a

GAO

United States Government Accountability Office

Report to Congressional Requesters

November 2006 IMPROPER 

PAYMENTS

Agencies’ Fiscal Year 

2005 Reporting under 

the Improper 

Payments Information 

Act Remains 

Incomplete

GAO-07-92
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 2006

IMPROPER PAYMENTS

Agencies’ Fiscal Year 2005 Reporting 

under the Improper Payments Information 

Act Remains Incomplete 

Highlights of GAO-07-92, a report to 

congressional requesters 

Fiscal year 2005 marked the second

year that executive agencies were

required to report improper

payment information under the 

Improper Payments Information 

Act of 2002 (IPIA). As a steward of

taxpayer dollars, the federal

government is accountable for how 

its agencies and grantees spend 

billions of taxpayer dollars and is 

responsible for safeguarding those 

funds against improper payments. 

GAO was asked to determine the 

progress agencies have made in

their improper payment reporting 

and the total amount of improper 

payments recouped through 

recovery auditing. To accomplish 

this, GAO reviewed improper 

payment information reported by

35 agencies in their fiscal year 2005

performance and accountability or 

annual reports. 

What GAO Recommends

GAO suggests that the Congress 

consider amending IPIA provisions 

to define specific criteria agencies 

should use to ensure that the full 

extent of improper payments is

being captured. GAO also makes 

four recommendations to the 

Office of Management and Budget

(OMB) to facilitate agencies’ 

progress in ensuring accurate and 

complete improper payments and

recovery auditing reporting. OMB 

generally agreed with GAO’s 

recommendations and outlined

actions planned and under way for 

continued progress.

While making progress, agencies’ fiscal year 2005 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. GAO found that these 

challenges continue to hinder full reporting of improper payment 

information because of the following three factors:

• Existing reporting incomplete. Although 18 agencies collectively 

identified and estimated improper payments for 57 programs and 

activities totaling $38 billion, some agencies still had not instituted 

systematic methods of reviewing all programs, resulting in their 

identification of none or only a few programs as susceptible to 

significant improper payments. In many cases, these same agencies had 

well-known and documented financial management weaknesses as well 

as fraudulent, improper, and questionable payments. Further, improper 

payment estimates totaling about $389 million for 9 programs were not 

based on a valid statistical sampling methodology as required. Higher 

estimates would have been expected had the correct methods been used, 

given that total outlays for these 9 programs exceeded $58.2 billion. 

• Large programs still not included. Improper payment estimates for 10 

risk-susceptible programs with outlays totaling over $234 billion still 

have not been provided. Most of these programs were subject to OMB 

reporting requirements that preceded IPIA. 

• Threshold criteria limit reporting. The act includes broad criteria to 

identify risk-susceptible programs. OMB’s implementing guidance 

includes more specific criteria that limit the disclosure and transparency

of agencies’ improper payments. 

With regard to agencies’ recovery audit efforts, GAO found that the data 

reported may present an overly optimistic view of these efforts. While 21

agencies were required to report on their recovery audit efforts, GAO 

identified discrepancies in several agencies’ information and found limited 

reviews over contract payments. For example, for fiscal year 2005, the 

National Aeronautics and Space Administration (NASA) reported that it had 

identified and recovered $617,442 in contract payments, a 100 percent 

recovery rate. Yet, the NASA Office of Inspector General reported it had 

identified over $515 million in questioned contract costs during fiscal year 

2005, of which NASA management decided to pursue recovery of $51 million. 

Had this amount been compared to the $617,442 NASA actually recovered, 

its recovery rate would drop from the reported 100 percent to 

1.2 percent. In addition, we noted that 5 of the 21 agencies did not review all 

of their agency components as part of their recovery audit efforts while 2 

agencies reported that recovery auditing was not cost beneficial without 

reporting any details to support this determination. 

www.gao.gov/cgi-bin/getrpt?GAO-07-92.

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. 
Page i GAO-07-92 Improper Payments

Contents

Letter 1

Results in Brief 3

Background 7

Improvements Needed in Agencies’ Reporting of Improper Payment 

Information 10

Improper Payments Estimate Is Understated 32

IPIA May Need to Be Amended to Ensure Agencies Fully Meet Its 

Objectives 41

Agencies’ Reporting of Recovery Auditing Information 

Questionable 47

Conclusions 52

Matter for Congressional Consideration 53

Recommendations for Executive Action 53

Agency Comments and Our Evaluation 54

Appendixes

Appendix I: Objectives, Scope, and Methodology 58

Appendix II: Improper Payment Estimates Reported in Agency Fiscal Year 

2004 and 2005 PARs or Annual Reports 60

Appendix III: Outlays, Improper Payment Estimates, and Error Rates 

Reported in Agency Fiscal Year 2005 PARs or Annual 

Reports 66

Appendix IV: Comments from the Office of Management and Budget 72

Appendix V: GAO Contact and Staff Acknowledgments 76

Related GAO Products 77

Tables Table 1: Agency Reporting of Risk Assessments Performed for All 

Programs and Activities 13

Table 2: Agency Improper Payment Estimate Reporting in Fiscal 

Year 2005 20

Table 3: Agency Reporting of Certain Reporting Requirements for 

One or More of Its Programs 24

Table 4: Agency-Reported Statutory Barriers to Reducing Improper 

Payments 27

Table 5: Susceptible Programs That Did Not Report Improper 

Payment Estimates and Target Dates for Estimates 34
Contents

Page ii GAO-07-92 Improper Payments

Table 6: Examples of Programs or Activities with Major 

Management Challenges but Not Identified as Susceptible 

to Significant Improper Payments 40

Table 7: Agency Improper Payment Estimates Included in the 

Governmentwide Total That Met One of the Two OMB 

Reporting Criteria 42

Table 8: Improper Payment Amounts Recovered in Fiscal Year 

2005 49

Figures Figure 1: Required Steps to Identify, Estimate, Reduce, and Report 

Improper Payment Information 11

Figure 2: Improper Payments—Step 1 12

Figure 3: Improper Payments—Step 2 19

Figure 4: Improper Payments—Step 3 23

Figure 5: Improper Payments—Step 4 23
Contents

Page iii GAO-07-92 Improper Payments

Abbreviations

CDBG Community Development Block Grant

CMS Centers for Medicare and Medicaid Services

DHS Department of Homeland Security

DOD Department of Defense

DOJ Department of Justice

DOT Department of Transportation

EITC Earned Income Tax Credit

FECA Federal Employees’ Compensation Act

FEMA Federal Emergency Management Agency

FERS Federal Employees Retirement System

FSA Federal Student Aid

FUTA Federal Unemployment Tax Act

GSA General Services Administration

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

IHP Individuals and Households Program

IPIA Improper Payments Information Act of 2002

IRS Internal Revenue Service

NASA National Aeronautics and Space Administration

NDNH National Directory of New Hires

OCFO Office of Chief Financial Officer

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management

PBM pharmaceutical benefits manager

PMA President’s Management Agenda

RRB Railroad Retirement Board

SBA Small Business Administration

SSA Social Security Administration

SSI Supplemental Security Income

UI Unemployment Insurance

USDA Department of Agriculture

VA Department of Veterans Affairs

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-07-92 Improper Payments

United States Government Accountability Office

Washington, D.C. 20548

A

November 14, 2006 Letr

Congressional Requesters

Fiscal year 2005 marked the second year that federal executive branch 

agencies were required to report improper payment information under the 

Improper Payments Information Act of 2002 (IPIA).1

 IPIA has increased 

visibility over improper payments by requiring executive agency heads, 

based on guidance from the Office of Management and Budget (OMB),2

 to 

identify programs and activities susceptible to significant improper 

payments,3

 estimate amounts improperly paid, and report on the amounts 

of improper payments and their actions to reduce them. 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.

Our work over the past several years has demonstrated that improper 

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

federal government.4

 Yet, the extent of the problem initially had been 

masked because only a limited number of agencies reported their annual 

payment accuracy rates and estimated improper payment amounts prior to 

the passage of IPIA. 

As we reported in March 2005,5 regarding the first year reporting under 

IPIA, the improper payment estimate of $45 billion did not include any 

amounts for some of the highest risk programs, such as Medicaid with 

1

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

2

OMB Memorandum M-03-13, “Improper Payments Information Act of 2002” (Public Law 

107-300), May 21, 2003; OMB Circular No. A-136, Financial Reporting Requirements, § II.5.6 

(July 24, 2006). OMB recently issued revised guidance for fiscal year 2006 reporting in 

Memorandum M-06-23, Issuance of Appendix C to OMB Circular No. A-123 (Aug. 10, 2006).

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

See the Related GAO Products list at the end of this report.

5

GAO, Financial Management: Challenges in Meeting Requirements of the Improper 

Payments Information Act, GAO-05-417 (Washington, D.C.: Mar. 31, 2005). 
Page 2 GAO-07-92 Improper Payments

outlays in excess of $175 billion for fiscal year 2004. Further, we noted that 

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. We concluded that the magnitude of the 

governmentwide improper payments problem is still unknown because 

agencies have not yet prepared improper payment estimates for all of their 

programs. In that report, we made three recommendations to OMB to help 

ensure successful implementation of IPIA requirements.

Because of the continued interest in addressing the governmentwide 

improper payments issue, you asked us to determine (1) the extent to 

which agencies have included required improper payment information in 

their performance and accountability reports (PAR), (2) the annual 

improper payment estimate reported by agencies for fiscal year 2005, 

(3) whether the definition and types of improper payments included in IPIA 

and OMB’s implementing guidance provide adequate disclosure of the 

extent of improper payments at the agencies, and (4) the reported amount 

of improper payments recouped through recovery audits.

 The scope of our review included the 35 federal agencies that the 

Department of the Treasury (Treasury) determined to be significant to the 

U.S. government’s consolidated financial statements. We reviewed 

improper payment information reported by the 35 agencies in their fiscal 

year 2005 PARs or annual reports. We also reviewed OMB guidance on 

implementation of IPIA and its report6

 on the results of agency-specific 

reports, significant findings, agency accomplishments, and remaining 

challenges. 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 this agency-reported data as descriptive 

information that will inform interested parties about the magnitude of 

governmentwide improper payments and other improper payments-related 

information. We believe the data to be sufficiently reliable for this purpose. 

We conducted our work from April 2006 through September 2006 in 

accordance with generally accepted government auditing standards. See 

appendix I for more details on our scope and methodology. 

6

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

Payments (Washington, D.C.: Feb. 2, 2006).
Page 3 GAO-07-92 Improper Payments

Results in Brief Our review of agencies’ reporting of selected improper payment 

information identified that improvements are still needed to fully address 

improper payments reporting requirements. For example, we found 

agencies’ reporting of improper payment information was incomplete and 

the extent and level of detail of agencies’ improper payment information 

varied. Furthermore, the total improper payment estimate does not include 

several large, risk-susceptible federal programs, while other program 

estimates included in the total are not statistically valid. In addition, we 

found that OMB’s existing threshold criteria to assess program 

susceptibility to significant improper payments affect how agencies 

identify these programs, thus limiting the disclosure and transparency of 

governmentwide improper payments. 

Generally, agencies must perform four key steps to address the improper 

payment reporting requirements—perform a risk assessment, estimate 

improper payments for risk-susceptible programs and activities, implement 

a plan to reduce improper payments for programs with estimates 

exceeding $10 million, and annually report improper payment estimates 

and actions to reduce them. Of the 35 agencies in our review, 23 reported 

that they had performed risk assessments of all of their programs and 

activities, while 12 had not. In addition, the adequacy of some of these risk 

assessments was questionable. For example, the auditors for the 

Departments of Justice (DOJ) and Homeland Security (DHS) cited agency 

noncompliance with IPIA in their fiscal year 2005 annual audit reports, 

primarily caused by inadequate risk assessments. 

A lack of detailed guidance may be a contributing factor to agencies’ 

inability to adequately assess their programs for risks. Specifically, we 

found that OMB’s implementing guidance does not include a description of 

the common types of risk factors agencies should consider when annually 

reviewing their programs, such as program complexity, operational 

changes, findings from investigative reports, and financial statement and 

performance audit reports. Agencies have developed their own processes 

for conducting risk assessments, which may not satisfactorily identify 

programs susceptible to improper payments. For example, at the 

Department of Agriculture (USDA), its auditors reported that the agency’s 

risk assessments were not adequate to estimate the agency’s susceptibility 

to improper payments because the Office of Chief Financial Officer’s 

(OCFO) guidance was not prescriptive and detailed enough to translate 

into meaningful results.
Page 4 GAO-07-92 Improper Payments

For fiscal year 2005, 18 agencies reported improper payment estimates for 

57 programs totaling in excess of $38 billion,7

 which is $7 billion less than 

the $45 billion reported for fiscal year 2004.8 Of the 18 agencies reporting 

improper payment estimates, 14 agencies had one or more programs with 

improper payment estimates exceeding $10 million, and thus were required 

to prepare and implement a plan to reduce improper payments and report 

on actions taken. Key elements that agencies are required to report on 

include causes of improper payments and corrective actions, manager 

accountability, and statutory barriers.9

 Generally, agencies reported this 

information for one or more of their programs in their PARs. However, the 

extent and details of reporting varied. For example, 1 agency addressed the 

manager accountability reporting element in one sentence while 2 other 

agencies provided information on how each program manager was held 

accountable for each of their high-risk programs identified.

Although the federal government continues to make progress in meeting 

the requirements of IPIA, agencies’ fiscal year 2005 reporting does not yet 

reflect the full scope of improper payments across government. 

Specifically, the $7 billion reported decrease in the total improper payment 

estimate represents a reduction of 16 percent reported by agencies in fiscal 

year 2004. On the surface, this would suggest that significant progress has 

been made. Yet, we found that the reduced estimate for improper payments 

for fiscal year 2005 may not represent actual improvements in this area. 

In fact, all indications are that the estimate should be markedly higher 

because the total improper payment estimate does not include certain 

7

Included in this estimate were 10 agencies reporting for the first time improper payment 

estimates of almost $1.2 billion for 17 programs. Also, the governmentwide estimate 

includes both over- and underpayments. OMB’s implementing guidance requires agencies to 

report the gross versus net total of both over- and underpayments.

8

In their fiscal year 2005 PARs, several agencies updated their fiscal year 2004 improper 

payment estimates to reflect changes since issuance of their fiscal year 2004 PARs. These 

updates increased the governmentwide improper payment estimate for fiscal year 2004 from 

$45 billion to $46 billion.

9

For these three key requirements, OMB requires the following: (1) causes of improper 

payments and corrective actions—a discussion of the causes of the improper payments 

identified, actions taken to correct those causes, and results of the actions taken to address 

those causes; (2) manager accountability—a description of the steps (including timeline) 

the agency has taken and plans to take to ensure that agency managers (including the 

agency head) are held accountable for reducing and recovering erroneous payments; and 

(3) statutory barriers—a description of any statutory or regulatory barriers that may limit 

the agency’s corrective actions in reducing erroneous payments.
Page 5 GAO-07-92 Improper Payments

factors that if included, would increase the estimate. For example, agencies 

have not estimated improper payments for 10 risk-susceptible programs 

with outlays totaling over $234 billion, even though most of these programs 

had such reporting requirements predating IPIA.10 In addition, we found 

that improper payment estimates totaling about $389 million for 9 

programs were not based on a statistical sampling methodology.11 Given 

that total outlays for these 9 programs exceeded $58.2 billion in fiscal year 

2005, estimates for these programs would likely have been much greater 

had statistically valid methods been used. Also, agency auditors have 

reported major management challenges that highlight internal control 

weaknesses that continue to plague programs susceptible to significant 

improper payments. In some cases, agencies reported that their programs 

were not susceptible to significant improper payments, despite the fact that 

the auditor’s reports in the same PARs identified major program 

management challenges, including significant internal control weaknesses.

Further, OMB’s implementation12 of the act’s broad criteria to identify risksusceptible programs limits the disclosure and transparency of 

governmentwide improper payments. This limitation does not further the 

objectives of IPIA, as programs that do not meet OMB’s criteria are 

excluded from agencies’ improper payment reporting. For example, one 

agency identified three programs with estimated improper payments 

exceeding $10 million, but because the estimates did not exceed 2.5 

percent of program outlays, they were not included in the governmentwide 

improper payment total. In addition, we note that the definition of 

improper payments under IPIA excludes certain types of payments 

10Prior to the executive branch-wide 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.

11Agency-reported estimates were primarily based on known cases identified through Office 

of Inspector General audits and other isolated instances. However, one agency reported 

using a combination of statistical and nonstatistical methodologies, but did not identify 

what portion of the estimate was calculated using statistical sampling. Any agency that 

reported using nonstatistical sampling methodologies to calculate its programs’ improper 

payment estimates was included in this analysis.

12OMB’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 6 GAO-07-92 Improper Payments

required to be made under constitutional, statutory, or judicial 

requirements, even though those payments are subsequently determined to 

be incorrect. This includes payments that an agency must make pursuant to 

a statute or court order that later are determined to be overpayments. Yet, 

because agencies are not required to track, monitor, and report on these 

types of overpayments, the governmentwide magnitude of this issue is 

unknown.

Lastly, with regard to agencies’ recovery audit efforts, the data reported 

may not present an accurate view of the extent of these efforts. While 21 

agencies were required to report on their recovery audit efforts, we 

identified discrepancies in several agencies’ information and found limited 

reviews over contract payments. For example, for fiscal year 2005, the 

National Aeronautics and Space Administration (NASA) reported that it 

had identified and recovered $617,442 in contract payments, a reported 100 

percent recovery rate. Yet, the NASA Office of Inspector General (OIG) 

reported it had identified over $515 million in questioned contract costs 

during fiscal year 2005, of which NASA management decided to pursue 

recovery of $51 million. Had the $51 million amount been compared to the 

$617,442 NASA actually recovered, its recovery rate would drop from the 

reported 100 percent to 1.2 percent. In addition, we noted that 5 of the 21 

agencies did not review all of their agency components as part of their 

recovery audit efforts while 2 agencies reported that recovery auditing was 

not cost beneficial without reporting any details to support this 

determination.

