FHFA Complied with Applicable 

Improper Payment Requirements 

During Fiscal Year 2015

Audit Report  AUD-2016-003  May 5, 2016

Federal Housing Finance Agency 

Office of Inspector General
AUD-2016-003

May 5, 2016

Executive Summary 

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) (collectively, IPIA, as amended), requires federal agencies 

periodically to review, estimate, and report programs and activities that may 

be susceptible to significant improper payments. The IPIA was amended by 

IPERA to direct federal Inspectors General to determine annually whether the 

agency is in compliance with the statute and to submit a report to the head of 

FHFA, Congressional oversight committees, the Comptroller General of the 

United States, and the controller of the Office of Management and Budget 

(OMB). 

The Federal Housing Finance Agency (FHFA), through its Office of General 

Counsel (OGC), maintains that most requirements of the IPIA, as amended, are 

not applicable to FHFA because those requirements apply only to payments 

made with federal funds and FHFA does not finance its operations with federal 

funds. Nevertheless, FHFA asserts that it has put into place internal controls 

to achieve the intent of the IPIA, as amended. FHFA’s Office of Inspector 

General (OIG) conducted a performance audit to assess FHFA’s compliance 

with the IPIA, as amended, for fiscal year 2015. We found that FHFA 

complied with the applicable provisions of the IPIA, as amended, as well as 

related criteria established in OMB Memorandum M-15-02. 

This audit was conducted by Tara Lewis, Audit Director, and Philip Noyovitz, 

Senior Auditor. We appreciate the cooperation of FHFA staff, as well as the 

assistance of all those who contributed to the preparation of this report, 

including Anya Philbert and Julio Santos. 

We distributed this report to the Congress, OMB, and others and posted it at 

www.fhfaoig.gov.

Stacey Nahrwold 

Acting Deputy Inspector General for Audits 
OIG  AUD-2016-003  May 5, 2016 3

TABLE OF CONTENTS ................................................................ 

EXECUTIVE SUMMARY .............................................................................................................2

ABBREVIATIONS .........................................................................................................................4

BACKGROUND .............................................................................................................................5

FACTS AND ANALYSIS ...............................................................................................................7

Not All IPIA Requirements Are Applicable to FHFA .............................................................7

CONCLUSION ..............................................................................................................................10

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................11

APPENDIX A ................................................................................................................................12

FHFA’s Comments .................................................................................................................12

ADDITIONAL INFORMATION AND COPIES .........................................................................13
OIG  AUD-2016-003  May 5, 2016 4

ABBREVIATIONS ....................................................................... 

AFR Agency Financial Report 

FHFA Federal Housing Finance Agency 

GAO Government Accountability Office 

IPERA Improper Payments Elimination and Recovery Act of 2010 

IPERIA Improper Payments Elimination and Recovery Improvement Act of 2012 

IPIA Improper Payments Information Act of 2002 

OGC Federal Housing Finance Agency Office of General Counsel 

OIG Federal Housing Finance Agency Office of Inspector General 

OMB Office of Management and Budget 

PAR Performance and Accountability Report 

U.S.C. United States Code 
OIG  AUD-2016-003  May 5, 2016 5

BACKGROUND .......................................................................... 

Because federal agencies regularly make payments to program beneficiaries, grantees, 

vendors, and contractors, or on behalf of program beneficiaries, there is a possibility that 

some of these payments may be “improper” in one or more respects. To provide estimates 

and report improper payments by federal agencies, Congress enacted the IPIA in 2002,1

which it amended in 2010 with the IPERA and again in 2013 with the IPERIA. The IPIA, as 

amended by the IPERA, requires federal agencies to periodically review, determine, estimate, 

and report programs and activities that may be susceptible to significant improper payments.2

 

According to the IPIA, as amended, the term “payment” means: “[A]ny transfer or 

commitment for future transfer of Federal funds such as cash, securities, loans, loan 

guarantees, and insurance subsidies to any non-Federal person or entity or a Federal 

employee, that is made by a Federal agency, a Federal contractor, a Federal grantee, or 

a governmental or other organization administering a Federal program or activity.”

