a

GAO

United States General Accounting Office

Executive Guide

October 2001 STRATEGIES TO 

MANAGE IMPROPER 

PAYMENTS

Learning From Public 

and Private Sector 

Organizations

GAO-02-69G

Page 1 GAO-02-69G Improper Payments

Preface

The federal government of the United States—the largest and most

complex organization in the world—expended approximately $1.8 trillion

dollars in fiscal year 2000. As the steward of taxpayer dollars, it is

accountable for how its agencies and grantees spend those funds, and is

responsible for safeguarding against improper payments—payments that

should not have been made or that were made for incorrect amounts.

Despite the amount of funds involved and the impact improper payments

can have on a program’s ability to achieve its intended outcome, most

agencies have not yet estimated the magnitude of improper payments in

their programs. Without a systematic measurement of the extent of the

problem, agency management cannot determine (1) if the problem is

significant enough to require corrective action, (2) how much to costeffectively invest in internal control systems to correct the problem, or

(3) the impact of the actions already taken to reduce improper payments

or additional corrective actions needed.

This executive guide is intended to identify effective practices and provide

case illustrations and other information for federal agencies’ consideration

when developing strategies and planning and implementing actions to

manage improper payments in their programs. It was prepared at the

request of Senator Joseph I. Lieberman, Chairman, Senate Committee on

Governmental Affairs. This is one in a series of projects we are

undertaking for the Senate Committee on Governmental Affairs and the

House Committee on Government Reform concerning the issue of

improper payments involving federal programs.

In producing this guide, we contacted a number of private and public

sector organizations, which we identified primarily through extensive

research on financial management practices, and obtained information on

actions that they took and considered effective in reducing improper

payments.1

 The participants were the Department of Health and Human

Services’ Health Care Financing Administration; 2 the Social Security

Administration; the Department of Veterans Affairs; the states of Illinois,

Texas, and Kentucky; the governments of Australia, New Zealand, and the

United Kingdom; and three private sector corporations.3

 We thank them

for their willingness to participate and for the valuable information and

insights they provided.

 1

For a more detailed discussion of our objectives, scope, and methodology, see

appendix I.

2

In July 2001, the Health Care Financing Administration was renamed the Centers

for Medicare and Medicaid Services (CMS).

3

For a description of each of these entities, see appendix II.
Page 2 GAO-02-69G Improper Payments

This executive guide was prepared under the direction of Linda Calbom,

Director, Financial Management and Assurance. Other GAO contacts and

key contributors are listed in appendix IV. Questions can be directed to

Ms. Calbom at (202) 512-9508, calboml@gao.gov, or Tom Broderick,

Assistant Director, by phone, e-mail, or regular mail at the following:

Phone: (202) 512-8705

E-mail: broderickt@gao.gov

Mail: Tom Broderick, Assistant Director

U.S. General Accounting Office

441 G Street, NW

Washington, DC 20548

Jeffrey C. Steinhoff

Managing Director

Financial Management and Assurance
Page 3 GAO-02-69G Improper Payments
Page 4 GAO-02-69G Improper Payments

Contents

Preface 1

Introduction 8

Control Environment: Instilling a Culture of Accountability 12

Case Illustration: Control Environment in the United Kingdom 15

Strategies to Consider—Control Environment 17

Risk Assessment: Determining the Nature and Extent of the

 Problem 18

Case Illustration: Risk Assessment at Centrelink 21

Strategies to Consider—Risk Assessment 23

Control Activities: Taking Action to Address Identified

 Risk Areas 24

Data Sharing 25

Data Mining 28

Neural Networking 30

Recovery Auditing 32

Contract Audits 33

Prepayment Investigations 34

Strategies to Consider—Control Activities 35

Information and Communications: Using and Sharing

 Knowledge to Manage Improper Payments 36

Case Illustration: Information and Communications in Illinois 40

Strategies to Consider—Information and Communications 41

Monitoring: Tracking the Success of Improvement

 Initiatives 42

Case Illustration: Monitoring at the Department of Work and

 Income New Zealand 44

Strategies to Consider—Monitoring 46

Observations 47
Page 5 GAO-02-69G Improper Payments

Appendixes

Appendix I: Objectives, Scope, and Methodology 50

Appendix II: Entity Descriptions 52

Appendix III: Other Resources 58

Appendix IV: GAO Contacts and Staff Acknowledgments 65

Figures

Figure 1: Trends in Certain Actual and Projected Federal

 Expenditures: Fiscal Years 1980 Through 2006 9

Figure 2: Managing Improper Payments Through Internal

 Controls 11

Abbreviations

AFFIRM Association for Federal Information Resources

Management

AGA Association of Government Accountants

ANAO Australian National Audit Office

BOI Bureau of Investigations

CFO chief financial officer

CIO chief information officer

CMS Centers for Medicare and Medicaid Services

DI Disability Insurance

DSS Department of Social Security

DWP Department for Work and Pensions

FACS Department of Family and Community Services

FAE Fraud and Abuse Executive

FCW Federal Computer Week

FITEC Financial Implementation Team for Electronic Commerce

FPI Fraud Prevention Investigations Program

FSC Financial Services Center

FST Fraud Science Team

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

HHSC Health and Human Services Commission

HIC Health Insurance Commission

HUD Department of Housing and Urban Development

IDHS Illinois Department of Human Services

IDPA Illinois Department of Public Aid

IRD Inland Revenue Department

ITRB Information Technology Resources Board

KPI key performance indicators

MFADS Medicaid Fraud and Abuse Detection System

MMIS Medicaid Management Information System

NAO National Audit Office
Page 6 GAO-02-69G Improper Payments

NASIRE National Association of State Information Resource

Executives

NCMA National Contract Management Association

OASI Old Age and Survivors Insurance

OIG Office of Inspector General

PSC Private Sector Council

PWG Procurement Working Group

SSA Social Security Administration

SSI Supplemental Security Income

TANF Temporary Assistance for Needy Families

TDH Texas Department of Health

TDHS Texas Department of Human Services

VA Department of Veterans Affairs

WINZ Work and Income New Zealand
Page 7 GAO-02-69G Improper Payments
Page 8 GAO-02-69G Improper Payments

Introduction

Improper payments are a widespread and significant problem receiving

increased attention not only in the federal government but also among

states, foreign governments, and private sector companies. Improper

payments include inadvertent errors, such as duplicate payments and

miscalculations; payments for unsupported or inadequately supported

claims; payments for services not rendered; payments to ineligible

beneficiaries; and payments resulting from outright fraud and abuse by

program participants and/or federal employees. In the federal

government, for example, they occur in a variety of programs and

activities, including those related to contractors and contract

management; health care programs, such as Medicare and Medicaid;

financial assistance benefits, such as Food Stamps and housing subsidies;

and tax refunds.

