Department of Homeland Security
 

Department of Homeland Security’s 


Compliance with the Improper Payments 


Elimination and Recovery Act of 2010 


OIG-12-48 March 2012
 
Office of Inspector General 

U.S. Department of Homeland Security 

Washington, DC 20528 

Preface 

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was 

established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment 

to the Inspector General Act of 1978. This is one of a series of audit, inspection, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

efficiency, and effectiveness within the Department. 

This report addresses the strengths and weaknesses of the Department’s process to 

estimate and report improper payments as well as its efforts to reduce and recover 

improper payments. It is based on interviews with employees and officials of relevant 

agencies and institutions, direct observations, and a review of applicable documents. 

The recommendations herein have been developed to the best knowledge available to our 

office, and have been discussed in draft with those responsible for implementation. We 

trust this report will result in more effective, efficient, and economical operations. We 

express our appreciation to all of those who contributed to the preparation of this report. 

Anne L. Richards 

Assistant Inspector General for Audits 
 

 

Table of Contents/Abbreviations 

Executive Summary .............................................................................................................1
 

Background..........................................................................................................................2
 

Results of Audit ...................................................................................................................6
 

DHS’ Compliance with IPERA .....................................................................................6 


DHS’ Controls over Improper Payment Testing and Reporting ....................................6 


Recommendations..........................................................................................................9 


DHS’ Efforts to Recover Improper Payments .............................................................10 


Recommendations........................................................................................................12 


Management Comments and OIG Analysis ................................................................12 


Appendices 

Appendix A: Purpose, Scope and Methodology........................................................16 


Appendix B: Management Comments to the Draft Report .......................................18 


Appendix C: Major Contributors to this Report........................................................22 


Appendix D: Report Distribution ..............................................................................23 


Abbreviations 

AFR Annual Financial Report 

CBP U.S. Customs and Border Protection 

DHS Department of Homeland Security 

DNDO Domestic Nuclear Detection Office 

FEMA Federal Emergency Management Agency 

FY fiscal year 

GAO Government Accountability Office 

ICE U.S. Immigration and Customs Enforcement 

ICRM Internal Control and Risk Management 

IPERA Improper Payments Elimination and Recovery Act of 2010


 IPIA Improper Payment Information Act of 2002 


KPMG KPMG LLP 

MAPS mission action plans 

NPPD National Protection & Programs Directorate 

OCFO Office of the Chief Financial Officer 

OIG Office of Inspector General 

OMB Office of Management and Budget 

USCG U.S. Coast Guard 

USSS U.S. Secret Service 

S&T Science and Technology Directorate 

TSA Transportation Security Administration 
OIG
 

Department of Homeland Security 

Office of Inspector General 

Executive Summary 

Federal government agencies reported an estimated $125 billion in 

improper payments in fiscal year 2010. Congress passed the 

Improper Payments Elimination and Recovery Act of 2010 in an 

effort to reduce these erroneous payments. The Act requires each 

agency’s Inspector General to annually determine if the agency is 

in compliance with the Act. 

Our audit objectives were to 1) determine if the Department of 

Homeland Security is in compliance with the Act; 2) evaluate the 

accuracy and completeness of the Department’s improper payment 

reporting; and 3) evaluate the Department’s efforts in reducing and 

recovering improper payments for fiscal year 2011. 

We contracted with KPMG LLP to determine whether the 

Department of Homeland Security complied with the Act. 

KPMG LLP did not find any instances of noncompliance with the 

Act. 

We reviewed the accuracy and completeness of the Department’s 

improper payment reporting and its efforts to reduce and recover 

improper payments. The Department needs to 1) improve controls 

to ensure completeness and accuracy of reporting and 2) increase 

efforts to recover improper payments. Specifically, the 

Department should ensure that all payments subject to testing are 

tested and reported and that recovery audit rates are reported 

accurately. Independent parties should perform test work and 

review sample payments. Also, the Department should develop 

guidance on applying results of test work using alternative 

sampling methodologies. Finally, the Department should perform 

recovery audits when cost effective, and those audits should target 

payments with a higher potential for overpayment and recovery. 

We made six recommendations that if implemented would improve 

the accuracy and completeness of the Department’s improper 

payment reporting and improve its efforts to recover any 

overpayments. DHS concurred with all six of our 

recommendations. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 1 
Background 

The federal government’s efforts to reduce improper payments 

predate the Department of Homeland Security (DHS). In 2002, the 

Government Accountability Office (GAO) reported, based on 

estimates voluntarily provided by some agencies, that the federal 

government made approximately $20 billion in improper payments 

annually for fiscal years (FYs) 1999, 2000, and 2001. GAO 

believed the actual figure could be much higher because no 

authority required agencies to comprehensively measure, report, 

and reduce improper payments, and few agencies had publicly 

reported improper payment information. 

In response, Congress passed the Improper Payments Information 

Act of 2002 (IPIA). IPIA required the head of each agency to 

annually review all their programs and activities, identify the 

programs susceptible to significant improper payments, and report 

estimated improper payments for programs identified as 

susceptible. For programs with estimated improper payments 

exceeding $10 million, IPIA required agencies to report the causes 

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

the results of the actions taken. 