3

To provide further guidance to federal agencies on the improper payments covered by the 

IPIA, as amended, the Office of Management and Budget (OMB) issued a memorandum in 

2014 that provides a more robust definition of the term “improper” payment:

[A]ny payment that should not have been made or that was made in an 

incorrect amount under statutory, contractual, administrative, or other 

legally applicable requirements. Incorrect amounts are overpayments or 

underpayments that are made to eligible recipients (including inappropriate 

denials of payment or service, any payment that does not account for credit 

for applicable discounts, [footnote omitted] payments that are for an incorrect 

amount, and duplicate payments). An improper payment also includes any 

payment that was made to an ineligible recipient or for an ineligible good 

or service, or payments for goods or services not received (except for such 

payments authorized by law). In addition, when an agency’s review is unable 

to discern whether a payment was proper as a result of insufficient or lack of 

documentation, this payment must also be considered an improper payment.4

 

1

 Public Law No. 107-300, 31 U.S.C. § 3321 note. 

2

 Public Law No. 111-204, 31 U.S.C. § 3321 note. 

3

Id. 

4

 OMB Memorandum M-15-02, Appendix C to Circular No. A-123, Requirements for Effective Estimation and 

Remediation of Improper Payments (Oct. 20, 2014) [hereinafter OMB Memo M-15-02, App. C], at Part I ¶¶ 2 

and 3. 
OIG  AUD-2016-003  May 5, 2016 6

The IPIA, as amended, directs federal agencies to put into place internal controls designed 

to eliminate payment errors, waste, fraud, and abuse, including reducing and recapturing 

erroneous payments. OMB Memorandum M-15-02 establishes a four-step process for 

agencies to follow to identify those operations subject to the IPIA, as amended, and to design 

and implement appropriate internal controls to reduce the risk of improper payments: 

1. Review all programs and activities and identify those that are susceptible to significant 

improper payments; 

2. Obtain a statistically valid estimate of the annual amount of likely improper payments 

in programs and activities identified in Step 1; 

3. Develop and implement a plan sufficient to reduce improper payments; and 

4. Report annually on improper payments in its performance and accountability report 

(PAR) or agency financial report (AFR) to Congress.5

To validate the accuracy of agency reporting on improper payments in its annual PAR or 

AFR, the IPIA, as amended, requires Inspectors General to conduct an annual review which 

includes six elements: 

1. A determination that the agency has published an AFR or PAR for the most recent 

fiscal year and posted that report and any accompanying materials required by OMB 

on the agency website; 

2. A determination that the agency has conducted a program-specific risk assessment for 

each program or activity that conforms with Section 3321 note of Title 31 U.S.C. [i.e., 

the IPIA, as amended] (if required); 

3. A determination that the agency has published improper payment estimates for all 

programs and activities identified as susceptible to significant improper payments 

under its risk assessment (if required); 

4. A determination that the agency has published programmatic corrective action plans in 

the AFR or PAR (if required); 

 

5

 OMB Memo M-15-02, App. C, supra note 1, at 9-16. A PAR provides both financial and performance 

information that enables the President, the Congress, and the public to assess the performance of an agency 

relative to its mission and to demonstrate accountability. An AFR provides similar information, but a 

Performance section is not included. See OMB, Circular A-136, Financial Reporting Requirements, at 11-13

(Sept. 18, 2014). 
OIG  AUD-2016-003  May 5, 2016 7

5. A determination that the agency has published, and is meeting, annual reduction 

targets for each program assessed to be at risk and estimated for improper payments (if 

required and applicable); and 

6. A determination that the agency has reported a gross improper payment rate of less 

than 10 percent for each program and activity for which an improper payment estimate 

was obtained and published in the AFR or PAR.6

Inspectors General are expected to complete their annual compliance reviews within 180 days 

after their respective agencies issue their PARs or AFRs and report their findings.7

If an 

Inspector General finds that an agency has not met one or more of the six elements, that 

agency is required by the IPIA, as amended, to submit a plan to the Congress describing 

the actions it will take to come into compliance.8 Further, OMB will notify agencies of 

additional required actions as needed based on the compliance level of each agency. OMB 

Memorandum M-15-02 provides detailed information on agency compliance planning and 

related efforts to become compliant. 