While in the private sector improper payments most often present an

internal problem that threatens profitability, in the public sector they can

translate into serving fewer recipients or represent wasteful spending or a

higher relative tax burden that prompts questions and criticism from the

Congress, the media, and the taxpayers. For federal programs with

legislative or regulatory eligibility criteria, improper payments indicate

that agencies are spending more than necessary to meet program goals.

Conversely, for programs with fixed funds, any waste of federal funds

translates into serving fewer recipients or accomplishing less

programmatically than could be expected.

Despite a climate of increased scrutiny, most improper payments

associated with federal programs continue to go unidentified as they drain

taxpayer resources away from the missions and goals of our government.

They occur for many reasons including insufficient oversight or

monitoring, inadequate eligibility controls, and automated system

deficiencies. However, one point is clear based on our study—the basic or

root causes of improper payments can typically be traced to a lack of or

breakdown in internal control. Collectively, internal controls are an

integral component of an organization’s management that provides

reasonable assurance that the organization achieves its objectives of

(1) effective and efficient operations, (2) reliable financial reporting, and

(3) compliance with laws and regulations. Internal controls are not one

event, but a series of actions and activities that occur throughout an

entity’s operations and on an ongoing basis. People make internal

controls work, and responsibility for good internal controls rests with all

managers.

The risk of improper payments increases in programs with (1) complex

criteria for computing payments, (2) a significant volume of transactions,

or (3) emphasis on expediting payments. Since these factors apply to a
Page 9 GAO-02-69G Improper Payments

number of government programs that collectively disburse billions of

dollars, there is clearly a need for federal agencies to be ever more vigilant

in the design, implementation, and maintenance of proper controls for

safeguarding assets and preventing and detecting fraud and errors.

The risk of improper payments and the government's ability to prevent

them will continue to be of concern in the future. Under current federal

budget policies, as the baby boom generation leaves the workforce,

spending pressures will grow rapidly due to increased costs of programs

such as Medicare, Medicaid, and Social Security. Other federal

expenditures are also likely to increase. The increased size of federal

programs, spending pressures, implementation of new programs, and

changes in existing programs all but guarantee that, absent improvements

in internal controls and other proactive actions, the potential for

additional or larger volumes of improper payments will be present. Figure

1 illustrates the reported and projected trends in certain federal

expenditures, excluding interest on the public debt, for fiscal years 1980

through 2006.

Figure 1: Trends in Certain Actual and Projected Federal Expenditures: Fiscal Years

1980 Through 2006

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Other

Social Security

Defense

Medicare

Medicaid

Dollars in billions

Fiscal year

Actual Projected

Source: Actual and projected amounts are from the Budget of the United States Government, Fiscal

Year 2002, Historical Tables.
Page 10 GAO-02-69G Improper Payments

The President’s Management Agenda, Fiscal Year 2002, includes a

governmentwide initiative for improved financial performance. Under this

initiative, the administration will establish a baseline of the extent of

erroneous payments and require agencies to include, in their fiscal year

2003 budget submissions, information on erroneous payment rates,

including actual and target rates, where available, for benefit and

assistance programs over $2 billion. Using this information, the Office of

Management and Budget will work with agencies to establish goals to

reduce erroneous payments for each program.

Few would argue that the goal of reducing improper payments is not a

worthy one. But attacking the problem requires a strategy appropriate to

the organization involved and its particular risks, including a consideration

of the legal requirements surrounding security and privacy issues. The

organizations that participated in our study have taken actions that they

consider to be effective in reducing potential as well as actual improper

payments.

All of these actions shared a common focus of improving the internal

control systems over the problem area. This focus on internal controls

does not necessarily mean that the programs lacked controls but that the

existing controls needed to be updated or policies and procedures added

to strengthen the overall control system.

In this executive guide, we highlight many of the strategic actions taken by

the study participants4

 to reduce improper payments. We categorize these

actions into the five components of internal control—control environment,

risk assessment, control activities, information and communications, and

monitoring—outlined in the Comptroller General’s Standards for Internal

Control in the Federal Government (GAO-AIMD-00-21.3.1, November

1999).5

 For purposes of this study, we define these components as follows.

● Control environment—creating a culture of accountability by

establishing a positive and supportive attitude toward improvement

and the achievement of established program outcomes.

● Risk assessment—performing comprehensive reviews and analyses of

program operations to determine if risks exist and the nature and

extent of the risks identified.

● Control activities—taking actions to address identified risk areas and

help ensure that management’s decisions and plans are carried out and

program objectives are met.

● Information and communications—using and sharing relevant,

reliable, and timely financial and nonfinancial information in managing

improper payment related activities.

 4

The examples we have included from these organizations are meant only to

illustrate the range and variety of internal controls that may be useful to federal

agency managers. They are not all-inclusive and may not include the specific

controls that a particular agency may need.

5

The Federal Managers’ Financial Integrity Act of 1982 required that we issue

standards for internal control in the federal government.
Page 11 GAO-02-69G Improper Payments

● Monitoring—tracking improvement initiatives, over time, and

identifying additional actions needed to further improve program

efficiency and effectiveness.

Although these internal control components are applicable to the entirety

of an organization’s operations,6

 this executive guide focuses on internal

controls as they relate to reducing improper payments. The following

graphic represents the interrelationship between the components and

efforts to manage improper payments.

Figure 2: Managing Improper Payments Through Internal Controls

Information and

Communications

Monitoring

Control

Activities

Risk

Assessment

Objective:

Manage

Improper

Payments 

Control Environment

While this guide discusses each of these control areas separately, actions

to manage improper payments would typically require a continual

interaction between these areas. As depicted in the figure, the control

environment surrounds and reinforces the other components, but all

components work in concert toward a central objective, which, in this

case, is managing improper payments.