This report includes one matter for congressional consideration and four 

recommendations for executive action. Specifically, to ensure that the full 

extent of improper payments is being captured, the Congress should 

consider whether existing IPIA provisions should be amended to define 

specific criteria, such as a dollar threshold, agencies should use to identify 

which programs and activities are susceptible to significant improper 

payments, thereby triggering improper payment estimating and reporting 

requirements. In addition, to facilitate agencies’ progress in ensuring 

accurate and complete improper payments and recovery auditing 

reporting, we recommend that OMB take several actions regarding (1) risk 

assessment methodologies and the level of detail necessary to meet the 

annual improper payment reporting requirements, (2) statistically valid 

estimates, (3) extent of payments agencies make under statute or judicial 

determinations that later are determined to be overpayments, and 

(4) agencies’ rationale that recovery auditing is not cost beneficial. 
Page 7 GAO-07-92 Improper Payments

In commenting on a draft of this report, OMB generally agreed with our 

recommendations and highlighted progress made in the second year of 

governmentwide improper payments reporting, as well as initiatives under 

way to measure improper payments in selected programs susceptible to 

significant improper payments. For example, OMB reported that for fiscal 

year 2005, agencies estimated improper payments for 17 additional 

programs and that this number will increase again by 10 programs for fiscal 

year 2006. OMB also stated that beginning in fiscal year 2007, the 

Department of Health and Human Services (HHS) will begin reporting 

component error rates for its Medicaid, Temporary Assistance for Needy 

Families, and State Children’s Health Insurance programs. OMB’s written 

comments are reprinted in appendix IV.

Background IPIA was passed in November 2002 with the major objective of enhancing 

the accuracy and integrity of federal payments. IPIA requires executive 

branch agency heads to review their programs and activities annually and 

identify those that may be susceptible to significant improper payments. 

For each program and activity agencies identify as susceptible, the act 

requires them to estimate the annual amount of improper payments and to 

submit those estimates to the Congress. The act further requires that for 

programs for which estimated improper payments exceed $10 million, 

agencies are to report annually to the Congress on the actions they are 

taking to reduce those payments. 

The act requires the Director of OMB to prescribe guidance for agencies to 

use in implementing IPIA. OMB issued implementing guidance in May 2003, 

which requires the use of a systematic method for the annual review and 

identification of programs and activities that are susceptible to significant 

improper payments. The guidance defines significant improper payments 

as those in any particular program that exceed both 2.5 percent of program 

payments and $10 million annually.13 It requires agencies to estimate 

improper payments annually using statistically valid techniques for each 

susceptible program or activity. For those agency programs determined to 

be susceptible to significant improper payments and with estimated annual 

improper payments greater than $10 million, IPIA and related OMB 

guidance require each agency to annually report the results of its efforts to 

reduce improper payments. 

13IPIA does not mention the “exceeding the 2.5 percent of program payments” threshold that 

OMB uses for identifying, estimating, and reporting improper payments.
Page 8 GAO-07-92 Improper Payments

In addition, applicable agencies are required to report their efforts to 

recoup contract-related improper payments under section 831 of the 

National Defense Authorization Act for Fiscal Year 2002.14 This legislation 

contains a provision that requires all executive branch agencies entering 

into contracts with a cumulative 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. The act further 

states that a required element of such a program is the use of recovery 

audits and recovery activities. The law authorizes federal agencies to retain 

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

other contractors, such as collection agencies. Agencies that are required 

to undertake recovery audit programs were directed by OMB to provide 

annual reports on their recovery audit efforts, along with improper 

payment reporting details in an appendix to their PARs. 

In August 2006, OMB revised its IPIA implementing guidance. The revision 

consolidates into Appendix C of OMB Circular No. A-123, Management’s 

Responsibility for Internal Control,

15 all guidance for improper payments 

and recovery auditing reporting.16 The revised guidance includes 

authorization for risk assessments to be conducted less often than annually 

for programs where improper payment baselines are already established, 

are in the process of being measured, or are scheduled to be measured by 

an established date. Although OMB kept its criteria for defining significant 

improper payments as those exceeding both 2.5 percent of program 

payments and $10 million, OMB added that it may determine on a case-bycase basis that certain programs that do not meet the threshold may be 

14Pub. L. No. 107-107, div. A, title VIII § 831, 115 Stat. 1012, 1186 (Dec. 28, 2001) (codified at 

31 U.S.C. §§ 3561-3567).

15OMB Circular No. A-123 provides a central reference point for guidance to federal 

managers on improving the accountability and effectiveness of federal programs and 

operations by establishing, assessing, correcting, and reporting on internal control. The 

circular emphasizes the need for integrated and coordinated internal control assessments 

that synchronize all internal control-related activities. In addition to Appendix C,

Requirements for Effective Measurement and Remediation of Improper Payments, there 

are two other appendixes to A-123—Appendix A, Implementation Plans (Aug. 1, 2005), and 

Appendix B, Improving the Management of Government Charge Card Programs (revised 

February 2006).

16The three memorandums consolidated in Appendix C include M-03-13, “Improper 

Payments Information Act of 2002 (Public Law 107-300),” May 21, 2003; M-03-07, “Programs 

to Identify and Recover Erroneous Payments to Contractors,” January 16, 2003; and M-03-12, 

“Allowability of Contingency Fee Contracts for Recovery Audits,” May 8, 2003.
Page 9 GAO-07-92 Improper Payments

subject to the annual reporting requirement. Additionally, the revised 

guidance allows agencies to use alternative sampling methodologies17 and 

requires agencies to report on and provide a justification for using these 

methodologies in their PARs. This revised guidance is effective for 

agencies’ fiscal year 2006 improper payment estimating and reporting in the 

PARs or annual reports. For the purposes of evaluating agency reporting in 

this report, we used the requirements from the OMB implementing 

guidance effective for fiscal year 2005.

OMB has also established Eliminating Improper Payments as a new 

program-specific initiative under the President’s Management Agenda 

(PMA). This separate PMA program initiative began in the first quarter of 

fiscal year 2005. Previously, agency efforts related to improper payments 

were tracked along with other financial management activities as part of 

the Improving Financial Performance initiative of the PMA. The objective 

of establishing a separate initiative for improper payments was 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. With this new initiative, 15 agencies18 are to 

measure their improper payments annually, develop improvement targets 

and corrective actions, and track the results annually to ensure the 

corrective actions are effective.

The fiscal year 2005 PARs, the second set of annual reports representing 

the results of improper payments assessments for federal executive branch 

agency programs, were due November 15, 2005. In our December 2005 

report19 on the U.S. government’s consolidated financial statements for the 

fiscal years ended September 30, 2005, and 2004, which includes our 

associated opinion on internal control, we reported improper payments as 

a material weakness in internal control. Specifically, we reported progress 

in implementing processes and controls to identify, estimate, and reduce 

17An example of an alternative sampling methodology includes developing an annual error 

rate for a component of the program.

18The 15 agencies include 14 that were previously required to report improper payments 

information under OMB Circular No. A-11 and DHS.

19For GAO’s audit report on the U.S. government’s consolidated financial statements for 

fiscal year 2005, see Department of the Treasury, Financial Report of the United States 

Government (Washington, D.C.: December 2005), 135-154, which can be found at

www.gao.gov.
Page 10 GAO-07-92 Improper Payments

improper payments, but that significant challenges remain to effectively 

achieve the goals of IPIA. 

Improvements Needed 

in Agencies’ Reporting 

of Improper Payment 

Information

Our review of agencies’ reporting of select improper payment information 

identified that improvements are still needed to fully address improper 

payment reporting requirements. Of the 35 fiscal year 2005 agency PARs or 

annual reports included in our review, 23 agencies reported they had 

performed risk assessments of all of their programs and activities. 

However, the results of certain agencies’ risk assessments appear 

questionable. For example, agency management at DOJ and DHS reported 

that based on their risk assessments, no risk-susceptible programs were 

identified. Yet, these agencies’ auditors cited agency noncompliance with 

IPIA in their fiscal year 2005 annual audit reports, primarily caused by 

inadequate risk assessments. 

Eighteen of the 35 agencies reported improper payment estimates totaling 

in excess of $38 billion for some or all of their high-risk programs in fiscal 

year 2005. Of the 18 agencies, 14 reported having one or more programs 

with improper payment estimates that exceeded $10 million, and thus were 

required to implement plans to reduce improper payments and report on 

actions taken.20 Based on our review of these key improper payment 

reporting requirements, we generally found that the applicable agencies 

reported this information for one or more of their programs in their PARs 

as required. However, the extent and details of reporting varied among the 

agencies. For example, the Office of Personnel Management (OPM) 

addressed the manager accountability reporting requirement in one 

sentence for its risk-susceptible programs, while USDA and the 

Department of Veterans Affairs (VA) provided information on how each 

program manager was held accountable for each high-risk program 

identified. Six different agencies reported that the responsibility for 

improper payments is included in management’s performance plans; 

however, specific details were not discussed. 

IPIA and OMB’s implementing guidance require agencies to annually 

review and identify programs susceptible to significant improper 

20Four agencies—the Environmental Protection Agency, National Science Foundation, 

Department of State, and Department of Transportation—estimated improper payments, 

but were not required to include the additional reporting requirements in their PARs 

because none of their program estimates exceeded $10 million.
Page 11 GAO-07-92 Improper Payments

payments, estimate the amount of their improper payments, and report on 

the amount of their improper payments and their actions to reduce 

improper payments. 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. Figure 1 provides an overview of the four key steps 

OMB requires agencies to perform in meeting the improper payment 

reporting requirements. 

Figure 1: Required Steps to Identify, Estimate, Reduce, and Report Improper 

Payment Information

Agencies must estimate improper payments for each susceptible program 

identified during the risk assessment process. In addition, agency programs 

that were included in former section 57 of OMB Circular No. A-11 must 

Source: GAO.

Improper Payments - Required Steps

1. Perform risk assessment

Annually review all programs and activities to identify those 

susceptible to significant improper payments, defined by OMB as

exceeding $10 million and 2.5 percent of program payments.

2. Estimate improper payments

Estimate improper payments for programs susceptible to 

significant improper payments.

3. Implement a plan

Implement a plan to reduce improper payments.

4. Annually report

Annually report improper payment estimates and actions to 

reduce them.
Page 12 GAO-07-92 Improper Payments

estimate improper payments even if the estimate does not exceed 

$10 million and 2.5 percent of program payments. Further, some agency 

programs voluntarily reported an improper payment estimate or other 

improper payment information. When the program improper payment 

estimates exceed $10 million, agencies are required to report on various 

actions they are taking to reduce improper payments, such as determining 

causes of improper payments and taking corrective actions and ensuring 

manager accountability, and statutory barriers that limit corrective actions 

to reduce improper payments. To address these three reporting 

requirements, OMB requires agencies to report the following information in 

their PARs:

• Causes of improper payments and corrective action. A discussion of 

the causes of the improper payments identified, actions taken to correct 

those causes, and results of the actions taken to address those causes.

• Manager accountability. A description of the steps (including timeline) 

the agency has taken and plans to take to ensure that agency managers 

(including the agency head) are held accountable for reducing and 

recovering erroneous payments. 

• Statutory barriers. A description of any statutory or regulatory barriers 

that may limit the agency’s corrective actions in reducing erroneous 

payments.

Results of Selected 

Agencies’ Risk Assessments 

Appear Questionable

Figure 2: Improper Payments—Step 1

Of the 35 fiscal year 2005 agency PARs or annual reports included in our 

review, 23, the same number of agencies that reported having risk 

assessments in our prior year review, reported they had performed risk 

assessments of all of their programs and activities. The remaining 12 

Source: GAO.

Perform

risk

assessment

Estimate

improper

payments

Implement

a plan

Annually

report
Page 13 GAO-07-92 Improper Payments

agencies either did not report this information in their PARs or annual 

reports, or included some improper payment details in their PARs, but did 

not report assessing for the risk of improper payments for all of their 

programs and activities. Table 1 indicates for each of the 35 whether the 

agency reported having assessed all programs and activities. 

Table 1: Agency Reporting of Risk Assessments Performed for All Programs and 

Activities

Department or agency

Agency reported 

it had assessed 

all programs and 

activities

1 Agency for International Development 

2 Department of Agriculture X

3 Department of Commerce X

4 Department of Defense X

5 Department of Education X

6 Department of Energy X

7 Environmental Protection Agency

8 Export-Import Bank of the United States

9 Farm Credit System Insurance Corporation

10 Federal Communications Commission X

11 Federal Deposit Insurance Corporation

12 General Services Administration X

13 Department of Health and Human Services X

14 Department of Homeland Security X

15 Department of Housing and Urban Development X

16 Department of the Interior X

17 Department of Justice

18 Department of Labor X

19 National Aeronautics and Space Administration X

20 National Credit Union Administration

21 National Science Foundation X

22 Nuclear Regulatory Commission X

23 Office of Personnel Management X

24 Pension Benefit Guaranty Corporation
Page 14 GAO-07-92 Improper Payments

Source: GAO analysis of cited agencies’ fiscal year 2005 PARs and annual reports.

The first step in OMB’s implementing guidance requires agencies’ use of a 

systematic method, also known as a risk assessment, to annually review 

and identify those programs and activities that are susceptible to 

significant improper payments. Although OMB’s guidance identifies the 

scope of payments agencies are to review, such as federal awards made by 

recipients and subrecipients subject to the Single Audit Act, as amended,21

it does not provide agencies detailed information on how to conduct a risk 

assessment in order to adequately carry out their responsibilities to meet 

the requirements of the act. Specifically, we found that OMB’s guidance 

lacks a description of the common types of risk factors agencies should 

consider when annually reviewing their programs, such as program 

complexity; operational changes; and findings from investigative, financial 

statement, and performance audit reports. Developing such a framework 

would begin the process to effectively identify and target high-risk areas 

within a program and better position agencies as they determine which 

25 U.S. Postal Service

26 Railroad Retirement Board X

27 Securities and Exchange Commission

28 Small Business Administration X

29 Smithsonian Institution

30 Social Security Administration X

31 Department of State X

32 Tennessee Valley Authority

33 Department of Transportation X

34 Department of the Treasury X

35 Department of Veterans Affairs X

Total 23

2131 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 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. Organizations are required to have single audits if they 

annually expend $500,000 or more in federal funds. 

(Continued From Previous Page)

 Department or agency

Agency reported 

it had assessed 

all programs and 

activities
Page 15 GAO-07-92 Improper Payments

control activities to implement to reduce risks and ultimately reduce fraud 

and errors. 

Risk assessment is a key step in gaining 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 impact 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. In performing a 

risk assessment, management should consider all significant interactions 

between the entity and other parties as well as internal factors at both the 

entitywide and program levels.

The specific risk assessment methodology used can vary by organization 

because of differences in missions and the methods used in assigning risk 

levels. Risk identification methods often include qualitative and 

quantitative ranking activities, management conferences, forecasting and 

strategic planning, and consideration of findings from audits and other 

assessments. Because governmental, economic, and operating conditions 

continually change, risk assessments should be periodically updated to 

identify and deal with any special risks prompted by such changes. 

Although 23 agencies reported meeting this requirement for all of their 

programs and activities, other readily available information suggests to us 

that the adequacy of agencies’ risk assessments was questionable. For 

example, auditors for DOJ and DHS cited agency noncompliance with IPIA 

in their fiscal year 2005 annual audit reports, primarily caused by 

inadequate risk assessments. The DOJ auditor stated that one agency 

component had not established a program to assess, identify, and track 

improper payments. The DHS auditors reported that the department did 

not institute a systematic method of reviewing all programs and identifying 

those it believed were susceptible to significant erroneous payments. This 

was the second consecutive year that the auditor reported IPIA 

noncompliance for DHS. Although the auditors identified the agency’s risk 

assessment methodology as inadequate, DHS again reported in its PAR that 

it had assessed all of its programs for risk and found none susceptible to 

significant improper payments. 
Page 16 GAO-07-92 Improper Payments

However, existing significant financial management weaknesses at these 

agencies highlight visible, well-known risks for improper payments. For 

example, DHS continues to face significant financial management 

weaknesses as illustrated by previous reviews of the Federal Emergency 

Management Agency’s (FEMA)—a DHS component—Individuals and 

Households Program (IHP). In November 2005, DHS received a disclaimer 

of opinion on its fiscal year 2005 balance sheet and its fiscal year 2004 

consolidated financial statements,22 primarily because of financial 

reporting problems. DHS’s auditors cited 10 material weaknesses;23 2 other 

reportable conditions in internal controls; and 7 instances of 

noncompliance with applicable laws and regulations, 1 of those being 

noncompliance with IPIA, as mentioned previously. The DHS OIG cited 

disaster response and recovery as one of DHS’s major management 

challenges for that year. 

In May 2005, the DHS OIG reported24 weaknesses in DHS’s IHP program, 

including inspection and verification of losses reported by individuals 

related to the 2004 hurricane season as well as eligibility issues. 

Subsequently, in July 2005, the Senate Committee on Homeland Security 

and Governmental Affairs released its investigation results of FEMA’s 

response to the 2004 Florida hurricanes, in particular, Hurricane Frances, 

and found similar weaknesses in FEMA’s IHP program. In discussing its 

risk assessment methodology, DHS reported that FEMA’s IHP might be at 

high risk for issuing improper payments as a result of the weaknesses 

identified in the DHS OIG report and performed a second round of testing 

of its fiscal year 2004 disbursements. From its test results, DHS concluded 

that its estimate of improper payments for the IHP did not meet OMB’s 

22DHS’s auditors reported that they were engaged to audit the accompanying consolidated 

balance sheets of DHS as of September 30, 2005 and 2004, and the related consolidated 

statements of net cost, changes in net position, and financing; combined statement of 

budgetary resources; and statement of custodial activity for the year ended September 30, 

2004. The auditors were not engaged to audit the accompanying consolidated statements of 

net cost, changes in net position, and financing; combined statement of budgetary 

resources; and statement of custodial activity for the year ended September 30, 2005.

23A material weakness is a condition that precludes the entity’s internal control from 

providing reasonable assurance that misstatements, losses, or noncompliance that are 

material in relation to the financial statements or to stewardship information would be 

prevented or detected on a timely basis. 

24Department of Homeland Security, Office of Inspector General, Audit of FEMA’s 

Individuals and Households Program in Miami-Dade County, Florida, for Hurricane 

Frances, OIG-05-20 (Washington, D.C.: May 2005).
Page 17 GAO-07-92 Improper Payments

criteria of exceeding $10 million and 2.5 percent of program payments. 

DHS reported that IHP would receive closer scrutiny and undergo an 

independent payment review in fiscal year 2006, but that its sample 

payment testing did not show the program to be at high risk for improper 

payments.

Our recent review of FEMA’s IHP shows a dramatically different result. In 

our June 2006 report,25 we estimated improper payments related to FEMA’s 

IHP of about $1 billion as of February 2006, related to individual assistance 

payments in response to hurricanes Katrina and Rita that occurred in 2005. 