FHFA issued its fiscal year 2015 PAR on November 16, 2015. Pursuant to the IPIA, as 

amended, OIG conducted this performance audit. 

FACTS AND ANALYSIS ............................................................... 

Not All IPIA Requirements Are Applicable to FHFA 

In its most recent PAR, FHFA reports: 

The Improper Payments Elimination and Recovery Act requires that agencies: 

(1) review activities susceptible to significant erroneous payments; (2) 

estimate the amount of annual erroneous payments; (3) implement a plan to 

reduce erroneous payments; and (4) report the estimated amount of erroneous 

payments and the progress to reduce them.

9

 

6

 OMB Memo M-15-02, App. C, supra note 1, at Part II § A(3). 

7

 OMB Memo M-15-02, App. C, supra note 1, at Part II § A(2). 

8

 IPERA § 3(c)(1)(A), see 31 U.S.C. § 3321 note. 

9

See FHFA, Fiscal Year 2015 Performance and Accountability Report, at 111 (Nov. 16, 2015). 
OIG  AUD-2016-003  May 5, 2016 8

FHFA makes no representations in this PAR that it is covered by the IPIA. Since 2012, 

FHFA’s Office of General Counsel (OGC) has advised OIG that it has concluded that various 

subsections of the IPIA, as amended, are only applicable to payments made with federal 

funds, and that these subsections do not apply to FHFA because it is an independent 

regulatory agency that does not seek appropriations for its operations. As a consequence, 

OGC reasons that payments made by FHFA, such as payments to vendors, are not transfers of 

federal funds.10

Figure 1 summarizes the requirements of the IPIA, as amended, and the elements that FHFA 

considers inapplicable to its operations. 

FIGURE 1. FHFA’S IMPROPER PAYMENTS INFORMATION ACT COMPLIANCE FOR FISCAL YEAR 2015

Compliance Element FHFA Action 

The agency has published an annual PAR or AFR for the 

most recent fiscal year and posted that report and any 

accompanying materials required under guidance of 

OMB on the agency website.

FHFA published its 2015 PAR and included 

relevant information pertaining to improper 

payments.

The agency has conducted a program specific risk 

assessment for each program or activity that conforms 

with the IPIA, as amended (31 U.S.C. § 3321 note) (if 

required).

FHFA determined that this section of the 

IPIA, as amended, is not applicable.

The agency has published improper payments 

estimates for programs and activities identified as 

susceptible to significant improper payments under its 

risk assessment (if required).

FHFA determined that this section of the 

IPIA, as amended, is not applicable.

The agency has published programmatic corrective 

action plans in its PAR or AFR (if required).

FHFA determined that this section of the 

IPIA, as amended, is not applicable.

The agency has published, and is meeting, improper 

payments reduction targets for each program assessed 

to be at risk and estimated for improper payments (if 

required and applicable).

FHFA determined that this section of the 

IPIA, as amended, is not applicable.

The agency has reported a gross improper payment 

rate of less than 10% for each program and activity for 

which an estimate was obtained and published in its 

PAR or AFR.

FHFA determined that this section of the 

IPIA, as amended, is not applicable.

We reviewed the information provided by FHFA’s OGC, and our Office of Counsel made an 

independent assessment of the reasonableness of the applicable legal authorities on which it 

 

10 See 12 U.S.C. § 4516(f). 
OIG  AUD-2016-003  May 5, 2016 9

relied. Based on its review, OIG’s Office of Counsel determined that OGC’s analysis is 

reasonable and OIG does not challenge FHFA’s conclusions.