We conclude our discussion of the actions taken to address improper

payments with observations about key factors necessary for success. We

have included descriptions of the entities we visited in appendix II. Also,

appendix III identifies other sources of information that may be useful to

federal agencies in their efforts to address improper payments in their

programs.

 6

See also Internal Control Management and Evaluation Tool (GAO-01-1008G,

August 2001). The purpose of this tool is to assist agencies in maintaining or

implementing effective internal control and, as needed, to help determine what,

where, and how improvements can be implemented.
Page 12 GAO-02-69G Improper Payments

Control Environment: Instilling a Culture of Accountability

Of the elements that are critical to

the identification, development,

and implementation of activities to

reduce improper payments,

perhaps the most significant is the

control environment. By focusing

their attention on and

communicating their intent to

reduce improper payments

throughout an organization and to

all affected organizational units

and individuals, top-level

officials—whether in the

government or within private

sector companies—and legislative

bodies set the stage for change.

They instill a culture of

accountability by adopting a

positive and supportive attitude toward improvement and the achievement

of established program outcomes. They also establish a transparent

environment in which their expectations for program improvement are

clearly defined and accountability for achieving these improvements is set.

The actions of the entities in our study in areas including passing

legislation, setting and maintaining the ethical tone, delegating roles and

responsibilities, and implementing human capital initiatives clearly

communicated the need for change.

We were told by many of the officials we met in the course of our work

that, without the clearly established expectations and demands for

improvement by top management and legislative officials, little would have

happened to effectively reduce fraud and errors in their programs.

However, it is important to note that, while top management sets the tone

for cultural change, everyone from program managers to staff performing

day-to-day operational activities must buy into this change and work to

achieve its overall goals. The cultural change fostered by an effective

control environment stresses the importance of improvement and efficient

and effective program operations, while maintaining a balance with

concerns raised regarding privacy and information security in a world

where computers and electronic data are indispensable for making

payments. In the legislative arena, it involved passing laws requiring

certain actions by agency or program management, the use of various

prevention and/or detection methodologies, and periodic agency reporting

on the status of improvement efforts. At the agency or program level, it

included management’s public commitment to reduce fraud and errors, as

ìChanges made

in Texas might

not have

happened if the

legislature hadnít

become involved.

Regulations

should not be

seen as

roadblocks, but

as support or

backing to

achieve the

agenciesí

mission.î

Ken Holcomb,

Director of

Systems

Resources, Office

of Investigations

and Enforcement,

Texas Health and

Human Services

Commission

Information and

Communications

Monitoring

Control

Activities

Risk

Assessment

Objective:

Manage

Improper

Payments 

Control Environment
Page 13 GAO-02-69G Improper Payments

well as annual performance reporting and follow-up actions based on

performance results.

Top-level interest in the amount of improper payments at the organizations

that participated in our study often resulted from program, audit, and/or

media reports of misspent funds or fraudulent activities. As the magnitude

of these improper payments became known, pressures increased on

government officials and legislative bodies to reduce them.

In Texas, the legislature was instrumental in effecting changes to the

state’s benefit programs through provisions in several pieces of legislation.

The legislature’s involvement was precipitated in 1996 by the reported

amounts of improper payments in Texas’ Medicaid program (estimated to

range from $365 million to $730 million, or 4 to 8 percent of total

expenditures) and Temporary Assistance for Needy Families (TANF) and

Food Stamp programs (estimated at a total of $222.4 million, or about 8

percent of total expenditures for the two programs). Texas lawmakers

sought to reduce improper payments by mandating specific actions by

responsible agencies, including the use of computer technology to identify

and deter fraud and abuse in the Texas Medicaid program. In addition, the

lawmakers called for publicizing successful fraud prosecutions and fraud

prevention programs to deter benefit fraud.

Australia and New Zealand prepared and adopted a joint standard7

 on

“risk management,” to provide a cultural framework for managing risk.

Risk management is the term applied to a logical and systematic method

of managing risks associated with any activity, function, or process in a

way that will enable organizations to minimize losses and maximize

opportunities. The philosophy makes risk management a part of its

organizational culture and integrates risk management into its day-to-day

practices and business activities. When this is achieved, risk management

becomes the business of everyone in the organization.

People are what make internal controls work, and the integrity and ethical

values maintained and demonstrated by management play a key role in the

entire organization’s ethical tone. After the identification of significant

internal fraud, New Zealand’s Inland Revenue Department (IRD) created

the position of National Advisor, Fraud Prevention and Investigation, and

adopted a fraud control strategy. The primary aim of the strategy is to

enable responsible conduct, where the need to obey the law and to behave

ethically is part of the organization’s ethos. Accordingly, IRD has adopted

a code of conduct applicable to all employees that explains the standards

of integrity and behavior expected.

In the experience of IRD’s National Advisor, Fraud Prevention and

Investigation, employees are often provided a copy of the code of conduct

 7

Joint Australian/New Zealand Standard 4360:1999 was prepared by the Joint

Technical Committee OB/7—Risk Management. It was approved on behalf of the

Council of Standards Australia on April 2, 1999, and on behalf of the Council of

Standards New Zealand on March 22, 1999. It was published on April 12, 1999.

Referenced material is from pages iii and 1 of the standard.

ìThere are two

ways to stop

fraudóone is to

lock up everything

around you, and

the other is to

surround yourself

with ethical

people.î

Chris Linton,

Certified Fraud

Examiner, National

Advisor, Fraud

Prevention and

Investigation, New

Zealandís Inland

Revenue

Department
Page 14 GAO-02-69G Improper Payments

on their first day of work, along with a large volume of other paperwork,

and never actually read the code unless the code is breached. To heighten

employee awareness, IRD holds roundtable discussions with new and

seasoned employees, which bring the code to life in terms of everyday

business activity.