On July 22, 2010, the President signed the Improper Payments 

Elimination and Recovery Act (IPERA or the Act). IPERA 

amended IPIA by expanding requirements for identifying, 

estimating, and reporting on programs susceptible to significant 

improper payments. The term improper payment: 

A.	 means any payment that should not have been made or was 

made in an incorrect amount (including overpayments and 

underpayments) under statutory, contractual, administrative, 

or other legally applicable requirements; and 

B.	 includes any payment to an ineligible recipient, any payment 

for an ineligible good or service, any duplicate payment, any 

payment for a good or service not received (except where such 

payment is authorized by law), and any payment that does not 

account for credit for applicable discounts.1 

Improper payments in a program or activity become “significant” 

if, in the preceding fiscal year, improper payments exceeded: (a) 

$10 million and 2.5 percent of total program outlays or (b) $100 

1

 Pub. L. 111-204, Section 2.(e). 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 2 
million regardless of the improper payment percentage of total 

program outlays.2 

IPERA requires agencies to perform risk assessments on all 

programs and activities. Agencies must then test programs and 

activities susceptible to significant improper payments, and 

annually report the estimated improper payments made, the actions 

taken to reduce improper payments, and efforts to recover 

overpayments. 3 

In FY 2011, DHS reported an improper payment estimate of $210 

million from 14 programs across six Components: 

Table 1: DHS’ FY 2011 Estimated 


Improper Payment Amounts and Rates 


DHS Component Programs 

Tested 

Payment 

Population 

($ millions) 

Estimated 

Improper 

Payments 

($ millions) 

Improper 

Payment 

Rate (%)* 

U.S. Customs and 

Border Protection 2 $1,449 $3 0.21% 

Federal 

Emergency 

Management 

Agency 

8 $3,720 $68 1.83% 

U.S. Immigration 

and Customs 

Enforcement 

1 $1,332 $108 8.12% 

National 

Protection and 

Programs 

Directorate 

1 $811 $27 3.27% 

Transportation 

Security 

Administration 

1 $2,458 $0 0.01% 

U.S. Coast Guard 1 $2,918 $4 0.13% 

DHS-wide 14 $12,688 $210 1.66% 

Source: DHS-OIG analysis using data from DHS FY 2011 Annual Financial 

Report (AFR). DHS calculated its FY 2011 estimated improper payment rates 

using FY 2010 payment data. *Improper payment percentages are weighted 

averages where multiple programs were reported. 

2

 Pub. L. 111-204, Section 2.(a). 

3

 Pub.L.111-204, Section 2.(a), (b),and (d). 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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We reviewed the processes and procedures for DHS and the 

following DHS Components: 

U.S. Coast Guard (USCG); 

U.S. Customs and Border Protection (CBP); 

Federal Emergency Management Agency (FEMA); 

U.S. Immigration and Customs Enforcement (ICE); 

National Protection and Programs Directorate (NPPD); 

Science and Technology Directorate (S&T); and 

Transportation Security Administration (TSA). 

In November 2010, the DHS Internal Control Program 

Management Office issued version 1.0 of its Improper Payments 

Reduction Guidebook. This Guidebook provides DHS 

Components with instructions for complying with IPERA, 

Executive Order 13520, and Office of Management and Budget 

(OMB) guidance for the implementation of IPERA. DHS intends 

the Guidebook to be a living document, and it released the latest 

version, 1.2, in May 2011. 

The diagram below shows the process DHS Components are 

required to follow to identify, estimate, report, and recover 

improper payments:

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Source: DHS-OIG illustration of processes based on information in DHS Improper Payments Reduction 

Guidebook, Office of Chief Financial Officer (OCFO) Internal Control Program Management Office. 

IPERA also requires agencies’ Inspectors General to determine and 

report annually on whether the agency is in compliance with 

IPERA. This report meets that requirement. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Results of Audit 

To comply with IPERA, an agency is required to conduct risk assessments and 

report and publish the results of selected program testing in its Annual Financial 

Report. The agency must also report improper payment rates of less than 10 

percent for each program. KPMG LLP (KPMG) did not find any instances of 

noncompliance with IPERA. 

Additionally, we reviewed the processes and procedures by which DHS estimates 

its annual improper payment rates. Based on our review, we determined that 

DHS needs to 1) improve controls to ensure completeness and accuracy of 

reporting and 2) increase efforts to recover improper payments. 

DHS’ Compliance with IPERA 

We contracted with KPMG to determine whether DHS complied with 

IPERA in FY 2011. KPMG conducted audit procedures to determine if 

DHS met the following requirements prescribed in the Act: 

 conducted required program-specific risk assessments; 

 published improper payment estimates for high-risk programs; 

 published programmatic corrective action plans; 

 published, and has met, annual reduction targets for programs at 

risk;

 achieved and reported a gross improper payment rate of less than 

10 percent for all programs tested; and 

 reported on its efforts to recover improper payments. 

KPMG did not find any instances of noncompliance with the Act. 