This amount represents 16 percent of the IHP payments. For example, we 

determined that millions of dollars in expedited and housing assistance 

payments went to registrants who provided the names and Social Security 

numbers of individuals incarcerated in federal and state prisons during the 

hurricanes. In addition, FEMA improperly paid individuals twice for their 

lodging—paying both hotels and rental assistance. Also, FEMA could not 

establish that 750 debit cards worth $1.5 million went to Hurricane Katrina 

victims.

We noted risk assessment deficiencies at other agencies as well. The USDA 

OIG reported26 that the agency’s risk assessments were not adequate to 

estimate the agencies’ susceptibility to improper payments because the 

guidance from the USDA’s OCFO was not sufficiently prescriptive and 

detailed to translate into meaningful results. As such, the OIG 

recommended that 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. In another example, Treasury’s OIG 

reported27 that it planned to evaluate whether the agency’s current process 

is effectively identifying and reducing erroneous payments, which further 

validates our concern that agencies’ risk assessments may not be 

25GAO, Hurricanes Katrina and Rita Disaster Relief: Improper and Potentially 

Fraudulent Individual Assistance Payments Estimated to Be Between $600 Million and 

$1.4 Billion, GAO-06-844T (Washington, D.C.: June 14, 2006).

26Department of Agriculture, Office of Inspector General, Memorandum for the Secretary, 

“Management Challenges,” September 2, 2005.

27Department of the Treasury, Treasury Inspector General for Tax Administration, Office of 

Audit, Annual Audit Plan Fiscal Year 2005, Document 10932 (Rev. 9 2004), Catalog 

Number 26938H.
Page 18 GAO-07-92 Improper Payments

appropriately identifying a complete universe of programs and activities 

that are susceptible to significant improper payments. 

In our previous report28 on agencies’ fiscal year 2004 improper payment 

reporting, we recommended that OMB require those agencies that did not 

address the IPIA requirements or did not perform risk assessments of all of 

their programs and activities to establish time frames and identify 

resources needed to perform risk assessments and satisfy reporting 

requirements. We also recommended that OMB develop a plan to address 

the resource needs of those agencies that did not perform risk assessments 

or satisfy reporting requirements. In response to our recommendations, 

OMB stated that pursuant to the PMA initiative—Eliminating Improper 

Payments—federal agencies were already required to submit relevant time 

frames and account for the resources necessary to complete planned 

actions. Furthermore, OMB stated that the remaining risk assessments to 

be completed, not covered by the PMA initiative, correlated to programs 

with relatively small outlays. As we stated in our March 2005 report, while 

we view the PMA initiative as a positive action, it applies to only 15 

agencies—the 14 agencies that were previously required to report improper 

payments information under OMB Circular No. A-11 and DHS. However, 

this is not a comprehensive list because it does not include the remaining 

executive branch agencies covered under IPIA that are, to some extent, 

required to address improper payments for their programs and activities. 

Thus, agencies not included in the PMA initiative would not be required to 

establish time frames and account for needed resources under that effort. 

Therefore, we reaffirm our previous recommendations that OMB require 

those agencies that did not address the IPIA requirements or did not 

perform risk assessments for all of their programs and activities to 

establish time frames and identify resources needed to perform risk 

assessments and satisfy reporting requirements and that OMB develop a 

plan to address the resource needs of those agencies that did not perform 

risk assessments or satisfy reporting requirements.

28GAO-05-417.
Page 19 GAO-07-92 Improper Payments

Only a Limited Number of 

Agencies Are Estimating 

Improper Payments

Figure 3: Improper Payments—Step 2

Agencies must estimate improper payments for each risk-susceptible 

program identified during the risk assessment process. Of the 35 agencies, 

18 agencies accounting for 57 programs reported improper payment 

estimates totaling in excess of $38 billion for some or all of their high-risk 

programs. (See app. II for further details.) Included in this estimate were 17 

newly reported programs in 10 agencies, totaling about $1.2 billion for 

fiscal year 2005. 

The total improper payment estimate of $38 billion represents 

approximately 2 percent of the total fiscal year 2005 government outlays of 

$2.5 trillion. For the remaining 17 agencies that did not report estimates, 8 

said they did not have any programs susceptible to significant improper 

payments, 8 were silent about whether they had programs susceptible to 

significant improper payments, and the remaining agency identified 

programs susceptible to significant improper payments and said it planned 

to report an estimate by fiscal year 2007. Further details are included in 

table 2. 

Source: GAO.

Perform

risk

assessment

Estimate

improper

payments

Implement

a plan

Annually

report
Page 20 GAO-07-92 Improper Payments

Table 2: Agency Improper Payment Estimate Reporting in Fiscal Year 2005

Agency did not report estimate

Department or agency

Agency reported 

estimate for

one or more 

programs

Agency reported that 

no programs were 

susceptible to significant 

improper payments

Agency silent as to whether 

it had programs susceptible 

to significant improper 

payments

Agency 

reported future 

date to report 

estimate

1 Agency for International 

Development 

X

2 Department of Agriculture X

3 Department of Commerce X

4 Department of Defense X

5 Department of Education X

6 Department of Energy X

7 Environmental Protection 

Agency

X

8 Export-Import Bank of the 

United States

X

9 Farm Credit System Insurance 

Corporation

X

10 Federal Communications 

Commission

X

11 Federal Deposit Insurance 

Corporation

X

12 General Services 

Administration

X

13 Department of Health and 

Human Services

X

14 Department of Homeland 

Security

X

15 Department of Housing and 

Urban Development 

X

16 Department of the Interior X

17 Department of Justice X

18 Department of Labor X

19 National Aeronautics and 

Space Administration

X

20 National Credit Union 

Administration

X

21 National Science Foundation X

22 Nuclear Regulatory 

Commission

X

23 Office of Personnel 

Management

X
Page 21 GAO-07-92 Improper Payments

Source: GAO analysis of cited agencies’ fiscal year 2005 PARs and annual reports.

Step 2 of OMB’s guidance requires agencies to estimate the annual amount 

of improper payments for those programs susceptible to significant 

improper payments. Unless previously approved by OMB, this estimate 

must be based on a statistically valid sampling methodology29 and should 

include a gross total of both over- and underpayments. In its Circular No. A136, OMB encourages agencies to break out over- and underpayments as 

part of its improper payment reporting, if available. Of the 57 programs for 

which an estimate was reported for fiscal year 2005, a breakout between 

over- and underpayments was provided for 20 programs. This included 6 of 

the 7 largest programs that according to OMB, make up 95 percent of the 

24 Pension Benefit Guaranty 

Corporation

X

25 U.S. Postal Service X

26 Railroad Retirement Board X

27 Securities and Exchange 

Commission

X

28 Small Business Administration X

29 Smithsonian Institution X

30 Social Security Administration X

31 Department of State X

32 Tennessee Valley Authority X

33 Department of Transportation X

34 Department of the Treasury X

35 Department of Veterans Affairs X

Total 18 8 8 1

(Continued From Previous Page)

Agency did not report estimate

 Department or agency

Agency reported 

estimate for 

one or more 

programs

Agency reported that 

no programs were 

susceptible to significant 

improper payments

Agency silent as to whether 

it had programs susceptible 

to significant improper 

payments

Agency 

reported future 

date to report 

estimate

29OMB requires that agencies’ statistical sampling methodologies be designed to yield 

estimates with a 90 percent confidence interval of plus or minus 2.5 percent.
Page 22 GAO-07-92 Improper Payments

current total improper payment estimate.30 Treasury’s Earned Income Tax 

Credit (EITC) program, the second largest program constituting the 

reported improper payment total, is the only program of the 7 largest that 

did not do so. Of the 20 programs, 3 attributed all their improper payments 

to overpayments. For example, the USDA’s Marketing Assistance Loan 

Program reported an improper payment estimate of about $45 million. 

USDA reported that the entire estimate resulted from overpayments made. 

For more details related to over- and underpayment estimates, see 

appendix III.

We also found that agencies’ auditors identified challenges with certain 

program’s improper payment estimates. USDA’s OIG reported that it 

considers USDA’s efforts to develop supportable methodologies to detect 

and estimate the extent of improper payments as a major challenge 

because of the number and complexity of USDA programs and activities 

that are subject to IPIA. In another example, agency auditors for the 

Department of Education (Education) raised concerns about the 

methodology Education used to estimate improper payments for its 

Federal Student Aid (FSA) program. The auditors reported that the 

methodology used did not provide a true reflection of the magnitude of 

improper payments in the student loan programs. Specifically, FSA’s 

estimate is primarily based on actual questioned costs from OIG audits, 

does not extrapolate questioned costs associated with compliance 

violations identified through OIG audits, and does not take into account 

restitutions and penalties resulting from OIG investigations. To address 

improper payment estimating challenges, it will be critical that agencies 

follow existing OMB guidance to use a statistically valid sampling 

methodology. 

30The seven programs that constitute 95 percent of the improper payment total are 

(1) Department of Health and Human Services’ Medicare program, 32 percent; 

(2) Department of the Treasury’s Earned Income Tax Credit program, 28 percent; (3) Social 

Security Administration’s Old Age, Survivors’, and Disability Insurance program, 10 percent; 

(4) Department of Labor’s Unemployment Insurance program, 9 percent; (5) Social Security 

Administration’s Supplemental Security Income program, 8 percent; (6) Department of 

Housing and Urban Development’s Public Housing and Rental Assistance programs, 4 

percent; and (7) Department of Agriculture’s Food Stamp program, 4 percent.
Page 23 GAO-07-92 Improper Payments

The Extent and Level of 

Detail Related to Selected 

Reporting Requirements 

Varied

Figure 4: Improper Payments—Step 3

As previously mentioned, 18 of the 35 agencies reported over $38 billion of 

improper payments. Of the 18 agencies, 14 reported improper payment 

estimates that exceeded $10 million31 for one or more programs, and 

therefore were required to implement plans to reduce improper payments 

under step 3 of OMB’s guidance. 

Figure 5: Improper Payments—Step 4

Based on these plans, under step 4 of OMB’s implementing guidance 

agencies are required to report on various elements, such as a description 

of (1) the steps (including time line) the agency has taken and plans to take 

to ensure that agency managers (including the agency head) are held 

accountable for reducing and recovering erroneous payments and (2) any 

statutory or regulatory barriers that may limit the agency’s corrective 

31The four agencies that reported improper payment estimates yet did not exceed the 

$10 million threshold include the Environmental Protection Agency, the National Science 

Foundation, the Department of State, and the Department of Transportation. See app. II for 

additional information on improper payment estimates. 

Source: GAO.

Perform

risk

assessment

Estimate

improper

payments

Implement

a plan

Annually

report

Source: GAO.

Perform

risk

assessment

Estimate

improper

payments

Implement

a plan

Annually

report
Page 24 GAO-07-92 Improper Payments

actions in reducing improper payments and any statutory or regulatory 

barriers that may limit the agencies’ corrective actions in reducing 

improper payments. In addition, the 14 agencies with estimated improper 

payments greater than $10 million were required to report in their PARs or 

annual reports on the above elements as well as other areas, such as the 

causes of the improper payments, actions taken to correct those causes, 

and the results of those actions and additional reporting requirements. 

Generally, these agencies reported on their actions to address the 

additional reporting requirements in their PARs; however, the extent and 

details of reporting varied among agencies. Although not all of the agencies 

in table 3 provided meaningful descriptions for each of the additional 

reporting requirements, our table acknowledges all agencies that at least 

mentioned these reporting elements as part of their improper payment 

reporting. The results of agencies’ reporting on these key elements are 

discussed in more detail in the following sections. 

Table 3: Agency Reporting of Certain Reporting Requirements for One or More of Its 

Programs

Department or agency

Agency 

reported on 

causes and 

corrective 

actions 

Agency 

reported on 

manager 

accountability

Agency 

reported on 

statutory 

barriers

1 Department of Agriculture X X X

2 Department of Defense X X X

3 Department of Education X X X

4 Department of Energy

5 Department of Health and 

Human Services

X X X

6 Department of Housing and 

Urban Development 

X X

7 Department of Labor X X X

8 Office of Personnel 

Management

X X X

9 Railroad Retirement Board X X

10 Small Business Administration X X

11 Social Security Administration X X X

12 Tennessee Valley Authority X X

13 Department of the Treasury X X X
Page 25 GAO-07-92 Improper Payments

Source: GAO analysis of cited agencies’ fiscal year 2005 PARs or annual reports.

Causes of Improper Payments 

and Corrective Action Plans

Table 3 shows that 13 of the 14 agencies required to report on the causes of 

program improper payments and any associated corrective actions did so. 

Looking at this from a qualitative perspective, we noted that some agencies 

provided few details on the causes and corrective actions taken, while 

others provided detailed descriptions at the program level. For example, 

the Department of Labor (Labor) reported that the causes of improper 

payments for its Unemployment Insurance program resulted from 

claimants who continue to claim benefits despite having returned to work 

as well as coding errors that identify why the claimant separated from 

work. In contrast, the Small Business Administration (SBA) reported that it 

was planning to identify and track reasons for improper payments for one 

of its high-risk programs, but had not yet done so. Similarly, HHS did not 

list causes of improper payments for several of its risk-susceptible 

programs, although it provided detailed corrective actions for reducing 

improper payments. When no causes are reported, they sometimes can be 

inferred based on the descriptions of the corrective actions. However, 

without fully knowing what causes improper payments, it may be difficult 

for the agency to determine what types of internal control need to be 

implemented or changed and if the corrective actions in place will be 

effective in reducing improper payments. As agencies identify causes of 

improper payments, they can implement control activities to address 

identified risk areas and help ensure that management’s decisions and 

plans are carried out and program objectives are met.

Manager Accountability All but 1 of the 14 agencies also reported on efforts related to assigning and 

holding managers accountable for reducing improper payments. The 

remaining agency did not address this reporting requirement in its PAR. 

Generally, improper payments result from a lack of or inadequate system of 

internal control, but some result from program design issues. A key 

component of internal control is the control environment. A strong control 

environment is fundamental in creating a culture of accountability by 

establishing a positive and supportive attitude toward improvement and 

14 Department of Veterans 

Affairs

X X X

Total 13 13 9

(Continued From Previous Page)

 Department or agency

Agency 

reported on 

causes and 

corrective 

actions 

Agency 

reported on 

manager 

accountability

Agency 

reported on 

statutory 

barriers
Page 26 GAO-07-92 Improper Payments

the achievement of established program outcomes, including protecting 

taxpayer interests in program integrity. 

Similar to agencies’ reporting on causes and corrections, we also found 

that agencies’ reporting on the manager accountability requirement varied. 

For example, OPM addressed the manager accountability reporting 

requirement in one sentence for its risk-susceptible programs while USDA 

and VA provided information on how each program manager was held 

accountable for the high-risk programs identified. Furthermore, six 

different agencies reported that the responsibility for improper payments is 

included in management’s performance plans; however, specific details 

were not disclosed. For example, the Railroad Retirement Board (RRB) 

reported that agency managers’ performance plans are linked to RRB’s 

strategic goals of paying benefits accurately and timely and providing 

prudent stewardship over the trust funds.

Statutory or Regulatory Barriers Of the 14 agencies required to report on any statutory or regulatory32

barriers, 9 agencies identified such barriers that may limit corrective 

actions to reduce improper payments. The remaining 5 agencies33 were 

silent as to whether any statutory or regulatory barriers existed or reported 

that no barriers had been identified. Agencies cited various barriers that 

restrict their ability to better manage their programs against improper 

payments. We classified the reported barriers into five categories: (1) data 

matching, (2) contractual requirements, (3) state-administered program 

structure, (4) recovery auditing, and (5) other. We also identified agencies 

that reported barriers that were not related to a statute or regulation. Table 

4 summarizes the statutory barriers agencies reported and, when provided, 

the legislation or regulation citation related to the barriers.

32The regulatory barriers reported represent governmentwide regulations that the agency 

has no authority to modify.

33The five agencies are the Department of Energy, Department of Housing and Urban 

Development, Railroad Retirement Board, Small Business Administration, and Tennessee 

Valley Authority.
Page 27 GAO-07-92 Improper Payments

Table 4: Agency-Reported Statutory Barriers to Reducing Improper Payments

Agency Type of barrier(s) Agency reported law or regulation related to barrier(s)

Department of 

Agriculture

Data matching, stateadministered program 

structure, recovery auditing

Finality Rule-Department of Agriculture Reorganization Act of 1994, Section 

281, generally precludes the use of recovery auditing techniques to recover 

payments considered final pursuant to 7 U.S.C. 7001(a).a

Farm Security and Rural Investment Act of 2002, Section 1502(d)(2), requires 

the agency to use standards applied under an earlier law, thereby limiting the 

agency from developing a definition for a particular type of dairy producers.a

Department of Defense Contractual requirements The Department of Defense’s Retired and Annuitant Pay Service Contract, 

when awarded, did not include the goals or mandates of IPIA. Any additional 

work or changes to meet the goals of IPIA would need a contract modification 

and be subject to Subpart 43.1 of the Federal Acquisition Regulation.b

Department of 

Education

Data matching Section 6103 of the Internal Revenue Code concerning confidentiality of the tax 

return information precludes data matching.c

Department of Health 

and Human Services

State-administered program 

structure, other

Temporary Assistance for Needy Families legislation, including funding for Child 

Care Programs, specifically prohibits HHS from regulating the conduct of 

states, unless expressly provided. Requiring states to identify and report 

improper payments is not expressly required.d

Department of Labor Data matching, stateadministered program 

structure, recovery auditing

Section 3304(a)(4) of the Federal Unemployment Tax Act (FUTA) requires that 

moneys in the unemployment fund only be withdrawn for benefit payments, 

precluding the availability of money in the fund to be used for recovery auditing 

techniques. a

Office of Personnel 

Management

Contractual requirements, 

recovery auditing, other

5 U.S.C. § 8452 and 5 C.F.R. 844 Subpart C contain the Federal Employees 

Retirement System (FERS) disability offset provision which mandates that 

FERS benefits be reduced if the annuitant also receives Social Security 

benefits. However, the FERS benefits cannot be reduced until Social Security 

Administration starts paying the disability benefits so that OPM can reduce the 

FERS benefits to their proper level.c

Generally, the Right to Financial Privacy Act (12 U.S.C. §. 3401-3422) requires 

financial institutions to obtain permission from their customers to disclose 

financial information. This requirement in effect bars OPM from obtaining 

posthumous payments information, preventing recovery of improper payments.c

OIG lacks statutory or regulatory audit rights and only has limited audit rights in 

contracts entered into with pharmaceutical benefits managers.b

Social Security 

Administration

Other Not cited.b

Department of the 

Treasury

Other IRS Tax Code.e
Page 28 GAO-07-92 Improper Payments

Sources: GAO analysis of cited agencies’ fiscal year 2005 PARs or annual reports and OMB. 