While many organizations have programs to deter and detect fraudulent

payments, improper payments resulting from miscalculation and other

errors often receive inadequate attention. Centrelink, a “one-stop shop”

that pays a variety of Australian government benefits, has recently made it

its business to improve payment accuracy. Centrelink was established in

1997 with a strong focus on customer service and the goal of paying

beneficiaries promptly. However, in recent years, internal and external

audit reports showed that Centrelink had, to some extent, traded quality

for timeliness. Centrelink’s own internal review showed that up to 30

percent of all work was rework because it was not done correctly the first

time. The organization’s management responded by implementing a

“Getting it Right” strategy in 2000, which established a tone for change by

setting out

● the roles and responsibilities of managers and team leaders, including

setting clear and measurable goals in line with Centrelink’s strategic

framework and meeting performance measures, and

● minimum standards to be applied by all staff in establishing proof of

identity of customers, managing records, keeping technical knowledge

and skills current, recording reasons for payment decisions, and

checking work comprehensively.

Centrelink has distributed posters and mouse pads to reinforce the

“Getting it Right” message and has provided resources to staff on how to

reach minimum standards. Through implementation of the “Getting it

Right” strategy, the Centrelink Chief Executive Officer has stated that she

expects a reduction in improper payments as well as continued timeliness

in payments to beneficiaries. Activities that must be undertaken for each

program, to ensure the quality of assessment and services provided, are

being developed. A number have already been released for

implementation in Centrelink’s Customer Service Centre network.

ìGood customer

service is

accurate

customer service.

While timeliness

is important,

quality and

accuracy are

more important

and will

ultimately

improve

timeliness

anyway.î

Sue Vardon, Chief

Executive Officer,

Centrelink
Page 15 GAO-02-69G Improper Payments

Case Illustration: Control Environment in the United Kingdom

“We made the task of tackling fraud one of our early priorities. This is

because public support is vital for welfare reform, and public support is

eroded by the failure to stop people defrauding the benefit system.”

Tony Blair, Prime Minister, United Kingdom

By providing a clear and consistent message that benefit fraud would not be

tolerated and taking initiatives to prevent or detect improper payments, the

government has led the way in setting the stage for change in the United

Kingdom. In 1993, the Comptroller and Auditor General in the United Kingdom,

head of the National Audit Office, issued a report to Parliament stating that the

government did not know enough about the level of fraud, organized or

otherwise, in its benefit programs. As a result of the report, Parliament required

the Department of Social Security8

 to improve measurement of the level of fraud

within the country’s benefit programs. In 1994, DWP conducted a benefit review

designed to identify the magnitude of fraud and error in Income Support followed

by other major benefit programs, including Housing Benefit, Disability Living

Allowance, and Retirement Pension. Based on the findings from these reviews,

the government estimated that about $3 billion9

 per year was lost to known fraud,

and noted that, if all suspicions of fraud were well founded, the figure could be as

high as $10 billion per year.

The level of improper payments captured the attention of all levels of

government–including the Prime Minister. Top British officials judged that it was

time to abandon business as usual, apply high standards of accountability, and

use creative strategies to detect and prevent erroneous and fraudulent

payments. Consequently, the British government created a control environment

that mandated improvement by setting the tone at the top with the broad goal of

reducing fraudulent and erroneous payments.

In 1998, DWP proposed a strategy to Parliament entitled Beating Fraud is

Everyone’s Business: Securing the Future that explained the government’s

commitment to reforming the welfare system and reducing improper payments

within its programs. The proposal was widely endorsed and, the following year,

DWP implemented the strategy entitled A New Contract for Welfare:

Safeguarding Social Security. The strategy addressed efforts to be taken across

four fronts:

● Getting it Right—ensuring that benefit payments are correct from day one,

● Keeping it Right—ensuring that payments are adjusted as circumstances

change,

 8

In June 2001 the Department of Social Security was renamed the Department for

Work and Pensions (DWP).

9

Amounts included in this report have been converted to U.S. dollars using the

following exchange rates, effective April 16, 2001, for one U.S. dollar: 0.697064

British pounds, 1.95665 Australian dollars, and 2.43533 New Zealand dollars.
Page 16 GAO-02-69G Improper Payments

● Putting it Right—detecting when payments go wrong and taking prompt

action to correct them with appropriate penalties to prevent recurrence, and

● Making Sure Our Strategy Works—monitoring progress, evaluating the

strength of controls, and making adjustments where needed.

DWP’s strategy also established performance measures for the reduction of the

amount of losses from fraud and error in the Income Support and Jobseeker’s

Allowance benefit programs.

To kick off its new program, DWP launched a publicity campaign against “benefit

cheats” to shift public attitude and promote intolerance toward those who defraud

the benefit system. Additionally, television commercials, billboards, newspaper

articles, and an antifraud Web site (www.targetingfraud.gov.uk) communicated

the government’s message to the public that fraud and abuse of the benefits

system would not be tolerated.

Parliament has also stayed actively involved in benefit payment reform and

improper payment reductions. For example, it enacted legislation authorizing

data sharing activities within and between government agencies and

departments. Also the Treasury requires departments to disclose instances of

irregular expenditures arising from erroneous benefit awards and fraud by

claimants. Further, the Comptroller and Auditor General has qualified his opinion

on DWP’s fiscal year 1995 through fiscal year 2000 financial statements because

of the level of fraud and error identified in the benefit programs. This served to

reinforce the message that high levels of improper payments are unacceptable in

the United Kingdom.
Page 17 GAO-02-69G Improper Payments

Among the organizations we studied, the pressures applied by oversight

entities and top management were instrumental as change agents. They

not only defined and communicated a need for improved program

operations but, most important, they redefined the organizational culture.

Further, by being transparent in redefining the culture, oversight entities

and top management set expectations and obtained buy-in on the need for

and importance of change from individuals throughout the organizations.

This was critical for success since these individuals managed the day-today program activities. Further, a culture of accountability was essential

to begin the critical next step in managing improper payments, the risk

assessment process.