DHS’ Controls over Improper Payment Testing and Reporting 

DHS needs to improve its controls over improper payment testing and 

reporting. Specifically, DHS needs to improve its review process to 

ensure that all payments are included, subject to testing, and reported. 

Further, DHS needs to improve its policies and procedures and adequately 

segregate duties. 

Payments Excluded from Testing and Reporting 

For each high-risk program, the DHS Guidebook requires that 

Components provide DHS OCFO with the list of payments made 

during the fiscal year. DHS’ Internal Control and Risk 

Management Office (ICRM) then selects a statistically valid 

sample of the payments and reviews the related files for improper 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 6 
payments. CBP mistook some payments from its Security Border 

Fencing Program as adjustments, and excluded them from the list 

of payments provided to DHS OCFO. 

OMB Circular A-123, Management’s Responsibility for Internal 

Control, requires management to develop and maintain effective 

internal controls over financial reporting. DHS did not detect the 

exclusion of payments during its review process and before it 

published its FY 2011 AFR. As a result, the total amount of 

payments subjected to selection for testing and the amount 

reported for this program in the FY 2011 AFR are understated by 

approximately $85 million. 

Subsequent to DHS publishing its FY 2011 AFR, CBP tested the 

excluded payments and identified four payments totaling $16,514, 

which should have been reported as improper payments. 

Inaccurate Payment Recovery Audit Reporting 

DHS inaccurately reported the amount subject to review and the 

actual amount reviewed in its payment recovery audit reporting in 

its FY 2011 AFR. Specifically, DHS included Federal Protective 

Services’ payments, totaling $813 million, under ICE rather than 

NPPD. As discussed above, OMB Circular A-123, Management’s 

Responsibility for Internal Control, requires management to 

develop and maintain effective internal controls over financial 

reporting. DHS did not effectively perform its review function to 

detect and correct the error. Including inaccurate data in the AFR 

could mislead users of that data. 

Independence 

Components are required to perform testing of a sample of 

payments to determine whether payments are improper. The DHS 

ICRM is responsible for ensuring the Department’s and 

Components’ compliance with IPERA. The ICRM provides 

guidance and is responsible for approving Component test plans 

and other IPERA-related activities. As part of its oversight of the 

process, ICRM personnel are also responsible for reviewing a 

sample of payments tested by Components in order to ensure that 

their test results are reliable. 

The Director of Internal Controls and the Program Analyst in the 

ICRM have performance goals of retesting IPERA test work 

conducted by Components. These personnel also have a 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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conflicting performance goal of reducing improper payments. 

Similar conflicts exist at CBP and FEMA. OMB Circular A-123 

provides that control activities include policies, procedures, and 

mechanisms in place to ensure that agencies meet their objectives. 

This includes proper segregation of duties. Segregating the duties 

designed to 1) reduce improper payments and 2) test payments 

files for improper payments will promote independence and reduce 

the risk of inaccurate or incomplete improper payment data. 

Improve DHS Guidance 

DHS’ Improper Payments Reduction Guidebook provides guidance 

to Components for IPERA-related activities, including assessing 

risk, testing for improper payments, and reducing and recapturing 

improper payments. OMB Circular A-123 provides that control 

activities include policies and procedures to ensure that agency 

objectives are met. Based on our review, the guidance needs to 

clarify how to apply the results when a Component uses an 

alternate testing methodology. 

Alternate Sampling Methodology 

The prescribed OMB sampling methodology presumes that all 

program payments will be subject to selection for testing for 

improper payments. Exceptions from prescribed OMB sampling 

methodology are permitted, but the guidance does not differentiate 

how the results from such sampling should be applied. 

Consequently, high-risk programs may not be tested in the future 

and corrective actions may not be monitored. 

FEMA received permission from OMB to use an alternative 

methodology for three grant programs: Public Assistance, 

Homeland Security, and Transit Security.4

 Each program reported 

estimated improper payments of less than $1 million and error 

rates of less than one percent as a result of the limited testing 

conducted under the alternative methodology. FEMA did not draft 

mission action plans (MAPs) for Transit Security or Homeland 

Security Grant Programs because neither reported more than $10 

million in improper payments. MAPS are a management tool to 

address and remedy identified internal control deficiencies such as 

improper payments. Additionally, FEMA intends to ask for a 

4

 The scope of the assessment for the Public Assistance Grant Program was limited to targeted transactions 

from FEMA Regions I, II, III, and X. Testing for the Homeland Security Grant Program was based on a 

targeted sample of the largest payments disbursed in 17 states. Testing for the Transit Security Grant 

Program was based on a targeted sample of payments in 9 states. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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waiver from further testing of the Transit Security Grant Program 

because of its low error rate. 

DHS’ guidance does not address how to treat results of testing that 

deviate from OMB methodology. Without this guidance, programs 

that should be tested may not be tested and MAPS, with monitored 

corrective actions, may not be developed. 