Note: We did not verify whether the legal citation reported actually results in a barrier.

a

Agency provided specific legislative citation in its PAR.

b

Agency did not provide a legislative citation in its PAR or to OMB.

c

Specific legal citation provided by OMB.

d

General legal citation provided by OMB.

e

Agency only provided a general citation in its PAR.

Only two of the nine agencies mentioning statutory barriers cited the 

specific law or regulation related to a corresponding barrier in their PARs. 

The remaining seven agencies described the barrier but did not provide a 

specific law or regulation in their PARs. For three of these seven agencies, 

we were able to obtain specific legislative citations for some of the agencyreported barriers from OMB, and included these in table 4. The remaining 

four agencies did not provide specific legislative citations in their PARs, 

nor did the agencies provide them when we followed up with OMB. The 

lack of transparency in agencies’ reporting of specific legislative or 

regulatory barriers impedes the Congress’s ability to use its authorization, 

appropriation, and oversight responsibility to help agencies meet 

performance goals. The Congress can review the actions taken and 

regulations formulated by departments and agencies to make certain that 

program officials appropriately execute the laws. If agencies provide the 

required information, the Congress can determine whether the public’s 

needs are adequately served by federal programs, and thus take corrective 

action through legislative changes. 

Department of Veterans 

Affairs

Other 38 U.S.C. 5112(b)(4)(A)c prohibits adjustments to benefit payments until the 

first of the month after the change in a beneficiary’s income. Thus, this creates 

an overpayment until the benefit payment is adjusted for the change in income. 

38 U.S.C. 501(a) and 38 C.F.R. 3.103c preclude VA from changing benefit 

payments when it determines that an adjustment or termination of benefits is 

needed. VA must continue to make benefit payments based on existing 

information until a claimant’s due process has taken place, which requires 

giving the claimant 60 days to submit evidence for a claim. This, therefore, 

usually means VA must continue payment for approximately 90 days after 

discovery because any adjustments occur the first of the next month.

(Continued From Previous Page)

Agency Type of barrier(s) Agency reported law or regulation related to barrier(s)
Page 29 GAO-07-92 Improper Payments

As we previously reported,34 it should be recognized that many of these 

barriers exist as a result of decisions to ensure beneficiary privacy and 

other data safeguards and the inherent nature of some federal programs. As 

a result, it may be difficult to eliminate or mitigate these barriers to the 

point where they no longer restrict agency actions in certain areas to better 

manage their improper payment problems. Accordingly, federal agencies, 

the administration, the Congress, and the public must recognize that some 

level of improper payments will occur because of these public policy 

decisions. 

Data matching. Three agencies reported barriers that prevented data 

matching with other agencies’ computer databases to reduce improper 

payments. For example, Education reported that requirements in the 

Internal Revenue Code precluded data matching, but that a database match 

with the Internal Revenue Service (IRS) would likely improve the accuracy 

of Pell Grant awards. In addition, it would eliminate the need for schools to 

rely on paper copies of tax returns submitted by applicants, which are used 

to verify applicants’ adjusted gross income and taxes paid. Currently, the 

schools have limited assurance that the tax returns submitted by the 

applicants contain the same information that is filed with IRS. However, 

Education’s proposal to amend the Internal Revenue Code to permit a 100 

percent database match has not yet been enacted, and Education is 

uncertain whether or when such legislation may be enacted. As a further 

illustration, Labor reported that for its Federal Employees’ Compensation 

Act (FECA) program,35 legislation does not currently permit FECA to verify 

employment earnings with the Social Security Administration (SSA) 

without the claimant’s written permission. Compensation benefits may be 

overpaid if an employee has unreported earnings and does not grant Labor 

permission to verify earnings with SSA.

Contractual requirements. Two agencies reported contractual 

requirements as a barrier to reducing improper payments. For example, 

OPM reported that its OIG has begun an initiative to audit pharmaceutical 

benefits managers (PBM). However, in some cases, the OIG has only 

limited audit rights based on the carrier’s contracts with the PBMs. To 

mitigate this, OPM is in the process of revising the Federal Employees 

34GAO, Financial Management: Coordinated Approach Needed to Address the 

Government’s Improper Payments Problems, GAO-02-749 (Washington, D.C.: Aug. 9, 2002). 

35This act was repealed and parts of it are now codified in code sections of Titles 1, 5, and 18 

of the United States Code.
Page 30 GAO-07-92 Improper Payments

Health Benefits Acquisition Regulations to require carriers to provide the 

OIG complete audit rights in all contracts entered into with PBMs. 

State-administered program structure. Three agencies reported barriers 

resulting from the state-administered structure of their programs. For 

example, Labor reported that by statute, states administer the 

Unemployment Insurance (UI) program and set operational priorities. 

Therefore, the agency reported it has limited ability to ensure that the 

states pursue improper payment reduction activities. In another example, 

HHS stated that for Medicaid and the State Children’s Health Insurance 

Program, its ability to minimize improper payments was limited in the 

absence of statutory authority to hold states accountable for meeting 

targets for the reduction and recovery of improper payments.

State-administered programs are particularly vulnerable to improper 

payments. Generally, the federal government provides broad statutory and 

regulatory guidelines as well as all or a part of the program funding, while 

the other entities manage the day-to-day program operations. As such, 

federal agencies must depend on state, county, and local officials and other 

entities to ensure that eligibility requirements are met and that benefit 

amounts are determined correctly. Further, states may have little incentive 

to ensure that the right amounts go to the right individuals. 

Recovery auditing. Three agencies reported that their ability to reduce 

improper payments through recovery auditing techniques was barred by 

statute. For example, 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, county, or an area committee is final, no action may be 

taken to recover the amounts found to have been disbursed as a result of 

the decision in error unless the participant had reason to believe that the 

decision was erroneous. In another example, Labor stated that Section 

3304(a)(4) of the FUTA, which states that moneys in the fund can only be 

used for benefit payments, precludes using the funding for recovery 

auditing techniques.

Other. Five agencies reported statutory or regulatory barriers that we 

categorized as other. For example, VA reported that under current 

legislation, adjustments to payments are effective the first of the month 

following the month of the change in income or net worth. Additionally, 

benefits are paid on a prospective basis based on the beneficiary’s estimate 

of anticipated income. Thus, VA stated that an award adjustment because 
Page 31 GAO-07-92 Improper Payments

of changes in income is always after the fact and creates an overpayment. 

Despite this, VA believes this legislation should not be changed since the 

program meets the requirement to provide income support for current 

needs. As a second example, OPM stated that if an applicant receives FERS 

and Social Security disability benefits, then the FERS benefits are 

statutorily required to be reduced.36 However, OPM cannot reduce the 

applicant’s FERS benefits until it knows the amount of Social Security 

disability benefits that the applicant receives from SSA. Typically, the 

applicant receives FERS benefits first and does not start receiving SSA 

disability benefits until several months later. As a result, OPM makes FERS 

benefit overpayments to the applicant knowing that it will have to 

subsequently reduce the FERS benefits to the proper level when SSA starts 

paying the disability benefits.

During our analysis, we also identified two additional agencies that 

reported barriers in their improper payment information, but these barriers 

did not result from existing statutory requirements. For example, USDA 

reported that its program administration of the Food and Nutrition Service 

is highly decentralized and can involve a myriad of governmental and 

nongovernmental organizations. This decentralization is a hindrance to the 

development of robust accountability processes. As another example, 

Treasury reported several barriers to reducing overpayments in the EITC 

program, including high program turnover and unscrupulous tax preparers.

For the nine agencies that reported statutory or regulatory barriers, five 

agencies discussed in their PARs actions that they were taking to mitigate 

the effects of the barriers identified. For example, USDA reported that its 

Rural Housing Service agency is seeking to overcome a data-matching 

barrier through legislation that would permit access to HHS’s National 

Directory of New Hires (NDNH) data to allow management agents to use 

the data to collect and verify the tenant’s income documentation. As a 

second example, Labor reported that Section 3304(a)(4) of FUTA and 

Section 303(a)(4) of the Social Security Act require that moneys deposited 

into the UI program must be used for benefits and are precluded from being 

used for prevention, detection, and recovery of improper payments. Labor 

has proposed legislation with its fiscal year 2006 budget that would relax 

the “withdrawal standard” barrier to provide additional funding for 

recovery initiatives.

365 U.S.C. § 8452. 
Page 32 GAO-07-92 Improper Payments

We also noted that according to OMB’s annual improper payments report 

that six agencies requested legislative intervention in their fiscal year 2007 

budget submissions to facilitate better measurement, detection, and 

elimination of improper payments. For five of these agencies, the 

legislative intervention addressed some barrier reported in their PARs. For 

example, Labor proposed a legislative change related to overpayment 

recoveries in its UI program. According to OMB, the legislative changes 

provide financial incentives to states to more aggressively pursue benefit 

overpayments, enlist debt collection agencies, impose penalties for fraud, 

charge employers when their actions lead to overpayments, and collect 

delinquent overpayments through garnishment of tax refunds. OMB also 

noted that these proposed legislative changes would further improve the 

accuracy of the hiring data in the NDNH by including the actual start work 

date, thereby improving the detection of potential improper payments. 

OMB reported that this proposal is projected to save $1.2 billion over 10 

years. 

Improper Payments 

Estimate Is 

Understated

The total improper payment estimate of about $38 billion represents almost 

a $7 billion, or 16 percent, decrease from the $45 billion of improper 

payments reported by agencies in fiscal year 2004.37 On the surface, this 

would suggest that significant progress has been made. However, this is not 

the case because the reported $7 billion reduction in the total improper 

payments estimate may not reflect improved accountability or 

strengthened internal controls. As we previously reported in March and 

April 2006,38 this estimate reduction is primarily attributable to a decrease 

in HHS’s Medicare program improper payment estimate. This decrease 

mainly resulted from a change to Medicare’s estimating methodology rather 

than from improved payment controls. Regardless of whether prior year 

estimates were reliable, the reported reduction is unlikely to represent a 

measurable improvement in internal control and accountability given that 

HHS’s OIG continued to cite the integrity of Medicare payments as a top 

37In their fiscal year 2005 PARs, several agencies updated their fiscal year 2004 improper 

payment estimates to reflect changes since issuance of their fiscal year 2004 PARs. These 

updates increased the governmentwide improper payment estimate for fiscal year 2004 from 

$45 billion to $46 billion.

38GAO, Financial Management: Challenges Remain in Meeting Requirements of the 

Improper Payments Information Act, GAO-06-482T (Washington, D.C.: Mar. 9, 2006), and 

Financial Management: Challenges Continue in Meeting Requirements of the Improper 

Payments Information Act, GAO-06-581T (Washington, D.C.: Apr. 5, 2006).
Page 33 GAO-07-92 Improper Payments

management challenge in HHS’s fiscal year 2005 PAR. As discussed 

previously, other agency auditors have reported major management 

challenges that highlight internal control weaknesses that continue to 

plague programs susceptible to significant improper payments. In some 

cases, agencies reported that their programs were not susceptible to 

significant improper payments, despite the fact that the auditor’s reports in 

the same PARs identified major management challenges, including 

significant internal control weaknesses, for some of the agencies’ 

programs.

Also, the total improper payment estimate does not include certain factors 

that if resolved, would materially increase reports of estimated improper 

payments. For example, 10 risk-susceptible programs with outlays totaling 

over $234 billion for fiscal year 2005 did not estimate improper payments, 

even though OMB required most of these programs to report selected 

improper payment information several years before IPIA became effective. 

In addition, we found six agencies that did not use statistical sampling for 9 

programs to estimate improper payment amounts. Because nonstatistical 

sampling methods were used, such as results from Single Audit Act39

reports and internal performance reviews, the $389 million reported 

represents only the known improper payment amounts reported by 

agencies. Given that total outlays for these 9 programs exceeded 

$58.2 billion in fiscal year 2005, the improper payment estimate for these 

programs would likely have been much greater had statistically valid 

methods been used. We also found instances where agencies estimated 

improper payments for only one component of the risk-susceptible 

program. Using these types of methodologies results in estimates that may 

be significantly understated. 

Some Agencies Continue to 

Lack Improper Payment 

Estimates for Susceptible 

Programs

The fiscal year 2005 governmentwide improper payments estimate of 

$38 billion did not include any amounts for 10 programs, with fiscal year 

2005 outlays totaling over $234 billion. OMB had specifically required 7 of 

these programs 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. 

The remaining 3 risk-susceptible programs, with no previous reporting 

3931 U.S.C. Chp. 75.
Page 34 GAO-07-92 Improper Payments

requirement, provided target dates for estimating improper payments. As 

shown in table 5, the fiscal year 2005 improper payment estimate does not 

include one of the largest federal programs determined to be susceptible to 

risk, HHS’s Medicaid program, with outlays exceeding $181 billion annually.

Table 5: Susceptible Programs That Did Not Report Improper Payment Estimates and Target Dates for Estimates 

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

Of these 10 programs, 7 reported that they would be able to estimate and 

report on improper payments sometime within the next 3 fiscal years, but 

could not do so for fiscal year 2005. For the remaining 3 programs, the 

agencies did not estimate improper payment amounts in their fiscal year 

2005 PARs and were silent about whether they would report estimates in 

the future. As a result, improper payments for these programs susceptible 

to risk will not be known for at least several years, even though 7 of these 

programs had been required to report this information since 2002, with 

their fiscal year 2003 budget submissions under previous OMB Circular No. 

A-11 requirements. 

Dollars in billions

Agency/program

Fiscal year 

2005

outlays

Target date for 

improper payment 

estimates

Previously 

required to 

estimate

Department of Agriculture—School Programs $8.2 2007 X

Federal Communications Commission—Universal Service Fund’s Schools 

and Libraries

1.7 2007

Federal Communications Commission—High Cost Support Program 3.8 2007

Department of Health and Human Services—State Children’s Insurance 

Program

5.1 2008 X

Department of Agriculture—Women, Infants, and Children 4.8 2008 X

Department of Health and Human Services—Medicaid 181.7 2008 X

Department of Agriculture—Child and Adult Care Food Program 2.1 2010

Department of Health and Human Services—Child Care and Development 

Fund

4.9 Did not report target 

date

X

Department of Health and Human Services—Temporary Assistance for 

Needy Families

17.4 Did not report target 

date

X

Department of Housing and Urban Development—Community Development 

Block Grant

5.0 Did not report target 

date

X

Total $234.7 7
Page 35 GAO-07-92 Improper Payments

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 HHS and 

other agencies with state-administered programs face is the ability to hold 

states accountable for meeting targets to reduce and recover improper 

payments in the absence of specific statutory authority. 

Of the three programs that did not report a target date for estimating, the 

Department of Housing and Urban Development’s (HUD) Community 

Development Block Grant (CDBG) program was the only one that did not 

report any actions under way to begin estimating improper payments. In its 

fiscal year 2005 PAR, HUD reported that based on completed testing of 

fiscal year 2003 payments, this program is below OMB’s threshold 

criteria—exceeding $10 million and 2.5 percent of program payments—for 

significant improper payments and, therefore, was removed from HUD’s atrisk inventory. HUD stated that this program was not subject to retesting 

unless there was a significant change in the nature of activity or internal 

control structure. 

We have several problems with HUD’s position. The CDBG program was 

subject to the previous OMB Circular No. A-11 requirements and thus was 

required by OMB’s guidance to continue to report improper payment 

information under IPIA, regardless of the agency-determined risk level, 

which based on other known information may not reflect actual risk. 

During a June 2006 hearing40 on the CDBG program, HUD’s OIG reported 

on numerous instances of fraudulent, improper, and abusive use of 

program funds identified over a 2-1⁄2-year period based on 35 audits. The 

HUD OIG reported that its office has recovered over $120 million in 

program funds, identified over $100 million in questioned costs, indicted 

40June 29, 2006, hearing before the Senate Subcommittee on Federal Financial Management, 

Government Information, and International Security, Committee on Homeland Security and 

Governmental Affairs.
Page 36 GAO-07-92 Improper Payments

159 individuals, initiated administrative actions against 143 individuals, and 

took 5 civil actions and 39 personnel actions. As evidenced by the HUD OIG 

reviews, the CDBG program may be at risk of significant improper 

payments.

Certain Methodologies Used 

to Estimate Improper 

Payments Do Not Result in 

Accurate Estimates

The total executive branch-wide improper payment estimate may also be 

understated because of nonstatistical sampling methodologies agencies 

used to estimate improper payments in its programs. OMB’s implementing 

guidance requires that agencies use a statistical sample to estimate 

improper payments. With statistical sampling, sample results can be 

generalized to the entire population from which the sample was taken. 

From our review, we found six agencies that did not use statistical 

sampling to estimate improper payments totaling approximately 

$389 million for nine programs with outlays exceeding $58 billion. 

For example, Labor analyzed fiscal year 2003 single audits to identify 

questioned costs for its Workforce Investment Act41 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. 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 also found instances where agencies estimated improper payments for 

only one component of the risk-susceptible program. For example, HHS’s 

Medicare program is the largest program constituting the total improper 

payment estimate, with an estimate of $12.1 billion for fiscal year 2005. 

However, this estimate represents payment errors only for its fee-forservice program component. HHS has not yet begun to estimate improper 

payments for its managed care component, with outlays totaling about 

41Pub. L. No. 105-220, 112 Stat. 936 (Aug. 7, 1998).
Page 37 GAO-07-92 Improper Payments

$52 billion, or 15 percent of Medicare program outlays. In its fiscal year 

2005 financial report, HHS’s Centers for Medicare and Medicaid Services 

(CMS) identified bringing the Medicare managed care component into 

compliance with IPIA as a key challenge in the coming years. In addition, 

CMS’s external auditors identified Medicare’s managed care benefits 

payment cycle as a material weakness in its report on internal controls. 

Specifically, the auditor found that existing CMS policies and procedures 

are not sufficient to adequately reduce the risk of material benefit payment 

errors from occurring or not being detected and corrected in a timely 

manner. 

In addition, the Department of Transportation (DOT) reported zero 

improper payments based on its testing of four state-administered grant 

programs with outlays totaling $42.1 billion in fiscal year 2005. (See app. II.) 

DOT stated that none of these programs exceeded OMB’s reporting criteria. 

However, DOT’s test procedures only applied to payments made by DOT to 

grantee entities. Test procedures did not address subsequent “flow down” 

payments made at the grantee level, where the risk of improper payments 

is at its greatest. As such, the DOT OIG reported in the agency’s fiscal year 

2005 PAR that detecting improper payments and stopping wasteful 

spending by grantees is a top management challenge for the agency. DOT 

stated that it had actions under way to implement an improper payment 

methodology for its grant programs and plans to implement nationwide 

testing beginning in fiscal year 2007. 