Strategies to Consider—Control Environment

To create a control environment that instills a culture of accountability

over improper payments, the following strategies should be considered:

● provide leadership in setting and maintaining the agency’s ethical

code of conduct and in ensuring proper behavior under the code;

● provide a cultural framework for managing risk by engaging everyone

in the organization in the risk management process;

● increase accountability by establishing goals for reducing improper

payments for major programs; and

● foster an atmosphere that regards improper payments as

unacceptable.
Page 18 GAO-02-69G Improper Payments

Information and

Communications

Monitoring

Objective:

Manage

Improper

Payments 

Risk

Assessment

Control

Activities

Control Environment

Risk Assessment: Determining the Nature and Extent of the Problem

Strong systems of internal control

provide reasonable assurance that

programs are operating as

intended and are achieving

expected outcomes. A key step in

the process of gaining this

assurance is conducting a risk

assessment, an activity that entails

a comprehensive review and

analysis of program operations to

determine where risks exist and

what those risks are, and then

measuring the potential or actual

impact of those risks on program

operations. In performing a risk

assessment, management should

consider all significant interactions

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

the organizationwide and program levels. Once risk areas are identified,

their potential impact on programs and activities should be measured and

additional controls should be considered. As risks are addressed and

controls are changed, they should occasionally be revisited to determine

where the risks have decreased and where new areas of risk may exist.

As such, the risk assessment process should be iterative.

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, and it gives management baseline information

for measuring progress in reducing improper payments. The specific risk

analysis methodology used can vary by organization because of

differences in missions and the difficulty in qualitatively and quantitatively

assigning risk levels. In addition, because governmental, economic,

industry, regulatory, and operating conditions continually change, risk

assessments should be periodically updated to identify and deal with any

special risks prompted by such changes.

The organizations that participated in our study found that conducting risk

assessments, to determine the nature and extent of their improper

payments, was an essential step in helping them focus on the most

significant problem areas and determine what needed to be done to

address the identified risks in those areas.

Many federal agencies, even those with recognized weaknesses that result

in improper payments, do not perform risk assessments to identify and

estimate the magnitude of improper payments within their programs.

ìOne of the worst

problems an

organization

confronts is the

problem of

institutional

denial. An

organization

should not

simply say, ëWe

know we have a

problem, but we

donít want to

know how big it

is.íî

Aurora LeBrun,

Associate

Commissioner,

Office of

Investigations and

Enforcement,

Texas Health and

Human Services

Commission
Page 19 GAO-02-69G Improper Payments

However, some agencies do perform risk assessments. For example, the

Department of Health and Human Services (HHS) began reporting an

annual estimate of improper payments in the Medicare Fee-for-Service

program in 1996. In fiscal year 2000, it reported estimated improper

Medicare Fee-for-Service payments of $11.9 billion, or about 7 percent of

such benefits. HHS’ reporting and analysis of improper Medicare

payments has helped lead to the implementation of several initiatives to

identify and reduce such payments. These initiatives include working with

providers to ensure that medical records support billed services.

A thorough risk assessment also allows entities to target high-risk areas

and, therefore, to focus often limited resources where the greatest

exposure exists. For example, the Illinois Department of Public Aid

(IDPA) conducted a 1998 comparison of Medicaid payments made with

information and documentation associated with the claims to determine if

the payments were accurate. From this information, the IDPA calculated

that the state’s payment accuracy rate was about 95 percent. The review

identified errors and their causes and provided IDPA with information that

allowed it to focus attention on the 5 percent of inaccurate payments and

target strategies to improve the accuracy of these payments. For example,

of the $37.2 million spent for nonemergency transportation services

included in the study, $11.55 million (31 percent) were estimated to be in

error. The payment accuracy review and three other studies led to a series

of actions that included assuring that transportation providers actually

existed and were providing services, assuring that providers billed

Medicaid correctly, and sending notices to let providers know what is

expected of them.

Texas has performed two reviews of the accuracy of its health care

payments—one in December 1998 and a second in January 2001. Both

reviews of the Medicaid program were designed to measure the incidence

of potential overpayments that could be due to fraud and abuse. The 2001

study used three different types of analyses—client telephone interviews,

data analysis (identifying billing trends that are known to result in

overpayments), and medical record review. Documentation errors,

clerical errors, and potential fraud and abuse were identified. Texas used

the results to improve its fraud and abuse detection process by

considering certain high-risk areas in the development of data analysis

techniques in its Medicaid Fraud and Abuse Detection System (MFADS).

For example, it recommended an increase in analyses targeted at medical

supplies and durable medical equipment and at providers who bill higher

cost procedure codes to maximize their reimbursement.

Both Texas and Illinois found the first-time payment accuracy review to be

expensive—$250,000 and $400,000 in direct costs, respectively. However,

both states recognized that the cost of risk assessments would decrease

after the baseline measurement had been determined, and found them to

be cost-beneficial in light of the ability to focus on high-risk areas.

Resources are maximized when strategically aimed at the areas that need

the most improvement. Thus, they regarded the payment accuracy review

as an effective and cost-beneficial way to combat improper payments.
Page 20 GAO-02-69G Improper Payments

Government agencies in other countries also use payment

accuracy reviews to identify risk areas. For example, the

Department of Social Security in the United Kingdom uses the

results of a rolling program of reviews to determine the levels of

fraud and error in its Income Support and Jobseeker’s Allowance

benefit programs. Specifically, these reviews quantify the amount

of fraud, customer error, and official error (error by government

employees) affecting benefit claims. The government uses the

October 1997 through September 1998 review results as a baseline

against which the results of subsequent reviews are measured.

Further, DWP in the United Kingdom plans to use this information

to target areas for prevention and detection in the benefit

programs, to identify customers who are at risk for higher levels of

error in their claims, and to facilitate case interventions.
Page 21 GAO-02-69G Improper Payments

Case Illustration: Risk Assessment at Centrelink

“Risk is not another thing to manage, but a way of managing.”

Dr. Helen McKenna, National Manager, Risk and Business Assurance

Centrelink was established in 1997 as a “one-stop shop” for integrated access to

Australian government services. In this role, Centrelink pays a variety of benefits

on behalf of Australian government departments. Centrelink has 6.1 million

customers, pays 9.2 million individual entitlements each year, and employs a staff

of 22,000 in 1,000 service delivery locations across Australia.