Recommendations 

We recommend that the Deputy Chief Financial Officer, 

Department of Homeland Security: 

Recommendation #1: To ensure that all payments for programs 

and activities identified as high risk are subject to selection for 

testing and reported, the Department must: 

 Enhance controls and processes used by Components to 

reconcile their lists of fiscal year payments with their 

financial accounting system; and 

 Enhance controls and processes used by the Department of 

Homeland Security to review Components’ lists of fiscal 

year payments to ensure that they are complete and that 

variances are investigated, accounted for, and substantiated. 

Recommendation #2: Include the following corrections in the 

Department of Homeland Security’s FY 2012 Annual Financial 

Report: 

 FY 2011 recovery audit reporting for Federal Protective 

Services under National Protection & Programs 

Directorate; and 

 Excluded payments from U.S. Customs and Border 

Protection’s Secure Border Fencing program from the FY 

2011 Annual Financial Report. 

Recommendation #3: Develop and implement procedures to 

ensure that duties to determine the level of improper payments and 

to reduce improper payments are adequately segregated. 

Recommendation #4: Modify the Department of Homeland 

Security’s Improper Payment Reduction Guidebook to provide 

guidance to Components on how to treat results of testing using 

alternative methodologies. When seeking approval from the 

Office of Management and Budget for an alternate sampling 

methodology, DHS shall propose dollar thresholds that will be 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 9 
 

applicable to the results of testing using approved alternate 

sampling methodology. 

DHS’ Efforts to Recover Improper Payments 

DHS needs to improve its improper payment recovery efforts. Not all 

Components conducted payment recovery audits as required by IPERA. 

Of those Components that did conduct recovery audits, only the USCG 

prioritized its audit to target categories with higher potential for 

overpayments and recoveries. If these issues are corrected, DHS would 

benefit by recovering a greater number of improper payments. 

Performing Recovery Audits 

DHS decided not to perform recovery audits for the Domestic 

Nuclear Detection Office (DNDO) and TSA. By not performing 

the required recovery audits, DHS potentially missed an 

opportunity to recover improper payments. USCG provides 

financial services for DNDO and TSA, and a USCG general 

recovery audit contract would include payments made by these 

Components. In FY 2011, DHS and USCG decided that a targeted 

recovery audit of USCG telecommunication invoices would be of 

greater benefit to the government than a general recovery audit of 

all USCG-processed payments. In its FY 2011 AFR, DHS 

reported that in FY 2012 it plans to conduct a general recovery 

audit for DNDO and TSA covering FY 2010 and FY 2011 contract 

payments. The U.S. Secret Service (USSS) did not conduct a 

recovery audit because it did not enter into a recovery audit 

contract in time to perform an audit in FY 2011. Previously, 

agencies had to conduct recovery audits for each program and 

activity that expended at least $500 million. The USSS did not 

have to conduct recovery audits under the $500 million threshold, 

but its programs fell within IPERA’s lower $1 million threshold. 

DHS plans to conduct a general recovery audit in FY 2012 for 

USSS covering FY 2010 and FY 2011 contract payments. 

A payment recovery audit is designed to identify overpayments by 

reviewing accounting and financial records, supporting 

documentation, and other information. IPERA requires an “agency 

to conduct recovery audits with respect to each program and 

activity of the agency that expends $1 million or more annually if 

conducting such audits would be cost-effective.” In FY 2010, 

DNDO paid approximately $369 million, TSA paid approximately 

$2.18 billion, and USSS paid approximately $393 million in 

contract payments. Despite exceeding IPERA’s $1 million 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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threshold, none of these Components conducted a payment 

recovery audit in FY 2011. 

Targeting High-Risk Payments for Recovery Audits 

OMB requires agencies to prioritize payment recovery audits on 

categories that have a higher potential for overpayments and 

recoveries. For CBP, FEMA, ICE, Management, NPPD, Office of 

Health Affairs, S&T, and U.S. Customs and Immigration Service, 

the recovery auditors reviewed the entire population of contract 

payments rather than focusing on categories that are higher risk or 

have a higher potential for overpayment and recoveries. These 

recovery audits, which reviewed more than $8 billion, identified 

$73,000 in recoverable overpayments. 

USCG’s recovery audit, which focused on telecommunication 

invoices, was the exception. USCG targeted telecommunications 

invoices because of the carriers’ complex pricing and billing 

practices. The recovery audit examined $78 million in payments 

and identified errors totaling more than $4 million. Furthermore, 

DHS reported an immediate cost savings of $102,355 and 

estimated future cost savings in excess of $2 million. By using a 

targeted approach, USCG’s recovery audit identified more errors 

than those of other Components despite reviewing fewer payments. 

Although ICE, CBP, and FEMA conducted general recovery 

audits, there is no evidence to indicate that these Components 

targeted certain payment types. While general recovery audits are 

important, targeted, in-depth recovery audits could potentially 

identify and recover substantially more improper payments. 

OMB places responsibility for prioritizing recovery audits on the 

agencies. DHS’ Payment Recapture Audit Plan assigns this 

responsibility to the recovery auditors. Components are to provide 

100 percent of their contract payments to recovery audit 

contractors. The recovery audit contractors then use proprietary 

software to identify and focus on categories at higher risk of 

improper payments and on identifying whether certain types of 

improper payments have occurred, such as duplicate payments. 

