that some agencies have reported statutory or 

regulatory barriers that affect their ability to pursue recovery auditing. For 

example, in its fiscal year 2013 AFR, USDA reported that Section 281 of 

the Department of Agriculture Reorganization Act of 1994 precluded the 

use of recovery auditing techniques because Section 281 provides that 

90 days after the decision of a state, a county, or an area committee is 

final, no action may be taken to recover the amounts found to have been 

erroneously disbursed as a result of the decision unless the participant 

had reason to believe that the decision was erroneous.28

Federal-state incentives. Another area for further exploration is the 

broader use of incentives for states to implement effective preventive and 

detective controls.

This statute is 

commonly referred to as the Finality Rule, and according to USDA, it 

affects the Commodity Credit Corporation’s ability to recover improper 

payments.

29

 28Pub. L. No. 103-354, § 281, 108 Stat. 3178, 3233 (Oct. 13, 1994), classified, as 

amended, at 7 U.S.C. § 7001.

Agencies have applied limited incentives and 

penalties for encouraging improved state administration to reduce 

29IPERA allows agencies to use up to 25 percent of funds recovered, net of recovery 

costs, under a payment recapture audit program, including providing a portion of funding 

to state and local governments.
Page 14 GAO-14-737T 

improper payments. Incentives and penalties can be helpful to create 

management reform and to ensure adherence to performance standards.

Chairman Mica, Ranking Member Connolly, and Members of the 

Subcommittee, this completes my prepared statement. I would be 

pleased to respond to any questions that you or other members of the 

subcommittee may have at this time.

For more information regarding this testimony, please contact Beryl H. 

Davis, Director, Financial Management and Assurance, at (202) 512-2623 

or by e-mail at davisbh@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. GAO staff who made key contributions to this testimony 

included Phillip McIntyre (Assistant Director), James Healy, and Ricky A. 

Perry, Jr.

GAO Contact and 

Staff 

Acknowledgments
Related GAO Products

Page 15 GAO-14-737T 

Medicare Fraud: Further Actions Needed to Address Fraud, Waste, and 

Abuse. GAO-14-712T. Washington, D.C.: June 25, 2014.

Medicare: Further Action Could Improve Improper Payment Prevention 

and Recoupment Efforts. GAO-14-619T. Washington, D.C.: May 20, 

2014.

Medicaid Program Integrity: Increased Oversight Needed to Ensure 

Integrity of Growing Managed Care Expenditures. GAO-14-341. 

Washington, D.C.: May 19, 2014.

School-Meals Programs: USDA Has Enhanced Controls, but Additional 

Verification Could Help Ensure Legitimate Program Access. GAO-14-262. 

Washington, D.C.: May 15, 2014.

Financial Audit: U.S. Government’s Fiscal Years 2013 and 2012 

Consolidated Financial Statements. GAO-14-319R. Washington, D.C.: 

February 27, 2014.

Social Security Death Data: Additional Action Needed to Address Data 

Errors and Federal Agency Access. GAO-14-46. Washington, D.C.: 

November 27, 2013.

Disability Insurance: Work Activity Indicates Certain Social Security 

Disability Insurance Payments Were Potentially Improper. GAO-13-635. 

Washington, D.C.: August 15, 2013.

Farm Programs: USDA Needs to Do More to Prevent Improper Payments 

to Deceased Individuals. GAO-13-503. Washington, D.C.: June 28, 2013.

DOD Financial Management: Significant Improvements Needed in Efforts 

to Address Improper Payment Requirements. GAO-13-227. Washington, 

D.C.: May 13, 2013.

Medicaid: Enhancements Needed for Improper Payments Reporting and 

Related Corrective Action Monitoring. GAO-13-229. Washington, D.C.: 

March 29, 2013.

Financial Audit: U.S. Government’s Fiscal Years 2012 and 2011 

Consolidated Financial Statements. GAO-13-271R. Washington, D.C.: 

January 17, 2013.

Related GAO Products
Related GAO Products

Page 16 GAO-14-737T 

Foster Care Program: Improved Processes Needed to Estimate Improper 

Payments and Evaluate Related Corrective Actions. GAO-12-312. 

Washington, D.C.: March 7, 2012.

Improper Payments: Moving Forward with Governmentwide Reduction 

Strategies. GAO-12-405T. Washington, D.C.: February 7, 2012.

Government Operations: Opportunities to Reduce Potential Duplication in 

Government Programs, Save Tax Dollars, and Enhance Revenue. 

GAO-11-318SP. Washington, D.C.: March 1, 2011.

Improper Payments: Progress Made but Challenges Remain in 

Estimating and Reducing Improper Payments. GAO-09-628T. 

Washington, D.C.: April 22, 2009.

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