On an annual basis, Centrelink enters into business partnership agreements with

the government departments for which it administers benefits. These agreements

include provisions that Centrelink perform risk assessments, noting that risk

assessments and risk control strategies are integral to ensuring that compliance is

effectively targeted. Centrelink’s risk assessments are performed based on

information that already exists; its risk assessment process is a joint one between

Centrelink and the responsible agency. A simplified version of Centrelink’s risk

assessment of one of the means-tested type programs it administers might look like

the following table.

Identified Risks for Improper Payments:

Fictitious or Assumed Identity/Dual Payment

Residential Qualification

Undeclared or Understated Income

Payment After Death

Claiming While Imprisoned

Change in Domestic Circumstances

Undeclared or Understated Assets

Exposure Rating

High Medium Low

I R

I R

I R

I R

I R

I/R

I/R

I= Inherent risk

R= Residual risk

As displayed by the risk assessment table, Centrelink is identifying both

● inherent risk—the potential risk for impropriety that exists for a payment by its

very nature, based on factors such as the number of beneficiaries receiving

payment, complexity of legislation, use of discretion in decision-making, and

political and public sensitivity, and

● residual risk—the risk that remains after considering the effectiveness of the

controls put in place to address inherent risk.
Page 22 GAO-02-69G Improper Payments

To identify inherent risk for each area, Centrelink uses a variety of data sources,

including prior review results, customer statistics, staff risk assessment workshops,

and internal research papers. For example, to identify the inherent risk for one of its

programs, Centrelink used results of reviews of 2,000 beneficiaries that identified

undeclared or understated income as a major risk. In addition, a staff risk

assessment workshop was held in which staff expressed concern that beneficiaries

were not aware of, or did not remember, their obligation to notify Centrelink of all

income they earn. This information, along with the sample results, contributed to

Centrelink’s assessment of the inherent risk of undeclared or understated income

as high. Then, as portrayed in the table, existing controls over undeclared or

understated income were considered, resulting in an assessment of residual risk at

medium.

The risk assessment identifies “fictitious or assumed identity” and “undeclared or

understated income” as the risk categories that pose the greatest exposure of

improper payment after existing controls have been considered. Centrelink uses

the risk assessment results to identify areas in which to implement strategies for

decreasing the level of risk of improper payments.
Page 23 GAO-02-69G Improper Payments

In our study of activities to reduce improper payments, risk

assessments identified problem areas and resulted in estimates of

monetary values associated with the problems. Thus, the process

of doing risk assessments was essential for evaluating the

feasibility and cost-effectiveness of the various corrective actions

considered. The organizations viewed risk assessments as

opportunity, and identified risk areas were communicated

throughout the organization.

Assessing its risks allows an organization to set goals and target its efforts

to reduce improper payments. Having developed such a framework, an

organization is well positioned to determine which control activities to

implement to reduce risks and ultimately reduce fraud and errors.

Strategies to Consider—Risk Assessment

To assess risk by determining the nature and extent of improper

payments, the following strategies should be considered:

● institute a systematic process to estimate the level of improper

payments being made by the organization;

● based on this process, determine where risks exist, what those risks

are, and the potential or actual impact of those risks on program

operations;

● use risk assessment results to target high-risk areas and focus

resources where the greatest exposure exists; and

● reassess risks on a recurring basis to evaluate the impact of changing

conditions, both external and internal, on program operations.

"Control

activities will not

be fully effective

until everyone,

from the person

on the counter

through to the

head of the

agency, takes

responsibility for

managing risk

from the

perspective of

their respective

positions."

Ralph Watzlaff,

General Manager,

Professional

Review Division,

Australian Health

Insurance

Commission
Page 24 GAO-02-69G Improper Payments

Information and

Communications

Monitoring

Objective:

Manage

Improper

Payments 

Risk

Assessment

Control

Activities

Control Environment

Control Activities: Taking Action to Address Identified Risk Areas

Once an organization has identified

areas of its operations that are at

risk and quantified the possible

extent of the risk, and its

management and other key

officials are committed to and have

set a goal for reducing the risk, the

organization must take action to

achieve that goal. Control

activities are the policies,

procedures, techniques, and

mechanisms that are designed to

help ensure that management’s

decisions and plans are carried

out. They include activities

designed to address risks that lead

to fraud and error. They are an

integral part of an organization’s actions in planning, implementing,

reviewing, and achieving effective results.

The control activities used by an organization to address improper

payments vary according to the specific threats faced and risks incurred;

differences in objectives; managerial judgment; size and complexity of the

organization; operational environment; sensitivity and value of data; and

requirements for system reliability, availability, and performance.

Additionally, they must comply with all relevant laws and help strike a

balance between the sometimes competing goals of privacy and program

integrity. Control activities can include both prepayment and

postpayment mechanisms to manage improper payments. Given the large

volume and complexity of federal payments and historically low recovery

rates for certain programs, it is generally most efficient to pay bills and

provide benefits properly in the first place. Aside from minimizing

overpayments, proactively preventing improper payments increases public

confidence in the administration of benefit programs and avoids the

difficulties associated with the “pay and chase”

10 aspects of recovering

improper payments. However, recognizing that some overpayments are

inevitable, agencies also need to adopt effective detection techniques to

quickly identify and recover them. Detection activities play a significant

role not only in identifying improper payments, but also in providing data

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

trying to recover overpayments once they have already been made rather than

preventing improper payments in the first place.

ìThere are no

brownie points for

just talking about

the problem.î

Joan McQuay,

National Benefit

Control and Debt

Manager, Work and

Income New Zealand
Page 25 GAO-02-69G Improper Payments

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Data Mining

Neural Networking

Recovery Auditing

Contract Audits

Prepayment Investigations

✔

on why these payments were made and, in turn, highlighting areas that

need strengthened prevention controls.

The organizations in our study used many different prevention and

detection control activities to manage improper payments. The nature of

these activities ranged from sophisticated computer analyses of

beneficiary and program participant data to postaward contract audits.

The kinds of activities pursued were dictated by the types of payment

activities each entity had identified as presenting the most significant risk

of improper payments as well as the kind of data and other resources that

were available to the entity in this effort. This guide discusses the

following six kinds of control activities:

● data sharing,

● data mining,

● neural networking,

● recovery auditing,

● contract audits, and

● prepayment investigations.