Notwithstanding the inapplicability of these various IPIA subsections, FHFA advises in its 

PAR: 

FHFA, in the spirit of compliance and as part of a sound internal control 

structure, has established controls to detect and prevent improper vendor 

payments. FHFA has identified no activities susceptible to significant 

erroneous payments that meet IPIA’s thresholds. Additionally, FHFA pursues 

the recovery of all improper payments.11

To test the accuracy of this representation by FHFA, OIG reviewed relevant invoice and 

payment desktop procedures implemented by FHFA to mitigate the risks of fraud, misuse, and 

payment delinquency. We found no design flaws within the policies and procedures. We 

recognize that the Government Accountability Office (GAO) annually assesses, evaluates, 

and determines whether FHFA’s internal controls over financial reporting are properly 

designed and operating effectively in all material respects.12 In its report Financial Audit: 

Federal Housing Finance Agency’s Fiscal Years 2015 and 2014 Financial Statements, GAO

identified deficiencies in FHFA’s internal controls over financial reporting. However, GAO 

did not consider any of these deficiencies to be material weaknesses or significant 

deficiencies.13

 While GAO’s audit expressed no opinion on the effectiveness of FHFA’s 

internal controls related to improper payments or FHFA’s compliance with the IPIA, as 

amended, GAO did not identify any issues related to the design and effectiveness of FHFA’s 

invoice and payment process control, and made no findings relating to the accuracy of 

disbursements. 

 

11 See FHFA, Fiscal Year 2015 Performance and Accountability Report, at 111 (Nov. 16, 2015). 

12 GAO’s audit was not designed to express an opinion on the effectiveness of FHFA’s internal controls 

related to improper payments or FHFA’s compliance with the IPIA, as amended, specifically, but rather it was 

intended to assess controls over financial reporting generally. Consequently, GAO’s audit may not identify all 

deficiencies in FHFA’s internal controls over financial reporting that are less severe than a material weakness. 

According to the American Institute of Certified Professional Accountants’ Professional Standards, AU-C 

§ 265.07, a deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or detect 

and correct, misstatements on a timely basis. 

13 Id. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that 

there is a reasonable possibility that a material misstatement of the entity’s financial statements will not 

be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a 

combination of deficiencies, in internal control that is less severe than a material weakness yet important 

enough to merit attention by those charged with governance. 
OIG  AUD-2016-003  May 5, 2016 10

CONCLUSION ............................................................................ 

OIG concludes that FHFA complied with the applicable statutory improper payment 

requirements, as well as related criteria established in the related OMB Memorandum 

M-15-02 for FY 2015. As to the specific requirements of the IPIA, as amended, that FHFA 

has opined are non-applicable, OIG does not contest FHFA’s interpretation.

OIG acknowledges that FHFA is acting to achieve the intent of the IPIA, as amended, and 

the related OMB guidance, regardless of its determination that it is not required to do so. 

Specifically, in the spirit of compliance and as part of a sound internal control structure, 

FHFA has established controls to detect and prevent improper vendor payments, such as 

invoice payment processing procedures that include detailed instructions on properly 

verifying the accuracy of vendor invoice amounts prior to payment. 
OIG  AUD-2016-003  May 5, 2016 11

OBJECTIVE, SCOPE, AND METHODOLOGY ................................. 

OIG’s audit objective was to determine whether FHFA is in compliance with the IPIA, as 

amended, as well as criteria established in OMB Memorandum M-15-02. This audit covered 

FHFA’s efforts to comply with the IPIA, as amended, and OMB Memorandum M-15-02

requirements to detect, prevent, and report improper payments during FHFA’s fiscal year 

period October 1, 2014, to September 30, 2015. To accomplish the audit objective, OIG 

reviewed applicable statutes, executive orders, and other related compliance requirements on 

improper paymentsreviewed in various GAO audit reports; met with key FHFA officials; 

obtained sufficient and appropriate evidence on compliance actions taken (e.g., confirmed that 

FHFA’s 2015 PAR was posted to its website and reviewed OGC correspondence); and 

reviewed and assessed improper payment element requirements and related activities. OIG 

conducted its field work between December 2015 and April 2016 and issued its report in 

accordance with OMB requirements (i.e., within 180 days of publication of FHFA’s PAR). 