The focus of the recovery audit is set by the proprietary software as 

opposed to a targeting of high-risk payments prioritization by 

DHS. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Recommendations 

We recommend that the Deputy Chief Financial Officer, 

Department of Homeland Security, ensure that: 

Recommendation #5: 

 Domestic Nuclear Detection Office, the Transportation 

Security Administration, and U.S. Secret Service conduct 

recovery audits as planned and reported in the Department’s 

FY 2011 Annual Financial Report; and 

 Components follow the requirements of the Improper 

Payments Elimination and Recovery Act of 2010 to perform 

recovery audits annually if conducting such recovery audits is 

cost-effective. 

Recommendation #6: 

 Components target those improper payment categories that 

have a higher potential for overpayment and recoveries for 

recovery audits, when cost-effective; and 

 Modify the Department of Homeland Security’s Payment 

Recapture Audit Plan to follow OMB guidance for prioritizing 

recovery audits. 

Management Comments and OIG Analysis 

DHS concurred with all six of our recommendations. DHS 

provided a description of actions already taken and planned actions 

to be completed before or by November 2012. Based on the 

information provided by DHS on February 27, 2012, 

recommendation #1 is closed. Recommendations 2 through 6 are 

resolved and will remain open until we verify that DHS has 

implemented these recommendations. We included a copy of the 

management comments in their entirety in appendix B. 

Management Response to Recommendation #1 

DHS concurs with this recommendation. DHS reports that it has 

taken action to address this recommendation. Specifically, ICRM 

staff included additional controls to the template that will be 

submitted by Components to identify and reconcile program 

payment populations to Treasury disbursement totals. By having 

Components complete quality assurance questions that were 

previously performed by ICRM staff, problems will be identified 

earlier thus allowing more time to promptly and properly resolve 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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them. ICRM personnel are now required to review transactions 

identified as non-payment on the Components’ disbursement 

general ledger. 

OIG Analysis: On February 27, 2012, DHS provided its updated 

DHS Improper Payment Reduction Guidebook, version 2.0, which 

includes the updated program identification template with program 

identification checklist that Components are required to complete. 

The updated guidance also requires Components to provide 

payment detail files for all payments listed on the program 

identification template, and payment detail files for any nonpayment entries. The previous guidance required the payment 

detail files for payments only. During our audit, we noted that 

some payments were excluded from the list of CBP Security 

Border Fencing program payments because they appeared to be 

journal entries. This new requirement should provide DHS with 

support for all payments or entries to ensure a complete list of 

program payments. 

We consider DHS’ actions responsive. Based on our review of 

documentation provided by DHS in support of the described 

actions this recommendation is closed. 

Management Response to Recommendation #2 

DHS concurs with this recommendation. 

OIG Analysis: This recommendation is resolved and will remain 

open until we are able to verify the corrections in DHS’ FY 2012 

Annual Financial Report, which is required to be published by 

November 2012. 

Management Response to Recommendation #3 

DHS concurs with this recommendation. DHS plans to 1) update 

its Improper Payments Reduction Guidebook; 2) provide training 

to ensure that improper payment reviewers are not directly 

involved in processing any payments they are asked to review; and 

3) assign payment review to individuals who do not have a 

performance measure goal to reduce improper payments. 

OIG Analysis: With respect to DHS’ plan to assign payment 

review to individuals who do not have a performance measure goal 

to reduce improper payments, we offer some clarification. The 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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task of reviewing payment files for improper payments must not be 

conducted by personnel responsible for reducing improper 

payments for that same program. Simply, personnel should not 

test their own work. Furthermore, personnel conducting the 

review of payments should not report to someone who is 

responsible for keeping improper payment rates low. 

This recommendation has been addressed partially by the 

additional instruction to Components in DHS’ Improper Payment 

Reduction Guidebook, version 2.0. The Guidebook provides that 

personnel reviewing payment files for IPERA purposes must not 

review payments files for payments they are directly involved in 

processing. This recommendation is resolved and will remain 

open until DHS completes the remaining actions described. 

Management Response to Recommendation #4 

DHS concurs with this recommendation. ICRM staff will update 

the DHS Improper Payments Reduction Guidebook to explicitly 

state that the Department’s practice of applying the $10 million 

estimated error reporting threshold shall apply to programs using 

the standard methodology. When seeking approval from the 

Office of Management and Budget for an alternate sampling 

methodology, DHS will include dollar thresholds applicable to the 

results. 

OIG Analysis: DHS and FEMA are currently using a multi-year 

alternate sampling methodology plan, approved by OMB, for 

which the Department does not need annual approval. The revised 

guidance should apply to new DHS requests for approval to use 

alternate methodologies. This recommendation is resolved and 

will remain open until implemented. 

Management Response to Recommendation #5 

DHS concurs with this recommendation. DHS plans to ensure that 

DNDO and TSA recovery audit work will be conducted by the 

Comptroller of the USCG during FY 2012, as planned and 

reported in DHS’ FY 2011 Annual Financial Report. The USSS’ 

Chief Financial Officer will also complete recovery audit work in 

FY 2012. 