Reduction in Improper 

Payment Estimate May Not 

Be a Result of Improved 

Accountability and 

Enhanced Internal Controls

The reported $7 billion decrease in the governmentwide estimate is 

primarily attributable to a decrease in Medicare’s estimate.42 However, we 

found that this decrease was mainly a result of an improvement made to 

Medicare’s estimating methodology rather than to improved payment 

controls. When providers do not submit documentation to justify payments 

received, these payments were counted by HHS as erroneous for purposes 

of calculating an annual improper payment estimate for the Medicare 

program. However, the decreased error rates achieved this year because of 

increased efforts to obtain provider documentation are not directly 

42We determined that the decrease was primarily caused by a $9.6 billion reduction in the 

HHS Medicare program improper payment estimate, which was partially offset by more 

programs reporting estimates of improper payments, resulting in a net decrease of 

$7 billion. The $9.6 billion reduction is the difference between the fiscal year 2004 estimate 

of $21.7 billion and the fiscal year 2005 estimate of $12.1 billion.
Page 38 GAO-07-92 Improper Payments

comparable to those reported in prior years before the new procedures 

were implemented.

Based on our review, the Medicare improper payment estimate decrease 

was principally caused by increased efforts to educate health care 

providers about its Medicare error rate testing program and the importance 

of responding to its requests for medical records to perform detailed 

statistical reviews of Medicare payments. HHS reported that these more 

intensive efforts had dramatically reduced the number of “no 

documentation” errors in its medical reviews. HHS reported marked 

reductions in its error rate attributable to fewer cases of (1) nonresponses 

to requests for medical records and (2) insufficient documentation 

submitted by the provider. We noted that these improvements partially 

resulted from HHS extending the time that providers have for responding 

to documentation requests from 55 days to 90 days. 

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 

may represent a refinement in the program’s improper payment estimate, 

the reported reduction may not reflect improved accountability over 

program dollars. Therefore, the federal government’s progress in reducing 

improper payments may be exaggerated because the reported improper 

payments decrease in the Medicare program accounts for the bulk of the 

overall reduction in the governmentwide improper payments estimate. 

Our work did not include an overall assessment of HHS’s estimating 

methodology. However, we noted that the changes made for the fiscal year 

2005 estimate were not related to improvements in prepayment validation 

processes, and we did not find any evidence that HHS had significantly 

enhanced its preventive controls in the Medicare payment process to 

prevent future improper payments. Further, we also found that HHS’s OIG 

continues to cite the integrity of Medicare payments as a top management 

challenge. In addition, health care fraud schemes continue to hamper 

HHS’s efforts to improve accountability. For example, in May 2006, DOJ 

reported43 that a businessman pleaded guilty to conspiracy to defraud 

Medicare of $40 million in fraudulent billings over a 16-month period. The 

43Department of Justice, United States Attorney’s Office, Southern District of Texas, News 

Release, “Local Businessman Pleads Guilty to Conspiracy to Defraud Medicare of 

$40 Million,” May 30, 2006.
Page 39 GAO-07-92 Improper Payments

fraud scheme included billing Medicare for motorized wheelchairs that 

were either not required by the Medicare beneficiary, not delivered, or 

both. 

Other agency auditors have also reported major management challenges 

related to agencies’ internal control weaknesses that continue to plague 

programs susceptible to significant improper payments. For example, 

SBA’s auditors reported that for the 7(a) Business Loan program, SBA did 

not consistently identify instances of noncompliance with its own 

requirements, resulting in improper payments. In some cases, agencies 

reported that they had determined that programs were not susceptible to 

significant improper payments despite the fact that the auditor’s reports in 

the same PARs identified management challenges, or material weaknesses 

within the programs. For example, the Department of the Interior’s OIG 

reported that the agency’s grant programs lacked proper management, 

creating accountability and stewardship deficiencies, as well problems 

related to data reliability, training, and ensuring that funds were spent 

appropriately. Likewise, the General Services Administration’s (GSA) OIG 

reported several issues related to the agency’s contract management 

practices, such as unauthorized personnel issuing task orders, not 

inspecting completed work projects prior to payment, not ensuring 

services were rendered prior to payment, and paying invoices that often 

lacked supporting documentation. 

Table 6 provides four other examples of agencies’ major management 

challenges, as reported in the fiscal year 2005 PARs, in specific agency 

programs or activities. None of the programs listed in table 6 have been 

identified by agencies as susceptible to significant improper payments, and 

thus are not included in the total improper payment estimate. These 

examples raise further questions about the adequacy of agencies’ risk 

assessments to identify susceptible programs, and whether agencies 

considered major management challenges identified by the OIG as part of 

their risk assessment process.
Page 40 GAO-07-92 Improper Payments

Table 6: Examples of Programs or Activities with Major Management Challenges but 

Not Identified as Susceptible to Significant Improper Payments

Source: GAO analysis of agencies’ fiscal year 2005 PARs.

Department or 

agency Program or activity

Description of major management challenge 

identified by the OIG

Department of 

the Interior

Workers’ 

Compensation

• Inefficient and ineffective management led to 

increases in annual costs. At best, program is 

managed inconsistently, and at worst, is subject 

to abuse by managers seeking an easy way to 

deal with problem employees. 

• Program is understaffed, employees lack 

training, and there is no uniform process for 

ensuring that costs are accurate. Also, there is 

an overwhelming lack of awareness that 

workers’ compensation fraud exists.

General 

Services 

Administration

Contract 

Management

• GSA disbursed almost $19 billion in contract 

payments for fiscal year 2005. Certain trends 

identified in recent years that cause concern 

related to contract management include

• limited project oversight and, at times, 

completed work projects not inspected prior to 

payment;

• payments made for services not provided; and

• invoices approved for payment, but lacked 

supporting documentation. 

Department of 

Justice

Grant Programs • Long-standing challenge to effectively manage 

grant programs, which totaled more than 

$3.5 billion in fiscal year 2005. Grantees have 

received unclear, untimely, and ambiguous 

guidance to carry out program objectives. 

• The myriad of policy guidance is often 

confusing and contradictory, increasing the risk 

that grantees will be less likely to satisfy their 

fiduciary responsibility to safeguard grant funds 

and ensure funds are used solely for the 

purposes for which they were awarded.

Social Security 

Administration

School Attendance • Agency disbursed about $70 million in incorrect 

payments to 32,839 students. The OIG 

recommended, and SSA agreed, to ensure that 

the overpayments are established and that 

subsequent collection activities are initiated for 

those payments. 
Page 41 GAO-07-92 Improper Payments

IPIA May Need to Be 

Amended to Ensure 

Agencies Fully Meet Its 

Objectives

IPIA includes broad criteria that agencies should use to annually assess 

what programs and activities are at risk of having improper payments. 

However, OMB has prescribed more specific criteria in its implementing 

guidance that in practice have the effect of limiting the disclosure and 

transparency of governmentwide improper payments. This limitation 

appears contrary to the objective of IPIA, which, among other things, was 

created to facilitate the Congress’s understanding of the nature and extent 

of the governmentwide improper payment problem and hold agencies 

accountable for improved management over federal funds. An amendment 

to the act could clarify the criteria that agencies should use to identify 

which programs and activities are susceptible to significant improper 

payments to ensure agencies meet the intent of the act. In addition, we note 

that the definition of improper payments under IPIA excludes certain types 

of payments that are required to be made under constitutional, statutory, or 

judicial requirements, even though those payments are subsequently 

determined to be incorrect. This includes payments that an agency is 

required to make under statute or court order that later are determined to 

be overpayments. Because agencies are not required to track, monitor, and 

report on a governmentwide basis these types of overpayments, the 

magnitude of this issue is unknown.

Identification Threshold 

Limits Agency Reporting on 

Susceptible Programs 

For purposes of assessing what programs and activities are at risk of 

improper payments, IPIA states that agency heads must review their 

agencies’ programs and activities to determine those that are susceptible to 

significant improper payments. The law does not define susceptibility. In its 

implementing guidance, OMB directed that a program or activity is 

susceptible to significant improper payments if it meets two criteria—

potential improper payments exceeding $10 million and 2.5 percent of 

program payments. Therefore, both criteria must be met for an agency to 

subject the program to the later steps requiring the agency to estimate 

improper payments and address the various improper payment reporting 

requirements. 

As stated earlier in this report, the information developed during a risk 

assessment forms the foundation 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. Thus, these assessment criteria affect how agencies identify, 

estimate, report on, and reduce those programs susceptible to significant 

improper payments. For example, of the 23 agencies that reported 
Page 42 GAO-07-92 Improper Payments

assessing all programs and activities, we found that 6 agencies limited their 

risk assessment reviews to only those programs that would likely meet 

OMB’s definition of programs susceptible to significant improper 

payments. Two of these 6 agencies reported that they did not perform a 

comprehensive risk assessment for those programs with outlays of less 

than $10 million because the programs would not have exceeded both of 

OMB’s threshold criteria. The remaining 4 agencies did not perform a 

comprehensive risk assessment of programs with outlays ranging from 

$40 million to $200 million, generally citing the threshold criteria as the 

reason for their exclusion.

We also noted instances where agencies with large program outlays 

reported that their programs or activities were not susceptible to 

significant improper payments because the improper payment estimates 

only exceeded one of OMB’s criteria for reporting improper payment 

information, another example of how OMB’s criteria could materially affect 

the extent to which agencies report improper payment information in their 

PARs. From our review of the 57 agency programs and activities that were 

included in the total $38 billion improper payment estimate, we identified 

20 programs or activities that reported improper payment estimates 

exceeding $10 million, but not 2.5 percent of program outlays. We also 

identified 1 program that reported an error rate exceeding 2.5 percent of 

program outlays, but not $10 million. See table 7 for additional details. 

Table 7: Agency Improper Payment Estimates Included in the Governmentwide Total That Met One of the Two OMB Reporting 

Criteria

Department or 

agency Program or activity

Program outlays 

(in millions)

Fiscal year 

2005 improper 

payment 

estimate 

(in millions)

Fiscal year 2005 

improper payment 

error rate 

(percentage)

Previous OMB 

Circular No. A-11 

reporting 

requirements

1 Department of 

Agriculture

Marketing Assistance 

Loan Program 

(previously Commodity 

Loan Programs) $6,400.0 $45 0.70 X

2 Federal Crop 

Insurance Corporation 3,170.0 28 0.89

3 Farm Security and 

Rural Investment 1,027.0 16 1.55

4 Department of 

Defense 

Military Retirement 

Fund 35,700.0 49.3 0.14 X
Page 43 GAO-07-92 Improper Payments

Source: GAO analysis of fiscal year 2005 PARs and annual reports.

a

Agency combined with the above program.

5 Military Health Benefits 7,500.0 150 2.00 X

6 Military Pay 69,100.0 432 0.63

7 Department of 

Education

Student Financial 

Assistance—Federal 

Family Education Loan 10,085.0 16 0.16

8 Title I 12,520.0 149 1.19 X

9 Department of 

Energy 

Payment programs

24,114.0 14.5 0.06

10 Department of Health 

and Human Services

Head Start

6,865.0 110 1.60 X

11 Office of Personnel 

Management

Retirement Program 

(Civil Service 

Retirement System 

and Federal 

Employees Retirement 

System) 54,800.0 152.2 0.28 X

12 Federal Employees 

Health Benefits 

Program 29,400.0 196.5 0.67 X

13 Railroad Retirement 

Board 

Retirement and 

Survivors Benefits 9,185.4 150.6 1.64 X

14 Small Business 

Administration 

Small Business 

Investment Companies 1,568.2 10.5 0.67 X

15 Social Security 

Administration 

Old Age and Survivors’ 

Insurance 493,300.0 3,681.0 0.74 X

16 Disability Insurancea X

17 Department of State International 

Information ProgramU.S. Speaker and 

Specialist Program 41.0 1.9 4.63

18 Tennessee Valley 

Authority

Payment programs

7,080.0 36.3 0.05

19 Department of 

Veterans Affairs

Compensation 

28,960.0 322.9 1.12 X

20 Dependency and 

Indemnity 

Compensationa X

21 Education programs 2,661.0 64 2.40

Total $803,476.6 $5,625.7 13

(Continued From Previous Page)

Department or 

agency Program or activity

Program outlays 

(in millions)

Fiscal year 

2005 improper 

payment 

estimate 

(in millions)

Fiscal year 2005 

improper payment 

error rate 

(percentage)

Previous OMB 

Circular No. A-11 

reporting 

requirements
Page 44 GAO-07-92 Improper Payments

As table 7 shows, we identified, in total, 21 programs or activities with 

improper payment estimates exceeding $5.6 billion that meet only one of 

OMB’s reporting criteria. Most of these program estimates greatly 

exceeded $10 million and, without certain stipulations, could have avoided 

reporting improper payment information under OMB’s reporting criteria. 

However, OMB has required that 13 of these 21 programs estimate 

improper payments regardless of dollar amount or error rate, because they 

had previous reporting requirements under OMB Circular No. A-11.44

Nonetheless, if the Circular No. A-11 requirements did not apply or 

agencies decided not to voluntarily report on their improper payment 

estimates that were under OMB’s reporting threshold, OMB’s definition of 

significant improper payments could potentially mask the full scope of 

improper payments. 

In addition to our analytical reviews above, we also found specific 

instances where OMB’s definition of significant improper payments limits 

agencies’ reporting. Although we do not know the extent of improper 

payments that are not reported, a limited number of agencies voluntarily 

provided information in their PARs that allowed us to determine the 

amount of improper payments for certain programs and activities that were 

excluded from the total improper payments estimate of $38 billion for fiscal 

year 2005. For example, Education identified three programs with 

estimated improper payments exceeding $10 million for each program, 

which totaled about $155 million in improper payments. In light of OMB’s 

criteria, because these estimates did not exceed 2.5 percent of program 

outlays, they were not included in the agency’s total improper payment 

estimate. In another example, the Department of Defense (DOD) OIG 

reported45 it had identified about $23 million in improper payments related 

to the procurement of fuel at the Defense Energy Support Center during 

fiscal year 2005. DOD did not report this information in its PAR since the 

improper fuel payments did not exceed 2.5 percent of program payments. 

As these examples illustrate, OMB’s current criteria for identifying risksusceptible programs limit the disclosure of valuable information that the 

Congress, the public, and others with oversight and monitoring interests 

need to hold agencies accountable for reporting and reducing improper 

44See footnote 10 of this report. 

45Department of Defense, Office of Inspector General, Financial Management: Improper 

Payments for Defense Fuel, D-2006-094 (Washington, D.C.: June 29, 2006).
Page 45 GAO-07-92 Improper Payments

payments. Thus, amending existing IPIA provisions to define risksusceptible programs and activities, such as the use of a specific dollar 

threshold, would allow for more complete disclosure and transparency of 

govermentwide improper payment reporting and, in turn, would require 

OMB to revise its implementing guidance to reflect such amendments as 

well as align existing guidance with the intent of the act. 

IPIA Definition of Improper 

Payments Excludes Certain 

Payments from Reporting 

IPIA defines an improper payment as a 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. This includes any payment to an ineligible 

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

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

for credit for applicable discounts.

On August 28, 2003, OMB advised SSA on improper payment reporting. 

Under this advice, SSA was allowed to exclude from its estimate of 

improper payments those payments that it made following constitutional, 

statutory, or judicial requirements, even though those payments were 

subsequently determined to be incorrect. These payments were deemed by 

OMB to be “unavoidable” improper payments,46 as there are no 

administrative changes SSA could implement that would eliminate such 

payments, nor would SSA be likely to receive other relief from such 

requirements.

As we previously reported,47 although the definition of improper payments 

does not use the terms avoidable48 or unavoidable, we agree with OMB that 

a payment that was made because of a legal requirement to make the 

payment subject to subsequent determinations that the payment is not due 

should not be included in an agency’s estimate of its improper payments. 

We agree with OMB’s conclusion not because it is an “unavoidable” 

46OMB defines “unavoidable” payments as payments resulting from legal or policy 

requirements.

47GAO, Post-Hearing Questions Related to Agency Implementation of the Improper 

Payments Information Act, GAO-05-1029R (Washington, D.C.: Sept. 16, 2005). 

48OMB defines “avoidable” payments as payments that could be reduced through changes in 

administrative actions.
Page 46 GAO-07-92 Improper Payments

payment but rather because it does not meet the definition of an improper 

payment under the act.49

In its Supplemental Security Income (SSI) program, SSA disburses 

disability payments to recipients at the beginning of the month based on 

the income and asset levels recipients expect to maintain during the 

month.50 If SSA initially determines that an overpayment occurred, court 

decisions51 and language in the Social Security Act allow individuals to 

continue receiving the same amount of SSI benefits pending the results of a 

hearing to determine eligibility. If the initial determination is affirmed, the 

payments made during the hearing and appeals processes are considered 

overpayments, which SSA may recover using a variety of means.52

In this example, SSA, because of the statutory requirement, must make the 

payment. The statute requires SSA to make the payment until applicable 

due process requirements result in a determination that the person is 

ineligible; therefore, the mandatory payments whether subsequently 

deemed to be correct or incorrect, have not been made to an ineligible 

recipient at the time they were made. Accordingly, the facts would not 

support inclusion of these overpayments as improper payments as defined 

under IPIA. However, if as a result of the due process procedures, it is 

subsequently determined that the recipient is no longer eligible for benefits 

and SSA makes a payment subsequent to these procedures, that amount 

would be an improper payment.

Yet, we would not go so far as to conclude that any payment that is 

unavoidable should not be included as an improper payment under IPIA. 

Rather, the exclusion of payments should be made individually on a factspecific basis using the definition provided in IPIA. In addition, we believe 

that agencies should track and monitor these types of payments as part of 

49Had we agreed with OMB’s characterization, we would disagree that such payments should 

be excluded from IPIA reporting. We find nothing in the act that excludes “unavoidable” 

payments from coverage.

50Some government programs pay benefits in advance under the assumption that the 

beneficiary’s circumstances, such as income and asset levels, will remain the same during 

the period for which payment was rendered.

51Cardinale v. Mathews, 399 F. Supp. 1163 (D.D.C. 1975), and Goldberg v. Kelly, 397 U.S. 254 

(1970).