OIG’s review of FHFA’s internal controls designed to comply with the IPIA, as amended, 

was limited. OIG reviewed FHFA’s written documentation and legal opinions related to its 

determination that the IPIA, as amended, provisions—and therefore most improper payment 

compliance elements—are not applicable to FHFA. OIG also reviewed IPERIA to ascertain 

whether FHFA is subject to the Act’s requirements. FHFA determined that IPERIA—like 

IPIA and IPERA—does not apply to FHFA because the Agency does not utilize appropriated 

funds. For this reason, the funds used by FHFA to make payments do not qualify as federal 

funds under applicable law, and therefore most of the various improper payments 

requirements set forth by these statutes are not triggered. OIG confirmed the posting of the 

2015 PAR and accompanying materials on FHFA’s external website in accordance with OMB 

guidance and the inclusion of appropriate language that FHFA established and maintains 

internal control procedures for handling improper payments. 

OIG conducted this performance audit in accordance with generally accepted government 

auditing standards. Those standards require that audits be planned and performed to obtain 

sufficient, appropriate evidence to provide a reasonable basis for OIG’s findings and 

conclusions based on the audit objective. OIG believes that the evidence obtained provides 

a reasonable basis for the conclusions included herein, based on the audit objective. 
APPENDIX A

FHFA's Comments

Federal Housing Finance Agency

MEMORANDUM

TO: Stacey Nahrwold, Senior Attorney Advisor, Acting Deputy Inspector GeneralAudits

FROM: Mark Kinsey, Chief Financial Office

SUBJECT: Audit: FHFA Complied with Applicable Improper Payment Requirements During

DATE: April 26, 2016

Thank you for the opportunity to respond to the Federal Housing Finance Agency Office of 

Inspector General’s (OIG) draft audit report titled FHFA Complied with Applicable Improper

Payment Requirements During Fiscal Year 2015 (Report). The Report presents the results of the 

OIG’s performance audit to assess FHFA’s compliance with the Improper Payments Information 

Act o f 2002 (IPIA), as amended.

I am pleased that the OIG concluded that FHFA complied with the applicable provisions of the 

IPIA, as amended, as well as criteria established in the OMB Memorandum M-15-02. The 

Report recognized that in the spirit of compliance and as part of a sound internal control process, 

FHFA has established controls to detect and prevent improper vendor payments and that FHFA’s 

invoice payment processing procedures include detailed instructions on properly verifying the 

accuracy of vendor invoice amounts prior to payment.

I would like to acknowledge the dedicated OIG staff that worked with FHFA during this audit.

If you have any questions relating to our response, please do not hesitate to call me at (202)649- 

3780.

Fiscal Year 2015

Non-Public

OIG • AUD-2016-003 • May 5, 2016
OIG  AUD-2016-003  May 5, 2016 13

ADDITIONAL INFORMATION AND COPIES ................................. 

For additional copies of this report: 

 Call: 202-730-0880 

 Fax: 202-318-0239 

 Visit: www.fhfaoig.gov

To report potential fraud, waste, abuse, mismanagement, or any other kind of criminal or 

noncriminal misconduct relative to FHFA’s programs or operations:

 Call: 1-800-793-7724 

 Fax: 202-318-0358 

 Visit: www.fhfaoig.gov/ReportFraud 

 Write: 

FHFA Office of Inspector General 

Attn: Office of Investigations – Hotline 

400 Seventh Street SW 

Washington, DC 20219