OIG Analysis: This recommendation is resolved and will remain 

open until DHS provides documentation supporting that recovery 

audits were completed in FY 2012 for DNDO, TSA, and USSS. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Management Response to Recommendation #6 

DHS concurs with this recommendation. DHS plans to revise its 

Improper Payments Reduction Guidebook and related training. 

The revised version will emphasize the need for Component 

contracting officer representatives to provide recovery audit 

contractors with direction and explanation on targeting the highest 

known or suspected payment risks. 

OIG Analysis: This recommendation is resolved and will remain 

open until DHS completes this work and provides documentation 

in support of the actions taken. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Appendix A 

Purpose, Scope, and Methodology 

The audit objectives were to 1) determine the Department of 

Homeland Security’s compliance with the Improper Payments 

Elimination and Recovery Act of 2010; 2) evaluate the accuracy 

and completeness of DHS’ improper payment reporting; and 3) 

evaluate DHS’ performance in reducing and recapturing improper 

payments. 

The scope of the audit is DHS’ FY 2011 efforts to comply with 

IPERA. We limited our scope to certain DHS Components. Using 

DHS’ Annual Financial Reports from FY 2008 through 2010, we 

judgmentally selected Components to review because they 

reported programs as high risk for improper payments. The 

Components we selected are U.S. Coast Guard, U.S. Customs and 

Border Protection, Federal Emergency Management Agency, U.S. 

Immigration and Customs Enforcement, and Transportation 

Security Administration. Additionally, we included National 

Protection and Programs Directorate and Science and Technology 

Directorate because DHS listed them in FY 2011 High Dollar 

Overpayment reports. 

To understand DHS’ requirements under IPERA and DHS’ 

policies and procedures to meet those requirements, we obtained 

and reviewed relevant authorities and guidance including IPERA, 

OMB’s memorandum on implementing IPERA, and DHS’ 

Improper Payment Reduction Guidebook. We also interviewed 

officials in DHS’ Office of Chief Financial Officer and the various 

Components directly involved with IPERA implementation. 

We contracted with independent auditor KPMG to determine DHS 

compliance with IPERA. The contract required that KPMG 

perform its audit in accordance with generally accepted 

government auditing standards. Those standards require that the 

auditors plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for their findings and 

conclusions based upon the audit objectives. 

At each Component, KPMG performed the following: 

 Obtained and read relevant authorities and guidance; 

 Interviewed Component management and reviewed 

Component policies; 

 Reviewed Components’ risk assessment processes; 

 Reviewed Components’ sampling plans and 

methodologies; and 

 Reviewed Components’ corrective action plans. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

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Appendix A 

Purpose, Scope, and Methodology 

At DHS, KPMG reviewed DHS’ FY 2011 AFR to determine 

compliance with reporting requirements. 

To evaluate the accuracy and completeness of DHS’ improper 

payment reporting, we performed the following procedures: 

 Reviewed Components’ risk assessments; 

 Reconciled Components’ risk assessments with FY 2010 

gross disbursement data; 

 Reviewed sample test plans and results; and 

 Reviewed DHS’ internal controls over the processes and 

procedures used to estimate the improper payment rate, 

including the risk assessment process, testing, and 

reporting. 

We did not conduct any sample payment testing to validate DHS’ 

estimated improper payment rates reported in the FY 2011 AFR. 

To evaluate DHS’ performance in reducing and recapturing 

improper payments, we performed the following procedures: 

 Reviewed DHS’ FY 2011 AFR for improper payment 

reduction and recovery data; 

 Reviewed DHS’ corrective action plans; and 

 Reviewed recovery auditors’ reports. 

We conducted this performance audit between September 2011 

and January 2012 pursuant to the Inspector General Act of 1978, as 

amended, and according to generally accepted government 

auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based 

upon our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based 

upon our audit objectives. 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 17
Appendix B 

Management Comments to the Draft Report 

U.$. ".,...._1orN_"" s..•..., W..........oc,..,•

•a Homeland

9 Security

FEB 23 m

MEMORANDUM FOR: Anne L. Richards

AssiSlallt lnsP.tct<>r Oeneral for Audits

FROM:

f~nanci'l Office,

SUBJECf: Depanmcnt of Homeland ~urity's ComplillllCC with the:

Improper Payments Elimirwion and Rec:overy Act of2010

(Proj~t No. ll-G44-AUD-MGMD

Thank you for the opportUflity to review and comment on this dmft report. We appreciate tM

Office of Inspector General's (010) work ronducting its SIlltuIQrily-requin:d annual revicw of

the U.S. Department ofUomeland ~urity's (DHS}compliance with the Improper Payments

Elimination and Recovery Act of2010 (lPERA) and issuinlllhis report.

We ore pleased to note that KPMG LLP. tlte Department's indepc:ndent financial Slal~nts

auditor, did not fInd iIfIy inslan<:cs of noncompliance wilh the Aee. We also welcome the DIG'.

positive recognition ofactions taken by the U.S. COIISI GWlJd that focusm on wg",ing high_risk

telecommuniClltions payments for recovery audits and which ","ulted in immediate cos! savings

of$I02,355 IIIId estimated fmure cost savings ofmon: than $2 million. We consider this W\Irl; a

government-wide best practice.and"", expanding it to other Components in FY 2012.