5242 U.S.C. §§ 423(g)(2) and 404.
Page 47 GAO-07-92 Improper Payments

their debt collection efforts and have the ability to readily report this type 

of information upon request. OMB currently does not require SSA to report 

in its PAR details relating to these types of overpayments, nor does OMB 

require governmentwide reporting of these types of overpayments, thus the 

magnitude of this issue is unknown. Having agencies annually report on 

these types of overpayments would provide Congress, agency 

management, and other decision maker’s valuable information with which 

to determine the extent of these types of overpayments and to make policy 

decisions, if needed, to appropriately address this issue.

Agencies’ Reporting of 

Recovery Auditing 

Information 

Questionable 

We noted discrepancies in selected agencies’ reporting of recovery audit 

information and limited reviews over contract payments. As a result, 

reporting for recovery auditing information may not represent an accurate 

view of the extent of agencies’ efforts. From our review of agencies’ PARs 

and discussions with OMB, we determined that 21 agencies reported 

entering into contracts with a total value in excess of $500 million and, thus 

were subject to recovery auditing requirements under section 831 of the 

National Defense Authorization Act for Fiscal Year 2002. Generally, these 

agencies reported on their recovery auditing efforts, such as the amount 

identified for recovery and the amount recovered. However, we noted a few 

instances where the agency amount of contract costs identified for 

recovery was considerably lower than the corresponding OIG amount 

identified from current year audit reviews. These discrepancies raise 

questions as to whether the agency amount identified for recovery should 

have been much higher, thereby significantly decreasing the reported 

agency-specific and overall governmentwide high rate of recovery. We also 

noted that 5 of the 21 agencies did not review all of their agency 

components as part of their recovery audit efforts, and 2 agencies reported 

that recovery auditing was not cost beneficial. 

Section 831 of the National Defense Authorization Act provides an impetus 

for applicable agencies to systematically identify and recover contract 

overpayments. 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, are to be credited back to the original appropriation from which the 

improper payment was made, subject to restrictions as described in 
Page 48 GAO-07-92 Improper Payments

legislation. As we previously testified,53 with the passage of this law, the 

Congress has provided agencies a much-needed incentive for identifying 

and recovering their improper payments that slip through agency 

prepayment controls.

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. 

Nonetheless, 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 to pay bills and provide benefits properly in the 

first place. 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. 

For fiscal year 2005, OMB expanded the type of recovery auditing 

information that agencies are to report in their annual PARs. Prior to fiscal 

year 2005, agencies were only required to report on the amount of 

recoveries expected, the actions taken to recover them, and the business 

process changes and internal controls instituted or strengthened to prevent 

further occurrences. In addition, OMB was not reporting on a 

governmentwide basis agencies’ recovery audit activities in its annual 

report on agencies’ efforts to improve the accuracy and integrity of federal 

payments. In fiscal year 2005, OMB required applicable agencies to discuss 

53GAO, Financial Management: Challenges Remain in Addressing the Government’s 

Improper Payments, GAO-03-750T (Washington, D.C.: May 13, 2003).
Page 49 GAO-07-92 Improper Payments

any contract types excluded from review and justification for doing so. In 

addition, agencies were required to report, in a standard 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. 

As shown in table 8, 21 agencies reported over $340 billion as amounts 

subject to review for fiscal year 2005, while the contract amounts reviewed 

totaled over $287 billion. In addition, the 21 agencies reported identifying 

about $557 million in contracts for recovery, which represented less than 

two-tenths of a percentage of the $287 billion amount reviewed. Of the 

$557 million identified, agencies reported recovering $467 million in 

improper payments, an 84 percent recovery rate. However, we found two 

instances where the agency amount of contract costs identified for 

recovery was considerably lower than the corresponding OIG amount 

identified from current year audit reviews. These discrepancies raise 

questions as to whether the agency amount identified for recovery should 

have been much higher, thereby significantly decreasing the agencyspecific and overall high rate of recovery. 

Table 8: Improper Payment Amounts Recovered in Fiscal Year 2005

Department or agency

Agency reported 

amount subject to 

review for fiscal year 

2005 reporting

Agency reported 

actual amount 

reviewed and reported 

in fiscal year 2005

Agency reported 

amount identified for 

recovery in fiscal 

year 2005

Agency reported 

amount recovered 

in fiscal year 2005

1 Agency for International 

Development $13,000,000,000 $13,000,000,000 $5,900,000 $5,782,000 

2 Department of Agriculture 4,965,000,000 2,428,000,000 333,000 189,000

3 Department of Commercea,b Did not report Did not report 96,354 84,551

4 Department of Defense 222,800,000,000 222,800,000,000 473,000,000 418,500,000

5 Department of Educationb Did not report Did not report 274,367c 112,506c

6 Department of Energy 11,387,000,000 11,387,000,000 10,600,000 9,500,000

7 Environmental Protection 

Agency 6,460,000,000 175,600,000 130,000 130,000

8 General Services 

Administration 1,625,000,000 1,625,000,000 26,638,654 8,317,187

9 Department of Health and 

Human Services 12,600,000,000 11,100,000,000 2,100,000d 14,430

10 Department of Homeland 

Security 3,232,300,000 3,232,300,000 2,191,000 1,207,000
Page 50 GAO-07-92 Improper Payments

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

a

Department of Commerce (Commerce) reported that the results of its recovery audit revealed no 

significant improper payments or internal control deficiencies. However, according to OMB, 

subsequent to its PAR issuance, Commerce reported that based on its final recovery auditing report, 

the amount identified for recovery totaled $96,354 and the amount actually recovered totaled $84,551 

for fiscal year 2005.

b

Commerce, Education, HUD, Interior, Labor, and NASA did not report on the required reporting 

elements nor did they follow the required format included in OMB’s guidance. 

c

Subsequent to its PAR issuance, Education reported to OMB that as of December 14, 2005, $274,387 

had been identified for recovery, and the amount collected totaled $112,506 based on its review of 

payments made over a 5-year period, with a collection threshold of $50.

d

HHS reported that of the $2.1 million identified as potential improper payments, $1.3 million was 

determined to be related to payments that were either voided, subsequently credited, or both. 

e

HUD and Labor reported that recovery auditing efforts were not cost beneficial. 

f

For fiscal year 2005, HUD reported reviewing about $207 million in contract payments, but identified 

no improper payments for recovery.

g

For the amount reviewed column, the Department of State reported the number of contract payments 

reviewed instead of the contract dollar amount reviewed.

For example, for fiscal year 2005, NASA reported in its PAR that it had 

identified and recovered $617,442 in contract payments, a 100 percent 

recovery rate. Yet, the NASA OIG reported54 it had identified over 

$515 million in questioned contract costs during fiscal year 2005. Of this 

amount, NASA management decided that $51 million in contract costs 

11 Department of Housing and 

Urban Developmentb,e 2,270,000,000 206,600,000 0f 0f

12 Department of the Interiorb 4,790,000,000 4,790,000,000 1,548,620 195,479

13 Department of Justice 6,667,804,071 4,606,639,213 1,044,320 765,086

14 Department of Laborb,e Did not report Did not report Did not report Did not report

15 National Aeronautics and 

Space Administrationb Did not report 82,542,704 617,442 617,442

16 Social Security 

Administration 1,160,000,000 61,000,000 317,000 50,000

17 Department of Stateg 30,600,000,000 Did not report 5,350,000 5,190,000

18 Tennessee Valley Authority 5,557,600,558 38,491,498 909,573 443,763

19 Department of 

Transportation 3,064,875,000 2,587,772,000 2,663,984 2,663,984

20 Department of the Treasury 4,941,295,411 3,851,985,924 428,977 364,680

21 Department of Veterans 

Affairs 5,368,316,378 5,368,316,378 23,001,137 12,957,264

Total $340,489,191,418 $287,341,247,717 $557,144,428 $467,084,372 

(Continued From Previous Page)

 Department or agency

Agency reported 

amount subject to 

review for fiscal year 

2005 reporting

Agency reported 

actual amount 

reviewed and reported 

in fiscal year 2005

Agency reported 

amount identified for 

recovery in fiscal 

year 2005

Agency reported 

amount recovered 

in fiscal year 2005
Page 51 GAO-07-92 Improper Payments

should be pursued for recovery. When comparing the $51 million in 

questioned contract costs identified for recovery to the $617,442 NASA 

actually recovered, the recovery rate decreases from the reported 100 

percent recovery rate to a 1.2 percent rate.55 In another example, DOD 

reported in its PAR that it had identified for recovery $473 million and 

recovered about $419 million in contract payments, an 89 percent recovery 

rate. However, the DOD OIG reported56 it had identified over $2 billion in 

questioned contract costs as of September 30, 2005. When comparing the 

$2 billion in questioned contract costs57 to the $419 million DOD actually 

recovered, the recovery rate significantly decreases from a reported 89 

percent recovery rate to 21 percent. 

These two discrepancies alone significantly decrease OMB’s reported 

overall recovery rate of 84 percent to a 22 percent recovery rate. Other 

factors would also suggest the recovery rate is indeed much lower. We 

noted other instances where OIG-reported questioned costs exceeded 

agency contract amounts identified for recovery. Because these costs were 

not specifically identified as contractor costs versus other payment types, 

we were unable to determine how much of the OIG-identified questioned 

costs related to contract costs. 

54National Aeronautics and Space Administration, Office of Inspector General, Semi-Annual 

Reports October 1, 2004-March 31, 2005 and April 1-September 30, 2005 (Washington, 

D.C.).

55We found that the recovery rate could have been higher than the 1.2 percent calculation 

had we solely used the OIG reported amounts regarding the universe of questioned contract 

costs and subsequent amounts recovered. Specifically, the OIG reported that of the 

$51 million in questioned contract costs decided by NASA management, $16 million had 

been recovered. This results in a recovery rate of about 31 percent. While this recovery rate 

is higher than our calculated 1.2 percent recovery rate, it is still significantly lower than the 

100 percent recovery rate reported by NASA in its PAR.

56Department of Defense, Office of Inspector General, Semi-Annual Reports October 1, 

2004-March 31, 2005 and April 1-September 30, 2005 (Washington, D.C.).

57The OIG reported that the $2 billion in contract costs were deemed questionable because 

they did not comply with rules, regulations, laws, contractual terms, or a combination of 

these. Thus, we used the entire $2 billion to illustrate the disparity between what the OIG 

and agency reported.
Page 52 GAO-07-92 Improper Payments

In addition, another factor that may call into question the reported high 

recovery rate is that 5 of the 21 agencies did not review all of their agency 

components as part of their recovery audit efforts, and 2 agencies58

reported that recovery auditing was not cost beneficial. For example, HUD 

determined that based on its review of $206.6 million in contract payments, 

none were found to be improper. Thus, HUD determined that pursuit of an 

ongoing recovery auditing program was not cost beneficial or necessary. 

Because section 831 of the National Defense Authorization Act requires 

agencies to carry out a cost-effective program for identifying errors made 

in paying contractors and for recovering amounts erroneously paid to 

contractors, agencies have determined that they may opt out of conducting 

a recovery audit if it is not deemed to be cost beneficial. However, neither 

of the two agencies that determined it was not cost beneficial to conduct a 

recovery audit provided support in their fiscal year 2005 PARs for this 

determination.

Conclusions Improper payments are a serious problem. Agencies are working on this 

issue at different paces, and OMB has provided important leadership. 

Because the extent of the problem remains significantly understated, the 

level of effort necessary to address the full extent of improper payments is 

as yet unknown. We recognize that measuring improper payments and 

designing and implementing actions to reduce them are not simple tasks 

and will not be easily accomplished. The ultimate success of the executive 

branch’s effort to reduce improper payments depends, in part, on each 

agency’s continuing diligence and commitment to meeting the 

requirements of IPIA and the related OMB guidance. Full and reasonable 

disclosure of the extent of the problem could be enhanced by modifying the 

act’s underlying criteria used to identify which programs and activities are 

susceptible to significant improper payments. OMB’s implementing 

guidance can also be strengthened in several key areas. In this regard, in 

addition to the recommendations in this report, we reiterate that OMB 

require those agencies that did not address the IPIA requirements or did 

not perform risk assessments of all of their programs and activities to 

establish time frames and identify resources needed to perform risk 

assessments and satisfy reporting requirements. We also reiterate that 

OMB develop a plan to address the resource needs of those agencies that 

did not perform risk assessments or satisfy reporting requirements. With 

58HUD and Labor reported that recovery auditing efforts were not cost beneficial. 
Page 53 GAO-07-92 Improper Payments

the ongoing imbalance between revenues and outlays across the federal 

government, and the Congress’s and the American public’s increasing 

demands for accountability over taxpayer funds, identifying, reducing, and 

recovering improper payments become even more critical. Fulfilling the 

requirements of IPIA will require sustained attention to implementation on 

the part of OMB and the agencies, as well as continued congressional 

oversight to monitor whether desired results are being achieved.

Matter for 

Congressional 

Consideration

To help ensure the complete disclosure and transparency of 

governmentwide improper payments, the Congress should consider 

amending existing IPIA provisions to define specific criteria, such as a 

dollar threshold, agencies should use to identify which programs and 

activities are susceptible to significant improper payments.

Recommendations for 

Executive Action

We are making four recommendations to OMB to help further the progress 

toward meeting the goals of IPIA and ensuring the integrity of payments. 

Specifically, we recommend that the Director, Office of Management and 

Budget,

• expand OMB’s IPIA implementing guidance to describe in greater detail 

• factors that agencies should consider when conducting their annual 

risk assessments, such as program complexity, operational changes, 

findings from investigative reports, and financial statement and 

performance audit reports, and 

• factors agencies should use when reporting improper payments in 

their PARs, such as (1) provide a baseline of what agencies should 

include when reporting on causes, corrective actions, and manager 

accountability and (2) require that applicable agencies cite the 

specific law or regulation in their PARs when describing statutory 

barriers that may limit the agencies’ corrective actions for reducing 

improper payments; 

• enforce existing guidance requiring agencies to use a statistically valid 

sampling methodology to calculate improper payment estimates;

• gather from agencies the dollar amount of payments that agencies make 

under statute or judicial determinations that later are determined to be 
Page 54 GAO-07-92 Improper Payments

overpayments in order for OMB to assess and determine the magnitude 

of the issue and whether additional reporting is warranted; and

• modify existing guidance to require those agencies stating that recovery 

auditing over contract payments is not cost beneficial to include their 

rationale for this determination. 

Agency Comments and 

Our Evaluation

We received written comments on a draft of this report from OMB, and 

have reprinted them in appendix IV. OMB generally agreed with our 

recommendations and also agreed with our assessment that challenges 

remain in meeting the goals of IPIA. In its comments, OMB emphasized that 

progress in estimating and reporting improper payments had been made by 

agencies in fiscal year 2005 and highlighted initiatives underway to 

measure improper payments in other programs susceptible to significant 

improper payments. OMB pointed out that agencies estimated improper 

payments for 17 additional programs for fiscal year 2005, and that this 

number will increase by 10 programs for fiscal year 2006. OMB also said 

that beginning with fiscal year 2007, it expects HHS to begin reporting 

component error rates for its Medicaid, Temporary Assistance for Needy 

Families, and State Children’s Health Insurance programs.

OMB stated that there has been substantial progress in that 85 percent of 

the cost for the programs identified as high risk ($1.3 trillion of the 

$1.5 trillion) reported an error measurement rate for fiscal year 2005. While 

we agree with OMB that there has been progress, as discussed in this 

report, we continue to question the validity of certain agencies’ risk 

assessment methodologies used to identify, estimate, and report improper 

payments for all risk susceptible programs and are concerned with how 

OMB defines high risk programs for purposes of agencies’ improper 

payment reporting. OMB’s definition of programs susceptible to significant 

improper payments covers only those agencies with programs that exceed 

the criteria of 2.5 percent of program outlays and $10 million to estimate 

improper payments. Our continuing concern with OMB’s criteria relates to 

those agencies with large program outlays that have improper payment 

estimates that exceed the $10 million threshold but not the 2.5 percent of 

program payments threshold. Applying the 2.5 percent threshold criteria to 

large programs could exclude potentially billions of dollars of improper 

payments from being reported. 

According to OMB, the rationale for its threshold criteria is to ensure that 

agencies focus their resources on programs with the highest levels of risk 
Page 55 GAO-07-92 Improper Payments

for improper payments. OMB commented that going forward, it is now 

requiring agencies to track any programs that exceed the $10 million 

threshold, but have an error rate of less than 2.5 percent. OMB stated that 

this tracking facilitates a framework that would appropriately mitigate the 

risk that high risk programs will be left out of IPIA reporting activities. We 

view this as a positive step. Although OMB’s recently revised implementing 

guidance was outside the scope of this review, our preliminary assessment 

found no mention of this tracking requirement. The guidance does state 

that OMB may determine on a case-by-case basis that certain programs that 

do not meet the threshold requirements may still be subject to the annual 

PAR improper payment reporting requirement. In light of OMB’s stated 

intention to require agencies to track such programs, we believe it is key 

that the revised implementing guidance clearly reflects this tracking 

requirement and that agencies be required to publicly report this 

information as part of their annual improper payments reporting. Visibility 

of this type of information would help facilitate the Congress’s 

understanding of the nature and extent of the governmentwide improper 

payments problem. To this end, we included a matter for congressional 

consideration to amend IPIA to eliminate any uncertainties regarding the 

identification of programs and activities that are susceptible to significant 

improper payments.

In its comments, OMB also mentioned that alternative sampling 

methodologies for deriving program component error rates are acceptable 

interim error measurements for select programs until comprehensive 

statistical estimates are completed. We would consider this a pragmatic 

approach for working with agencies to determine and implement 

appropriate and evolving methodologies for improving the sophistication 

of improper payment estimates for these programs. Realistically, larger, 

complex agency programs may require additional time to plan and 

implement actions to fully measure their improper payments, such as the 

programs cited by OMB as using alternative methodologies—Earned 

Income Tax Credit and National School Lunch and Breakfast—as well as 

initiating reporting of component error rates in the future—Medicaid, 

Temporary Assistance for Needy Families, and State Children’s Health 

Insurance Program. It will be important that agencies make good use of 

this additional time. OMB had specifically required a number of agencies 

just now starting to report or planning to do so shortly, to report selected 

improper payment information since 2002, several years before the 

legislative reporting requirements in IPIA became effective. Until agencies 

begin to fully measure and report improper payments for these large 
Page 56 GAO-07-92 Improper Payments

programs, the extent of the problem and level of effort necessary to control 

these losses are as yet unknown.

We are sending copies of this report to the Director, Office of Management 

and Budget; appropriate congressional committees; and other interested 

parties. We will also make copies available to others upon request. In 

addition, the report is available at no charge on GAO’s Web site at 

http://www.gao.gov. 