The data sharing, data mining, and neural networking techniques

discussed in this guide are powerful internal control tools that provide

more useful and timely access to information. The use of these techniques

can achieve potentially significant savings by identifying client-related

reporting errors and misinformation during the eligibility determination

process—before payments are made—or by detecting improper payments

that have been made. However, the more extensive use of personal

information in an evolving technological environment raises new

questions about privacy and how it should be protected. In the federal

arena, such activities must be implemented consistent with all protections

of the Privacy Act of 1974, as amended by the Computer Matching and

Privacy Protection Act of 1988, and other privacy statutes.

Data sharing allows entities that make

payments—to contractors, vendors, or

participants in benefit programs—to compare

information from different sources to help

ensure that payments are appropriate. For

government agencies, data sharing can be

particularly useful in confirming initial or

continuing eligibility of participants in benefit programs and in identifying

improper payments that have already been made.11

A form of data sharing that Texas has found to be effective for

determining the initial eligibility of individuals for Food Stamp

benefits puts information from several state and local agencies in

 11See also Benefit and Loan Programs: Improved Data Sharing Could Enhance

Program Integrity (GAO/HEHS-00-119, September 13, 2000).
Page 26 GAO-02-69G Improper Payments

the hands of state caseworkers by means of a vendor-provided

software program. The vendor maintains public information, such

as that recorded by local department of motor vehicles or

municipal courts, where it can be easily searched by caseworkers

to evaluate information provided by individuals applying for

benefits. Using the software, caseworkers can target questions to

applicants when there are discrepancies between information

provided by the clients and that recorded elsewhere. Caseworkers

can search the database for data such as driver’s license

information, records showing the number of individuals or vehicles

at the clients’ reported addresses, telephone numbers, vehicle

values, boat and motor files, criminal convictions, marriage/divorce

records, and consumer credit reports. Then, for example, if the

data search shows two cars at an applicant’s address when the

benefit applicant has reported only one, the caseworker can, at the

time of the benefit application, question the applicant concerning

this discrepancy. Generally, this query information is treated only

as a “case clue” and must be verified. The database contains

reporting options that allow supervisors to monitor employees’ use

of the system to ensure that all queries are appropriate—in

addition, the state’s internal auditor monitors the staff’s use of the

database.

Beyond determining initial eligibility of participants in benefit programs,

data sharing can also be used to identify improper payments that have

already been made. Data sharing allows a flow of information in two

directions, which is particularly helpful to some organizations in managing

improper payments. For example, the Social Security Administration

(SSA) obtains death records from states to determine if deceased

individuals are receiving benefit checks. At the same time, SSA provides

data to states and other agencies. Among the data it shares is notification

of whether there is a valid social security number to confirm the eligibility

of an applicant for various state or federal benefit programs. The

exchange of information allows data matches to take place, a process in

which information from one source is compared with information from

another to identify any inconsistencies. Data matches of social security

numbers and other data can help determine whether beneficiaries are

receiving payments inappropriately or under more than one name or

address.

SSA performs over 20 data matches with over 10 federal agencies and

more than 3,500 state and local entities using incoming information.

Additionally, SSA shares outgoing information with federal agencies

through more than 15 matches. For example, SSA shares data with the

Department of Housing and Urban Development (HUD) so it can perform

a match to verify the identity of recipients of housing benefits and identify

potentially fraudulent claims. SSA uses data matches to prevent and

detect improper payments in its programs. It estimates that it saves

$350 million annually for Old Age and Survivors Insurance and Disability

Insurance, and $325 million annually for Supplemental Security Income

through the use of data matching. Further, the savings are not limited to
Page 27 GAO-02-69G Improper Payments

those realized by SSA. According to SSA, its matches save approximately

$1.5 billion each year for other agencies.12

Data matches to identify improper payments can be performed

periodically (i.e., daily, monthly, or yearly) or on an ad hoc basis, using

various sources of data to reconfirm eligibility of beneficiaries and

accuracy of payments. Texas conducts both periodic and ad hoc matches

using data including

● prisoner information obtained from the Texas Department of Criminal

Justice and SSA’s Prisoner Verification System (to determine whether

prisoners are receiving benefits to which they are not entitled),

● deceased individuals lists obtained from the Texas Department of

Health Bureau of Vital Statistics (to determine whether benefits are

being paid to such individuals), and

● income information obtained from the Texas Employees Retirement

System (to check retiree income for amounts that affect the level of

benefit eligibility).

Texas also shares data with three of its bordering states to determine

duplicity of benefits, which, for the four states, has resulted in an average

of 337 potential duplicates per state per quarter. In fiscal year 2000, after

researching potential duplicate payments, Texas denied or decreased

benefits in 656 cases, resulting in approximately $578,000 in benefits

saved.

Kentucky performs data matches to determine eligibility for Food Stamps,

TANF, and Medicaid benefits using an integrated automated system that

lets caseworkers determine eligibility for the three programs

simultaneously. At the time the application is entered into the system, the

system performs several matches to obtain additional information on the

applicant and prevent duplicate participation. These matches are made

through its income eligibility and verification system using the applicant’s

social security number, name, date of birth, any previous disqualification

record from assistance programs, and income. In addition, on a monthly

basis, other matches are conducted. The state matches data with the

National Crime Information Center to check for fleeing felons, with SSA to

determine if any clients are in prison or have died, and with assistance

programs in other states to check for client disqualification. In addition,

matches with unemployment and state wages records are done monthly.

When these matches result in information that could require changes in

benefits, the matches appear on the daily case status reports, alerting

caseworkers to potential changes in benefits.

The United Kingdom formalized data matching between government

organizations in 1995, and it reported that, through March 2000, it had

realized benefit savings of about $450 million. From April 1999 through

 12SSA calculates the annual savings based on a compilation of cost-benefit

analyses performed by the matching agencies under the terms of their matching

agreements with SSA.

SSA data matches

save $1.5 billion

for other

government

agencies each

year.
Page 28 GAO-02-69G Improper Payments

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Data Mining

Neural Networking

Recovery Auditing

Contract Audits

Prepayment Investigations

✔

March 2000, matches identified about 217,000 inconsistencies for further

investigation, and resulted in an overall benefit saving of about $53 million.