We have achieved many additional successes n:lated to the Depanmc:nt's improper payments

work. For example, the Federal Emergency Management Agency (FEMA) has cw>sistently

lower..:lthe estimated error rate for its high-risk programs. The overall error nlte for I'EMA's

high-risk programs dropped from 8.0% rq:K>rted in FY 2009 to l,1% in FY 21)[0 to 1.0% in FY

2011. This imptOV<:ll1ent was drh'en by the "",ffofthe FEMA Office of the Chief Financial

Officer who led mission aclion plilfl completion and formed successful partnerships with FEMA

granl progrwn manage". Improvements include adding applicilflt eligibility edit chceks,

standardizing documcn~tion requirements. and providing training on the root causes oferrors

and s!CpS to address paymCllt risks. Additionally, the SIllffofthe DHS Office oflbe Chief

Financial Officc:r (OCFO) fully atga~ed with staff from the DHS Offi~e of the Chief

Procurement Offi~er and leveraged lbeirexpc1IiK wbert evaluating conlnlCt paymCllts. This

cooperation improves our reponinS and assists Ibe development ofmission action plans by

crL'Iuring thatlhe fOOl ca\l1eS behind improper payment risk and contract management "'T1OOless

an: addr=ed.

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 


Page 18
 
Appendix B 

Management Comments to the Draft Report 

Your rep:>M <:onlained ~;x recommcndaliom, with which t~ Department ooncurs. Specifically,

you recommended the followingactionslO!he Depwy ChiefFinancial Officer:

Rf:<'(Immenda'ion jj(: To ensure \hal all paymenlll for programs and aeti~ities idenlified as high

.uk are .ubjectto selection for tOling and rep:>Med,!he Department mult:

(1) Enhance <:onltOls and proeesseJ used by Components to reconcile their lim offiscal

year payments with l~ir financial aco:ounting system; and

2) Enhance controls and processes used by the Depanment of Homeland Security to

review ComponenlS' lis15 offiscal year payments 10 ensure that they are complele and

that variances alll investigated, accounted for, and substantiated.

ROpllnH: Concur. DHS bas luken action 10 address this recornrnendalion. Specitically,

additienal controls were added by lntemal Control and Ri.k Management (lCRM) stafflo!he

template which will be submitted by Comp:>nen15 to identify and rt:roflcile program payment

p:>pulations to Treasury disburscmenttotals. Dy ha~ing Components complete quality lISSUnlnC<:

qutllions which were pre~iously perfOTmed by ICRM .taff, problems will be identified earlier

thus allowing more time 10 prompl1y and properly resolve them. Control. were also added 10

require lCRM .,..ffto ",~iew lransactions identified by Componenlll as non-payment which

updated disbursemctllll"neralledgcraccounlll. We reqllCstlhis recommendation be considered

closed. (Completion Date: December 27, 2011)

Recommcodation lIZ: Include: the: fottowingcorre<:tions in the: Department nfHomeland

Security's FY 2012 Ann",,1 Financial R~port:

(I) FY WII reoovcry audit ",porting for Federal Protective Services under National

Protection &. Program. Dim:torate; and

(2) Excluded payments from U.S. Customs and Border Protection'. Secure Border

Fencing program from the: FY ZO II Annual A_clat Rep<Jrl.

Response: Concur. These COITCClions will be clearly noled in the: FY 2012 Annual FiIWncial

Rtport. We request this recommendation be considered rcsol~ed and open. pending final

publication oftbc: FY 2012 report, (E~timated Completion Date: November IS, 2012)

Recommendation 0: Develop and implemcnt procedures to ensure that duties to dettmlinc: the

level of improper paymenlll and to reduce improper paymcn15 are adequately segregated.

Ruponn: Concur. ICRM staffwill: (1) update the [",proper Payments Rtduction GliltUboook

(Guidebook), (2) pro~ide training 10 ensure that improper payment reviewen lilt nol directly

inV<)l~ed in proctS:iing any paymenllllhocy are asked 10 review and (3) lWigll payment ..vie"",, to

individual. who do not have a performance measure goal 10 reduce improperpaymcnts. n.c

updated Guidebook will more prominently emphas;:.:c that improper payment ttst documentation

must be oompltlC and transparent. We request this rccolllmcndation to be considered resolvtd

and open, pending updating of!he Guidebook. completion of related training, and independent

2

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 


Page 19
 
Appendix B 

Management Comments to the Draft Report 

~~iewofComponcnt sample 1es1 ~sullS by ICRM .lafT. (f.slimalcd Complclion Date:

September 30, 2012)

Recommendatiol! #4: Modiry lhe Dcpanmenl of Homeland Securily'S /"'fNOper Payments

Rtd~l/on Guidebook 10 provide guidan~ 10} Components 00 howto tmll rcsullS oftesting using

allernalivc mclbodologie•. When seckingappro~al from lhe Office ofManagcmcnl and Budgel

ror an alternate !IIln\pling methodology, DHS shall propose dollar thrffiIolds!hal will be

applicable to lhe resullS oftcsting under an appro~cd allernale sampling mcl!>c.>dology.