Please contact me at (202) 512-9095 or williamsm1@gao.gov if you or your 

staffs have any questions about this report. Contact points for our Offices 

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

page of this report. Major contributors to this report are listed in 

appendix V.

McCoy Williams

Director, Financial Management and Assurance
Page 57 GAO-07-92 Improper Payments

List of Requesters

The Honorable Tom Coburn

Chairman

The Honorable Tom Carper

Ranking Minority Member

Subcommittee on Federal Financial Management, 

Government Information, and International Security

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Tom Davis

Chairman

Committee on Government Reform

House of Representatives

The Honorable Todd Platts

Chairman

Subcommittee on Government Management, Finance 

and Accountability

Committee on Government Reform

House of Representatives
Page 58 GAO-07-92 Improper Payments

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

The objectives of this report were to determine (1) the extent to which 

agencies have included required improper payment information in their 

performance and accountability reports (PAR), (2) the annual improper 

payment estimate reported by agencies for fiscal year 2005, (3) whether the 

definition and types of improper payments reported in the Improper 

Payments Information Act of 2002 (IPIA) and the Office of Management 

and Budget’s (OMB) implementing guidance provide adequate disclosure of 

the extent of improper payments at the agencies, and (4) the reported 

amount of improper payments recouped through recovery audits. The 

scope of our review included the 35 federal agencies1

 that the Department 

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

consolidated financial statements. 

To address the above objectives, we reviewed improper payment 

information reported by the 35 agencies in their fiscal year 2005 PARs or 

annual reports. We further reviewed and analyzed the provisions of IPIA 

and OMB’s implementing guidance, as well as OMB’s annual report2

 on the 

results of agency-specific reports, significant findings, agency 

accomplishments, and remaining challenges. We contacted OMB officials 

for clarification of reported information as needed. We also reviewed office 

of inspector general (OIG) reports, prior GAO reports, and other publicly 

available documents for reported improper payments information, 

including identifying agency reported improper or potentially fraudulent 

payments related to hurricanes Katrina and Rita. In addition, we utilized 

the results from our recent testimonies3

 on agencies challenges’ in meeting 

IPIA reporting requirements.

As part of our review and analysis of agencies’ reported improper payment 

information in their fiscal year 2005 PARs or annual reports, we 

1

See Treasury Financial Manual, vol. 1, part 2, ch. 4700. A list of 35 agencies is included in 

app. II.

2

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

Payments (Washington, D.C.: Feb. 2, 2006).

3

GAO, Financial Management: Challenges Continue in Meeting Requirements of the 

Improper Payments Information Act, GAO-06-581T (Washington, D.C.: Apr. 5, 2006), and 

Financial Management: Challenges Remain in Meeting Requirements of the Improper 

Payments Information Act, GAO-06-482T (Washington, D.C.: Mar. 9, 2006).
Appendix I

Objectives, Scope, and Methodology

Page 59 GAO-07-92 Improper Payments

• determined whether agencies’ had reviewed all programs and activities 

for risk-susceptible programs and reviewed details of agencies’ riskassessment methodologies when reported;

• identified program improper payment estimates, including error 

amounts and error rates, a breakdown of overpayments and 

underpayments, and program outlays;

• identified agencies’ sampling methodologies used to estimate program 

improper payments; 

• determined the extent and level of detail agencies reported on key 

improper payment reporting elements, including manager 

accountability, causes of improper payments, corrective actions, and 

statutory barriers;

• conducted an analysis of OMB’s assessment criteria—exceeding 

$10 million in improper payments and 2.5 percent of program outlays—

to identify programs that met only one of OMB’s criteria and thus would 

not be required to estimate and report improper payment information 

based on these criteria alone; 

• analyzed OIG-reported major management challenges for various 

programs and activities; and

• analyzed the amount of improper payments recouped through agencies’ 

recovery audit activities.

We did not independently validate the data that agencies reported in their 

PARs or annual reports or the data that OMB reported. We are providing 

the agency-reported data as descriptive information that will inform 

interested parties about the magnitude of governmentwide improper 

payments and other related information. We believe the data to be 

sufficiently reliable for that purpose. We requested comments on a draft of 

this report from the Director of the Office of Management and Budget or 

his designee. Written comments were received from the Controller, OMB, 

dated October 26, 2006. OMB’s comments are reprinted in appendix IV. We 

conducted our work from April 2006 through September 2006 in 

accordance with generally accepted government auditing standards.
Page 60 GAO-07-92 Improper Payments

Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports ApendxiI

Dollars in millions

Department or 

agency Program or activity

2004 

Total 

estimate

2004 

Error rate

2005 

Total 

estimate

2005 

Error rate

Previous OMB 

Circular No. A11 reporting 

requirements

1. Agency for 

International 

Development 

1. All programs and 

activities

0.0a 0.0a 0.0a 0.0a

2. Department of 

Agriculture

2. Marketing Assistance 

Loan Program 

(previously Commodity 

Loan Programs)

0.0a 0.0a 45.0 0.7 X

 3. Food Stamp Program $1,400.0b 6.6b 1,432.0 5.9 X

 4. School Programsc 0.0 0.0 0.0 0.0 X

 5. Women, Infants, and 

Childrenc

0.0 0.0 0.0 0.0 X

 6. Child and Adult Care 

Food Programc

0.0 0.0 0.0 0.0

 7. Wildland Fire 

Suppression 

Management

0.0a 0.0a 73.0 3.7

 8. Rental Assistance 

Program

20.0b 2.6b 27.0 3.2

 9. Federal Crop Insurance 

Corporation

125.0 5.0 28.0 0.9

 10. Farm Security and 

Rural Investment

0.0a 0.0a 16.0 1.6

 11. Milk Income Loss 

Contract Program

0.0a 0.0a 0.2 0.1

 12. Loan Deficiency 

Payments

0.0a 0.0a 5.0 1.0

3. Department of 

Commerce 

13. All programs and 

activitiesd

0.0 0.0 0.0 0.0

4. Department of 

Defense 

14. Military Retirement 

Fund

66.0b 0.2b 49.3 0.1 X

 15. Military Health Benefits 99.6b 1.3b 150.0 2.0 X

 16. Military Pay 0.0a 0.0a 432.0 0.6

5. Department of 

Education

17. Student Financial 

Assistance—Pell 

Grantse

571.0b 4.5b 617.0 4.5 X

 18. Student Financial 

Assistance—Federal 

Family Education Loane

10.0b 0.2b 16.0 0.2
Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports

Page 61 GAO-07-92 Improper Payments

19. Title I 0.0a 0.0a 149.0 1.2 X

6. Department of 

Energy 

20. Payment programs 20.3 0.1 14.5 0.1

7. Environmental 

Protection Agency

21. Clean Water State 

Revolving Funds

10.3 0.5 3.1 0.2 X

 22. Drinking Water State 

Revolving Funds

0.0f 0.0f 0.0f 0.0f X

8. Export-Import Bank 

of the United 

Statesg

23. All programs and 

activities

0.0 0.0 0.0 0.0

9. Farm Credit System 

Insurance 

Corporationg

24. All programs and 

activities

0.0 0.0 0.0 0.0

10. Federal 

Communications 

Commission

25. Universal Service 

Fund’s Schools and 

Librariesc

0.0 0.0 0.0 0.0

 26. High Cost Support 

Programc

0.0 0.0 0.0 0.0

11. Federal Deposit 

Insurance 

Corporationg

27. All programs and 

activities

0.0 0.0 0.0 0.0

12. General Services 

Administration

28. All programs and 

activitiesd

0.0 0.0 0.0 0.0

13. Department of 

Health and Human 

Services

29. Medicaidc 0.0 0.0 0.0 0.0 X

 30. Medicare 21,700.0 10.1 12,100.0 5.2 X

 31. Head Start 255.0 3.9 110.0 1.6 X

 32. Temporary Assistance 

for Needy Familiesc

0.0 0.0 0.0 0.0 X

 33. Foster Care—Title IV-E 186.0b 10.3b 182.0 10.0 X

 34. State Children’s 

Insurance Programc

0.0 0.0 0.0 0.0 X

 35. Child Care and 

Development Fundc

0.0 0.0 0.0 0.0 X

14. Department of 

Homeland Security

36. All programs and 

activitiesd

0.0 0.0 0.0 0.0

15. Department of 

Housing and Urban 

Development 

37. Low Income Public 

Housing

356.0 10.4 326.0h 5.6 X

(Continued From Previous Page)

Dollars in millions

Department or 

agency Program or activity

2004 

Total 

estimate

2004 

Error rate

2005 

Total 

estimate

2005 

Error rate

Previous OMB 

Circular No. A11 reporting 

requirements
Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports

Page 62 GAO-07-92 Improper Payments

 38. Section 8-Tenant Based 840.0 6.3 551.0h 0.0f X

 39. Section 8- Project 

Based

511.0 6.6 324.0h 0.0f X

 40. Community 

Development Block 

Grant (Entitlement 

Grants, States/Small 

Cities)c

0.0 0.0 0.0 0.0 X

 41. Federal Housing 

Administration’s Single 

Family Acquired Asset 

Management System

26.1 6.8 2.2 0.6

 42. Public Housing Capital 

Fund

0.0a 0.0a 133.5 5.1

16. Department of the 

Interior

43. All programs and 

activitiesd

0.0 0.0 0.0 0.0

17. Department of 

Justice

44. All programs and 

activitiesd

0.0 0.0 0.0 0.0

18. Department of 

Labor 

45. Unemployment 

Insurance

3,861.0 10.3 3,267.0 10.1 X

 46. Federal Employees’ 

Compensation Act 

6.4 0.3 3.3 0.1 X

 47. Workforce Investment 

Act

0.0a 0.0a 7.9 0.2 X

19. National 

Aeronautics and 

Space 

Administration

48. All programs and 

activitiesd

0.0 0.0 0.0 0.0

20. National Credit 

Union 

Administrationg

49. All programs and 

activities

0.0 0.0 0.0 0.0

21. National Science 

Foundation 

50. Research and 

Education Grants and 

Cooperative 

Agreements

4.4 0.1 1.1 0.0i X

22. Nuclear Regulatory 

Commission

51. All programs and 

activitiesd

0.0 0.0 0.0 0.0

23. Office of Personnel 

Management

52. Retirement Program 

(Civil Service 

Retirement System and 

Federal Employees 

Retirement System)

197.7 0.4 152.2 0.3 X

(Continued From Previous Page)

Dollars in millions

Department or 

agency Program or activity

2004 

Total 

estimate

2004 

Error rate

2005 

Total 

estimate

2005 

Error rate

Previous OMB 

Circular No. A11 reporting 

requirements
Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports

Page 63 GAO-07-92 Improper Payments

 53. Federal Employees 

Health Benefits 

Program 

86.1 0.3 196.5 0.7 X

 54. Federal Employees 

Group Life Insurance 

2.1 0.2 2.0 0.2 X

24. Pension Benefit 

Guaranty 

Corporationg

55. All programs and 

activities

0.0 0.0 0.0 0.0

25. U.S. Postal Serviceg 56. All programs and 

activities

0.0 0.0 0.0 0.0

26. Railroad 

Retirement Board 

57. Retirement and 

Survivors Benefits 

147.9b 1.6b 150.6 1.6 X

 58. Railroad 

Unemployment 

Insurance Benefits 

2.6b 2.1b 2.3 2.1 X

27. Securities and 

Exchange 

Commission

59. All programs and 

activitiesd

0.0 0.0 0.0 0.0

28. Small Business 

Administration 

60. 7(a) Business Loan 

Program

0.0a 0.0a 31.4 5.2 X

 61. 504 Certified 

Development 

Companies

0.0a 0.0a 0.0a 0.0a X

 62. Disaster Assistance 1.1 0.1 1.6 0.1 X

 63. Small Business 

Investment Companies

129.0 4.7 10.5 0.7 X

29. Smithsonian 

Institutiong

64. All programs and 

activities

0.0 0.0 0.0 0.0

30. Social Security 

Administration 

65. Old Age and Survivors’ 

Insurance

1,707.0 0.3 3,681.0 0.7 X

 66. Disability Insurance 0.0f 0.0f 0.0f 0.0f X

 67. Supplemental Security 

Income Program

2,639.0 7.3 2,910.0 7.7 X

31. Department of 

State

68. International Narcotic 

and Law Enforcement 

Affairs-Narcotics 

Program

1.7 0.9 0.6 0.0i

 69. International 

Information ProgramU.S. Speaker and 

Specialist Program

1.4 81.2 1.9 81.2

(Continued From Previous Page)

Dollars in millions

Department or 

agency Program or activity

2004 

Total 

estimate

2004 

Error rate

2005 

Total 

estimate

2005 

Error rate

Previous OMB 

Circular No. A11 reporting 

requirements
Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports

Page 64 GAO-07-92 Improper Payments

Source: GAO analysis of cited agencies’ fiscal year 2005 PARs or annual reports.

a

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

b

Fiscal year 2004 estimates or error rates were updated to the revised estimates reported in the fiscal 

year 2005 PARs.

c

See table 5 of this report.

d

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

e

Student Financial Assistance—Pell Grants and Federal Family Education Loan are combined together 

as Student Financial Assistance in OMB Circular No. A-11, former section 57.

f

Agency combined with the above program.

g

Agency did not address improper payments or IPIA requirements in its fiscal year 2005 PAR or annual 

report.

 70. Vendor payments 0.8 2.0 0.4 0.0i

 71. Structures and 

Equipment

0.3b 4.0b 0.2 0.0i

32. Tennessee Valley 

Authority

72. Payment programs 8.1 0.0i 36.3 0.5

33. Department of 

Transportation 

73. Airport Improvement 

Program

0.0j 0.0j 0.0j 0.0j X

 74. Highway Planning and 

Construction

0.0j 0.0j 0.0j 0.0j X

 75. Federal Transit—

Capital Investment 

Grants

0.0j 0.0j 0.0j 0.0j X

 76. Federal Transit—

Formula Grants

0.0j 0.0j 0.0j 0.0j X

34. Department of the 

Treasury

77. Earned Income Tax 

Credit

10,300.0b 25.5 b 10,500.0 25.5 X

35. Department of 

Veterans Affairs

78. Compensation 302.4b 1.2b 322.9 1.1 X

 79. Dependency and 

Indemnity 

Compensation

0.0f 0.0f 0.0f 0.0f X

 80. Education programs 70.0b 3.0b 64.0 2.4

 81. Pension 280.7b 8.3b 261.0 7.9 X

 82. Insurance programs 0.3b 0.0b,i 0.3 0.0i X

 83. Loan Guaranty 6.3 0.5 4.2 0.4

 84. Vocational 

Rehabilitation

9.5 1.7 9.8 1.6

 Total $45,962.1 $38,404.8 46

(Continued From Previous Page)

Dollars in millions

Department or 

agency Program or activity

2004 

Total 

estimate

2004 

Error rate

2005 

Total 

estimate

2005 

Error rate

Previous OMB 

Circular No. A11 reporting 

requirements
Appendix II

Improper Payment Estimates Reported in 

Agency Fiscal Year 2004 and 2005 PARs or 

Annual Reports

Page 65 GAO-07-92 Improper Payments

h

An additional $266 million of improper payments exist for these three programs. In its PAR, the 

Department of Housing and Urban Development (HUD) did not provide a breakout of this amount 

among the three programs.

i

Agency reported error rate was less than 1 percent or reported error rate rounded to zero for purposes 

of this report.

j

Agency reported that the annual improper payment amount or error rate was zero.
Page 66 GAO-07-92 Improper Payments

Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports ApendxiI

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate

1. Agency for 

International 

Development 

1. All programs and 

activities

$8,275.5a 0.0b 0.0b 0.0b 0.0b 0.0b 0.0b

2. Department of 

Agriculture

2. Marketing 

Assistance Loan 

Program 

(previously 

Commodity Loan 

Programs)

6,400.0 45.0 0.7 45.0 0.7 0.0c 0.0c

 3. Food Stamp 

Program

24,358.0 1,432.0d 5.9 1,091.2 4.5 341.0 1.4

 4. School Programse 8,187.0 0.0 0.0 0.0 0.0 0.0 0.0

 5. Women, Infants, 

and Childrene

4,812.0 0.0 0.0 0.0 0.0 0.0 0.0

 6. Child and Adult 

Care Food 

Programe

2,061.0 0.0 0.0 0.0 0.0 0.0 0.0

 7. Wildland Fire 

Suppression 

Management

1,980.0 73.0d 3.7 55.2 2.8 18.0 0.9

 8. Rental Assistance 

Program

846.0 27.0 3.2 17.5 2.1 9.5 1.1

 9. Federal Crop 

Insurance 

Corporation

3,170.0 28.0f 0.9f 0.0 0.0 0.0 0.0

 10. Farm Security and 

Rural Investment

1,027.0 16.0d 1.6 14.8 1.4 1.1 0.1

 11. Milk Income Loss 

Contract Program

245.0 0.2 0.1 0.2 0.1 0.0c 0.0c

 12. Loan Deficiency 

Payments

453.0 5.0 1.0 5.0 1.0 0.0c 0.0c

3. Department of 

Commerce 

13. All programs and 

activitiesg

9,126.8a 0.0 0.0 0.0 0.0 0.0 0.0

4. Department of 

Defense 

14. Military Retirement 

Fund

35,700.0 49.3f 0.1f 0.0 0.0 0.0 0.0

 15. Military Health 

Benefits

7,500.0 150.0f 2.0f 0.0 0.0 0.0 0.0

 16. Military Pay 69,100.0 432.0f 0.6f 0.0 0.0 0.0 0.0
Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports

Page 67 GAO-07-92 Improper Payments

5. Department of 

Education

17. Student Financial 

Assistance—Pell 

Grantsh

12,602.0 617.0f 4.5f 0.0 0.0 0.0 0.0

18. Student Financial 

Assistance—

Federal Family 

Education Loanh

10,085.0 16.0f 0.2f 0.0 0.0 0.0 0.0

 19. Title I 12,520.0 149.0f 1.2f 0.0 0.0 0.0 0.0

6. Department of 

Energy 

20. Payment programs 24,114.0 14.5f 0.1f 0.0 0.0 0.0 0.0

7. Environmental 

Protection Agency

21. Clean Water State 

Revolving Funds

1,900.0 3.1f 0.2f 0.0 0.0 0.0 0.0

 22. Drinking Water 

State Revolving 

Fund

0.0i 0.0i 0.0i 0.0i 0.0i 0.0i 0.0i

8. Export-Import 

Bank of the United 

Statesj

23. All programs and 

activities

1,329.0k 0.0 0.0 0.0 0.0 0.0 0.0

9. Farm Credit 

System Insurance 

Corporationj

24. All programs and 

activities

40.0a 0.0 0.0 0.0 0.0 0.0 0.0

10. Federal 

Communications 

Commission

25. Universal Service 

Fund’s Schools and 

Librariese

1,700.0 0.0 0.0 0.0 0.0 0.0 0.0

 26. High Cost Support 

Programe

3,800.0 0.0 0.0 0.0 0.0 0.0 0.0

11. Federal Deposit 

Insurance 

Corporationj

27. All programs and 

activities

2,206.0k 0.0 0.0 0.0 0.0 0.0 0.0

12. General Services 

Administration

28. All programs and 

activitiesg

20,274.0a 0.0 0.0 0.0 0.0 0.0 0.0

13. Department of 

Health and Human 

Services

29. Medicaide 181,719.0 0.0 0.0 0.0 0.0 0.0 0.0

 30. Medicare 234,100.0 12,100.0 5.2 11,200.0 4.8 900.0 0.4

 31. Head Start 6,865.0 110.0f 1.6f 0.0 0.0 0.0 0.0

 32. Temporary 

Assistance for 

Needy Familiese

17,401.0 0.0 0.0 0.0 0.0 0.0 0.0

 33. Foster Care—Title 

IV-E

1,816.0 182.0f 10.0f 0.0 0.0 0.0 0.0

(Continued From Previous Page)

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate
Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports

Page 68 GAO-07-92 Improper Payments

 34. State Children’s 

Insurance Programe

5,129.0 0.0 0.0 0.0 0.0 0.0 0.0

 35. Child Care and 

Development Funde

4,901.0 0.0 0.0 0.0 0.0 0.0 0.0

14. Department of 

Homeland 

Security

36. All programs and 

activitiesg

53,175.0a 0.0 0.0 0.0 0.0 0.0 0.0

15. Department of 

Housing and 

Urban 

Development 

37. Low Income Public 

Housing

26,069.0 326.0l 5.6 173.2 0.0 68.9 0.0

 38. Section 8- Tenant 

Based

0.0i 551.0l 0.0i 366.5 0.0 154.7 0.0

 39. Section 8- Project 

Based

0.0i 324.0l 0.0i 141.8 0.0 82.8 0.0

 40. Community 

Development Block 

Grant (Entitlement 

Grants, 

States/Small 

Cities)e

4,987.0 0.0 0.0 0.0 0.0 0.0 0.0

 41. Federal Housing 

Administration’s 

Single Family 

Acquired Asset 

Management 

System

366.7 2.2f 0.6f 0.0 0.0 0.0 0.0

 42. Public Housing 

Capital Fund

2,600.0 133.5 5.1 118.1 4.5 15.4 0.6

16. Department of the 

Interior

43. All programs and 

activitiesg

19,794.3a 0.0 0.0 0.0 0.0 0.0 0.0

17. Department of 

Justice

44. All programs and 

activitiesg

29,244.2a 0.0 0.0 0.0 0.0 0.0 0.0

18. Department of 

Labor 

45. Unemployment 

Insurance

32,248.0 3,267.0 10.1 3,051.0 9.5 216.0 0.7

 46. Federal Employees’ 

Compensation Act 

2,519.0 3.3f 0.1f 0.0 0.0 0.0 0.0

 47. Workforce 

Investment Act

3,743.0 7.9f 0.2f 0.0 0.0 0.0 0.0

(Continued From Previous Page)

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate
Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports

Page 69 GAO-07-92 Improper Payments

19. National 

Aeronautics and 

Space 

Administration

48. All programs and 

activitiesg

16,472.0a 0.0 0.0 0.0 0.0 0.0 0.0

20. National Credit 

Union 

Administrationj

49. All programs and 

activities

159.0k 0.0 0.0 0.0 0.0 0.0 0.0

21. National Science 

Foundation 

50. Research and 

Education Grants 

and Cooperative 

Agreements

4,215.0 1.1 0.0f,m 0.0 0.0 0.0 0.0

22. Nuclear 

Regulatory 

Commission

51. All programs and 

activitiesg

651.4a 0.0 0.0 0.0 0.0 0.0 0.0

23. Office of 

Personnel 

Management

52. Retirement 

Program (Civil 

Service Retirement 

System and 

Federal Employees 

Retirement System)

54,800.0 152.2 0.3 147.1 0.3 5.1 0.0m

 53. Federal Employees 

Health Benefits 

Program 

29,400.0 196.5 0.7 190.9 0.7 5.6 0.0m

 54. Federal Employees 

Group Life 

Insurance 

1,200.0 2.0 0.2 0.7 0.1 1.3 0.1

24. Pension Benefit 

Guaranty 

Corporationj

55. All programs and 

activities

5,489.0k 0.0 0.0 0.0 0.0 0.0 0.0

25. U.S. Postal 

Servicej

56. All programs and 

activities

72,619.0k 0.0 0.0 0.0 0.0 0.0 0.0

26. Railroad 

Retirement Board 

57. Retirement and 

Survivors Benefits 

9,185.4 150.6f 1.6f 0.0 0.0 0.0 0.0

 58. Railroad 

Unemployment 

Insurance Benefits 

110.8 2.3f 2.1f 0.0 0.0 0.0 0.0

27. Securities and 

Exchange 

Commission

59. All programs and 

activitiesg

866.7a 0.0 0.0 0.0 0.0 0.0 0.0

28. Small Business 

Administration 

60. 7(a) Business Loan 

Program

605.1 31.4f 5.2f 0.0 0.0 0.0 0.0

(Continued From Previous Page)

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate
Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports

Page 70 GAO-07-92 Improper Payments

 61. 504 Certified 

Development 

Companies

117.6 0.0b 0.0b 0.0b 0.0b 0.0b 0.0b

 62. Disaster Assistance 2,230.5 1.6f 0.1f 0.0 0.0 0.0 0.0

 63. Small Business 

Investment 

Companies

1,568.2 10.5f 0.7f 0.0 0.0 0.0 0.0

29. Smithsonian 

Institutionj

64. All programs and 

activities

784.0k 0.0 0.0 0.0 0.0 0.0 0.0

30. Social Security 

Administration 

65. Old Age and 

Survivors’ 

Insurance

493,300.0 3,681.0 0.7 2,582.0 0.5 1,099.0 0.2

 66. Disability Insurance 0.0i 0.0i 0.0i 0.0i 0.0i 0.0i 0.0i

 67. Supplemental 

Security Income 

Program

37,470.0 2,910.0 7.7 2,406.0 6.4 504.0 1.3

31. Department of 

State

68. International 

Narcotic and Law 

Enforcement 

Affairs-Narcotics 

Program

114.0 0.6f 0.0f,m 0.0 0.0 0.0 0.0

 69. International 

Information 

Program-U.S. 

Speaker and 

Specialist Program

41.0 1.9f 81.2f 0.0 0.0 0.0 0.0

 70. Vendor payments 3,299.0 0.4f 0.0f,m 0.0 0.0 0.0 0.0

 71. Structures and 

Equipment

485.0 0.2f 0.0f,m 0.0 0.0 0.0 0.0

32. Tennessee Valley 

Authority

72. Payment programs 7,080.0 36.3f 0.5f 0.0 0.0 0.0 0.0

33. Department of 

Transportation 

73. Airport 

Improvement 

Program

2,996.0 0.0c,f 0.0c,f 0.0 0.0 0.0 0.0

 74. Highway Planning 

and Construction

31,217.0 0.0c,f 0.0c,f 0.0 0.0 0.0 0.0

 75. Federal Transit—

Capital Investment 

Grants

3,375.0 0.0c,f 0.0c,f 0.0 0.0 0.0 0.0

 76. Federal Transit—

Formula Grants

4,521.0 0.0c,f 0.0c,f 0.0 0.0 0.0 0.0

(Continued From Previous Page)

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate
Appendix III

Outlays, Improper Payment Estimates, and 

Error Rates Reported in Agency Fiscal Year 

2005 PARs or Annual Reports

Page 71 GAO-07-92 Improper Payments

Sources: GAO analysis of cited agencies’ fiscal year 2005 PARs or annual reports and OMB.

a

This number is the disbursements from the agencies’ statements of budgetary resources in their fiscal 

year 2005 PARs or annual reports.

b

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

c

Agency reported that the annual improper payment amount was zero.

d

The reported overpayments plus the reported underpayments do not equal the reported total 

improper payments.

e

See table 5 of this report.

f

Agency did not provide an estimate breakout between both overpayments and underpayments.

g

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

h

Student Financial Assistance—Pell Grants and Federal Family Education Loan are combined together 

as Student Financial Assistance in OMB Circular No. A-11, former section 57.

i

Agency combined with the above program.

j

Agency did not address improper payments or IPIA.

k

Agency program outlays were not reported in the fiscal year 2005 PARs. We obtained these amounts 

from OMB.

l

An additional $266 million of improper payments exist for these three programs. In its PAR, HUD did 

not provide a breakout of this amount among the three programs. The $266 million is also excluded 

from the overpayment and underpayment estimates.

mAgency reported error rate was less than 1 percent or reported the error rate rounded to zero for the 

purposes of this report.

n

The overpayments plus the underpayments do not add up total improper payments because many of 

the programs did not provide a breakout of their total improper payment estimate between 

overpayments and underpayments.

34. Department of the 

Treasury

77. Earned Income Tax 

Credit

41,300.0 10,500.0f 25.5f 0.0 0.0 0.0 0.0

35. Department of 

Veterans Affairs

78. Compensation 28,960.0 322.9 1.1 181.0 0.6 141.9 0.5

 79. Dependency and 

Indemnity 

Compensation

0.0i 0.0i 0.0i 0.0i 0.0i 0.0i 0.0i

 80. Education 

programs

2,661.0 64.0 2.4 34.0 1.3 30.0 1.1

 81. Pension 3,293.0 261.0 7.9 247.0 7.5 14.0 0.4

 82. Insurance 

programs

1,664.0 0.3f 0.0f,m 0.0 0.0 0.0 0.0

 83. Loan Guaranty 1,219.0 4.2f 0.4f 0.0 0.0 0.0 0.0

 84. Vocational 

Rehabilitation

603.0 9.8 1.6 2.7 0.4 7.1 1.2

 Total $1,764,560.2 $38,404.8 $22,070.9n $3,615.4n

(Continued From Previous Page)

Dollars in millions

 Overpayment Underpayment

Department or 

agency 

Program or 

activity

Program 

outlays

Total

estimate

Error 

rate Estimate

Error 

rate Estimate

Error 

rate
Page 72 GAO-07-92 Improper Payments

Appendix IV

Comments from the Office of Management 

and Budget ApendxiIV
Appendix IV

Comments from the Office of Management 

and Budget

Page 73 GAO-07-92 Improper Payments

2

x The overall dollar amount of improper payments for the 30 programs reported in 

FY 2004 decreased 17% from $45.1 billion to $37.3 billion. 

x Medicare substantially improved its claim documentation and reduced its error 

rate reporting in the Fee for Service portion of the program from 10.1% in FY 

2004 to 5.2% in FY 2005. 

x Food Stamps reported its lowest error rate ever in FY 2005 (5.88%). 

x Unemployment Insurance decreased improper payments by $600 million from FY 

2004 to FY 2005. 

x The Department of Housing & Urban Development’s Public Housing and Rental 

Assistance programs have reduced improper payments by more than $1 billion 

since FY 2000. 

x Only a handful of agencies reported on their recovery auditing activities in their 

FY 2004 PARs; in FY 2005 an additional 19 agencies reported on their recovery 

auditing efforts, and several agencies have plans to expand these efforts to more 

contract categories for FY 2006 reporting. 

We fully expect that these trends of reporting more programs and reducing 

improper payments will continue. In fact, in FY 2005, OMB launched a separate 

initiative under the President’s Management Agenda to hold agencies accountable for 

both improving improper payment measurements and initiating corrective actions to 

eliminate payment errors. 

As we chart a course forward, we recognize that alternative strategies need to be 

considered in order to advance the overall improper payment initiative. Permitting 

alternative strategies is a flexibility that OMB believes is necessary to support 

government-wide IPIA compliance, particularly for programs that have never been able 

to report a payment error rate. Appendix C to OMB Circular A-123 still requires that all 

high risk programs report a statistically valid rate, but not necessarily within one year.

For example, beginning with the FY 2007 PAR reporting, Medicaid, Temporary 

Assistance to Needy Families, and the State Children’s Health Insurance Program will 

begin reporting component error rates. For FY 2008 reporting, we project that these 

programs will report a statistically valid national error estimate. Therefore, by permitting 

some variation, more programs are able to report sooner on some form of error rate and 

dollar amount. This is a significant improvement over FY 2004 reporting. While there 

are a few large programs without current error measurements being reported, we are 

progressively moving towards full reporting. 

GAO continues to express concern that OMB’s use of reporting threshold criteria 

($10 million and 2.5 percent error rate) limits agency review and reporting of improper 

payments. We can appreciate GAO’s concern that this criterion limits reporting; 

however, our specific rationale for adding the 2.5 percent requirement was not 

highlighted in the report, and further explanation and understanding of the 2.5 percent 

requirement may alleviate some of GAO’s concern. Specifically, since the 

implementation of IPIA and OMB's guidance M-03-13, all programs originally listed in 

Section 57 of OMB Circular A-11 were automatically determined to be risk susceptible 
Appendix IV

Comments from the Office of Management 

and Budget

Page 74 GAO-07-92 Improper Payments

3

and were therefore required to be reported upon annually in agency PARs. OMB 

included the 2.5 percent as part of its threshold criteria for determining risk, to ensure that 

agencies were focusing their resources on programs with the highest levels of risk for 

improper payments. Most notably, even with the 2.5 percent threshold in place, Federal 

agencies deemed more than 60% of all outlays (or $1.5 trillion) as high risk. Further, an 

additional $300 billion in outlays are being tracked under the Recovery Audit Act. For 

the remaining outlays, OMB is now requiring agencies to track any programs that are 

discovered to have a high risk for significant improper payment, but an error rate less 

than 2.5 percent. With these facts, we believe our framework is appropriately mitigating 

the risk that high risk programs will be left out of our IPIA reporting activities. 

Below are OMB’s specific responses to the four recommendations included in the 

draft report: 

Regarding the first recommendation to expand the IPIA implementing guidance to 

describe in greater detail (a) factors that agencies should consider when conducting their 

annual risk assessments and (b) factors that agencies should use when reporting improper 

payments in their PARs, OMB agrees with both recommendations and has taken steps to 

implement them. In our revised implementation guidance for IPIA (OMB Circular A123, Appendix C) issued in August of 2006, we included factors to be considered in 

agency risk assessments. Additionally, OMB lists the requirements for agency PAR IPIA 

reporting in OMB Circular A-136, Financial Report Requirements, Section II.5.6., IPIA 

Reporting Details. 

Regarding the second recommendation to enforce existing guidance requiring 

agencies to use a statistically valid sampling methodology to calculate improper payment 

estimates, OMB generally agrees with the recommendation and believes that our actions 

to date reflect this approach for the most part. However, we believe that allowing 

alternative sampling methodologies, prior to a full statistically valid sample, is acceptable 

as long as the alternative is used as an interim error measurement on a path toward a 

more comprehensive statistical estimate. This method is discussed in OMB Circular A123, Appendix C and is a method OMB has been working with agencies on for a number 

of years. It recognizes that a single approach is not feasible for many large, complex 

programs, such as the Earned Income Tax Credit and the National School Lunch and 

Breakfast programs and ensures that such programs have interim information on payment 

errors so that targeted corrective actions could be defined and initiated in the short term, 

rather than waiting until a more comprehensive rate was in place. In most cases, a 

statistically valid and comprehensive sampling methodology will be achieved within two 

to three years.

Regarding the third recommendation to gather from agencies the dollar amount of 

payments that agencies make under statute or judicial determinations that later are 

determined to be overpayments to determine the magnitude of the issue and whether 

additional reporting is warranted, OMB generally agrees with the recommendation. As 

you know, agencies such as the Social Security Administration in their Supplemental 

Security Income program are required to continue making benefit payments while a 
Appendix IV

Comments from the Office of Management 

and Budget

Page 75 GAO-07-92 Improper Payments
Page 76 GAO-07-92 Improper Payments

Appendix V

GAO Contact and Staff Acknowledgments ApendxiV

GAO Contact McCoy Williams, (202) 512-9095 or williamsm1@gao.gov

Acknowledgments In addition to the contact named above, Carla Lewis, Assistant Director; 

Sharon Byrd; Francine DelVecchio; Francis Dymond; Lisa M. Galvan; 

Jacquelyn Hamilton; James Maziasz; Christina Quattrociocchi; Donell Ries; 

and Autumn Schmid made important contributions to this report. 
Page 77 GAO-07-92 Improper Payments

Related GAO Products

Improper Payments: Federal and State Coordination Needed to Report 

National Improper Payment Estimates on Federal Programs. GAO-06-

347. Washington, D.C.: April 14, 2006.

Financial Management: Challenges Continue in Meeting Requirements 

of the Improper Payments Information Act. GAO-06-581T. Washington, 

D.C.: April 5, 2006.

Financial Management: Challenges Remain in Meeting Requirements of 

the Improper Payments Information Act. GAO-06-482T. Washington, D.C.: 

March 9, 2006.

Financial Management: Challenges in Meeting Governmentwide 

Improper Payment Requirements. GAO-05-907T. Washington, D.C.: 

July 20, 2005.

Financial Management: Challenges in Meeting Requirements of the 

Improper Payments Information Act. GAO-05-605T. Washington, D.C.: 

July 12, 2005.

Financial Management: Challenges in Meeting Requirements of the 

Improper Payments Information Act. GAO-05-417. Washington, D.C.: 

March 31, 2005.

Financial Management: Fiscal Year 2003 Performance and 

Accountability Reports Provide Limited Information on 

Governmentwide Improper Payments. GAO-04-631T. Washington, D.C.: 

April 15, 2004.

Financial Management: Status of the Governmentwide Efforts to Address 

Improper Payment Problems. GAO-04-99. Washington, D.C.: October 17, 

2003.

Financial Management: Effective Implementation of the Improper 

Payments Information Act of 2002 Is Key to Reducing the Government’s 

Improper Payments. GAO-03-991T. Washington, D.C.: July 14, 2003.

Financial Management: Challenges Remain in Addressing the 

Government’s Improper Payments. GAO-03-750T. Washington, D.C.: 

May 13, 2003.

(195082)
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

Obtaining Copies of 

GAO Reports and 

Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go to 

www.gao.gov and select “Subscribe to Updates.”

Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to:

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional 

Relations

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548

Public Affairs Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548