R..pon5C: Concur. The Guidebook will be upd<lled by leRM stafflO cxplieitly Slale the

Dcpanrncnl's prtlCliee ofapplying the ten million dollar..limalcd etTOl reporting lhn:shold

""Iuirtd or programs not using allernali"" methodologies to alllllllional estimates in ClISCS "'ttrc

fUI alternate sampii"i mcthOOology i. employed. When seeking aPl'l'Oval from the Office of

Managemenl and Budget for fUI allemale sarnpli"i methodology, DHS will include dollar

thresholds applicable to the results. Pie...., "",Ie that the approval recei~cd from the Office of

Managemcnt and Budget for FEMA's usc ofan ahemale sampling methodology, eSlablished a

mulli-year teSling and reponi"i methodology which does no! ""Iuirc annual approval. We

requeSl this recommendalion 10 be considered resolved and open, pending lCRM's updali"i of

tile Guiokbook. (E'.sllmaled Completion Dale: February 29, 2012)

Rec<lmmondaliol! #5: Ensure lhat the Domestic Nuclear Deleclion Office, the Tnmsponalion

Security Adminislration, and U.S. Sccrel Service condlll:t recovery audils a.'5 planned and

reponed in the Department'. FY 20 I! Annual Finan<:ial Repon; and Components follow lhe

""IuiremenlS of the Improper I'aymems Eliminalion and Recovery Actof2010 10 pcrfonn

recovery audilll annually if condueting such recovery audilS is cosl-effccli,·c.

RtsponlC: Concur. PlaMcd Dome.lic N...lclll Deleclion Office and Transponation Security

Administration recovery audil work will be completed by !he Complrollerof!he U.S. Coasl

Guard during fY 2012. The U.S. Secrel Servicc's ChiefFinaneial Officer will also complete

rttOvery audil work during the lllIme lime period. We request this rcoommcndation 10 be

considered resolved and open, pending completion orlhi. work. (Eslimaled Completion Dale:

September 30, 20 12)

Rec<lmmmdalion 116: Ensure lhal Components Largellho5c impropcrpayrncnt eatcgorics thaI

have a higher polenlia! for overpaymenl and TCWveries for rttO~ery audits, "''hen cost-effecti~c

and modify the Department of Homeland Security's Paymenl Rccapture Audit Plan to follow

OMB guidance for prioritizi"i rttOvcry audilS,

Kapllns.: Concur. 1be Departmenl is strongly commincd 10 maximizing !he effccliveness and

efficiency ofcveT)' taxpayer dollar we rt<:eive. ICRM staffwill review llle Guidebook and

relaled trnining to ensu..., il emphasizes the DCCd for Componml contracting officer

~ntativcs to provide rttOVeJY audit contractorn with direction and explluwion on largeling

the hig/lcsl known or SUSpecled payment risks <as required by OMB guidance). For e~ample. as

a result ori~a3cd emphllSis in this area. DHS is planning to expand lllrgerod recovcry audil

work on telecommunications paymcnlS. We rcqueSi this rco;ommcndation to be considered

3

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 


Page 20
 
Appendix B 

Management Comments to the Draft Report 

resolved and open, pending completion ofthis worl<. (Estimated Compktion Date: September

30,2012)

Again, thank you for the opportunity to review and comment on this draA report. In panicular, I

"I'I'=iale (he high level of communication exhibited bet....-een your aoo;l learn and my staff

during lhe audit. By necessily, the lime available 10 complete this aodil was relatively shoTl, yet

~ur leam provided highly beneficial feedback throughout lhe entire engagement. As a result,

we ha,-c already taken concrete slCp5 to addms most ofthe findings and have a clear path 10

acbieve full resolulion oflhe remaining findings. We look forward 10 working with ~u on

future Homeland Sc<:urily issues.

•

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 


Page 21
 
Appendix C 

Major Contributors to this Report 

Sandra John, Director 

Donald L. Bumgardner, Director 

Andrea Rambow, Audit Manager 

Eric Young, Audit Manager 

Sandra Ward-Greer, Auditor 

Polin Cohanne, Senior Analyst 

Robert Edwards, Auditor 

Victor Leung, Program Analyst 

LaTrina McCowin, Auditor 

Jeff Mun, Auditor 

Meredith Needham, Program Analyst 

David Porter, Auditor 

Roger Thoet, Auditor 

Kevin Dolloson, Communications Analyst 

Frank Parrott, Independent Referencer 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 22 
Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

GAO 

The Comptroller General 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

The Committee on Homeland Security and Governmental Affairs 

of the Senate 

The Committee on Oversight and Governmental Reform of the 

House of Representatives 

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010 

Page 23 
 

 

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(OIG) at (202)254-4100, fax your request to (202)254-4305, or e-mail your request to 

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@dhsoig. 

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Attention: Office of Investigation - Hotline, 

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