Additionally, legislation has now been passed to enable the government to

obtain financial information from the private sector in certain

circumstances.

The prevalence of data sharing is evidence of the value provided to

agencies when they can obtain and use data from sources external to an

individual program’s systems. Having the two streams of data allows for

matches to occur and inconsistencies or anomalies to be flagged for

further research. Federal entities contemplating data matching must do so

in accordance with the provisions of the Computer Matching and Privacy

Protection Act, which requires that (1) the privacy of data used in

computer matches be protected, (2) agencies complete cost-benefit

analyses on all computer matches and report annually on their findings,

unless the matches are exempted by law, and (3) data integrity boards be

established to approve and review the data matches.

While data sharing gives an organization the

means to compare data from different sources,

data mining offers a tool to review and analyze

diverse data. Data mining analyzes data for

relationships that have not previously been

discovered. For example, the incidence of

improper payments among Medicaid claims

might, if sufficiently analyzed and related to other Medicaid data, reveal a

correlation with a certain health care provider or providers.

The central repository of data commonly used to perform data mining is

called a data warehouse. Data warehouses store historical and current

data and consist of tables of information that are logically grouped

together. The warehouse allows program and financial data from different

nonintegrated systems throughout an organization to be captured and

placed in a single database where users can query the system for

information. The information can then be “mined” or searched according

to specific criteria to identify associations, sequences, patterns, and

clusters between different pieces of information—relationships that are

often hidden in separated databases.

As a tool in managing improper payments, applying data mining to a data

warehouse allows an organization to efficiently query the system to

identify questionable activities, such as multiple payments for an

individual invoice or to an individual recipient on a certain date. This

technique allows personnel who are not computer specialists, but who

may have useful program or financial expertise, to directly access data,

target queries, and analyze results. Queries can also be made through data

mining software, which includes prepared queries that can be used in the

system on a regular basis.
Page 29 GAO-02-69G Improper Payments

IDPA began data mining in an effort to improve a system that was

too slow to provide the timely information needed for a wide range

of agency functions, including the prevention and detection of

overpayments. As of December 2000, the state had spent

$29 million to create a data warehouse to supplement the Medicaid

Management Information System (MMIS), which maintains data on

Medicaid providers and beneficiaries as well as claims and

payments. The data warehouse includes over 2,000 different

fields/elements. The results of data queries are particularly useful

because the data warehouse is able to store more current data than

MMIS. At present, there is a 1-month lag in current information,

compared to the 3- to 6-month lag that existed before IDPA began

using data mining. In addition, the data warehouse can now store

up to 5 years of data, and IDPA is currently weighing the costs and

benefits of increasing this to 10 years of data.

IDPA officials noted that using data mining allows them to analyze

large amounts of data. Because the large number of transactions in

the system precludes manually examining each transaction for

associations and patterns with other transactions, data mining is an

effective and efficient alternative. The IDPA Office of Inspector

General (OIG) also uses data mining to quickly respond to requests

for information for ongoing investigations from the Federal Bureau

of Investigation and the Illinois State Police.

The IDPA OIG created the Fraud Science Team (FST), an

interdisciplinary team that includes an economist, program and

policy experts, and information specialists. FST maximizes the

value of the data warehouse by performing data mining activities

and providing a research-based approach to fraud prevention and

detection. FST has produced documentation on over 800 fraud

schemes, which it has categorized into 19 different types, such as

billing for services not rendered and kickback schemes. The

information on these schemes is used in the development and

implementation of targeted analyses that are run against the data

warehouse information to identify data relationships and

anomalies, which are often signs of fraud. This information can

also be used to implement specific controls in the system intended

to prevent the identified types of fraud.

During our visit, the IDPA OIG staff ran several queries and

analyses. For example, one risk area identified was health care

providers that were billing for services provided in excess of 24

hours in a single day. With the capabilities of the data warehouse,

OIG staff developed an analysis that identified 18 providers that

had billed over 24 hours for at least 1 day during the 6 months

ended December 31, 1999. A number of the identified providers

were already under investigation for other program violations. As

a result of this analysis, the OIG plans to refer serious cases to

appropriate law enforcement agencies and take administrative

action against the less serious violators.
Page 30 GAO-02-69G Improper Payments

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Data Mining

Neural Networking

Recovery Auditing

Contract Audits

Prepayment Investigations

✔

Before the data warehouse was available, obtaining responses to

queries of this kind would have required obtaining separate reports

from different systems and could have taken up to 2 months.

However, during our visit querying the warehouse took from

several seconds to a few minutes per query.

New initiatives that Illinois expects will further improve data

mining at IDPA are the development of a 3-day training course to

help users properly structure queries and the use of data mining

software. In an early effort using data mining software, IDPA OIG,

as part of a partnership audit with HHS OIG, identified 232 hospital

transfers that are believed to have been miscoded as discharges,

creating a potential overpayment of $1.7 million.

The large number of computerized claims processed by Medicare

also lends itself to the application of data mining techniques.

Claims administration contractors at HHS’ Centers for Medicare

and Medicaid Services (formerly the Health Care Financing

Administration) use data mining and statistical analysis as part of

their postpayment review activities. Since 1993, CMS also has

contracted with a specialized statistical analysis contractor to

perform large-scale analysis of durable medical equipment claims.

Data mining can identify many potentially inappropriate payments,

but determining which ones are actual overpayments takes

additional investigation. Currently, the contractors only have the

resources to investigate situations in which the data indicate

potential large-scale abusive practices.

Neural networking is a technique for extracting

and analyzing data. In this case, the system

analyzes associations and patterns among data

elements, which allows it to find relationships

that can result in new queries.

A neural network is intended to simulate the

way in which a brain processes information, learns, and remembers. A

neural network is initially “trained” or fed large amounts of data and rules

about data relationships (for example, “a person’s grandfather is older

than that person’s father”). Neural networks “learn” by comparing new

data with historical data and can be used to detect patterns that are

difficult, and sometimes impossible, to detect without computer

intervention in large volumes of data. The more data a neural network

processes the better it performs (i.e., the better it identifies the

characteristics of potentially fraudulent payments). Based upon this

knowledge, neural networks automatically alter their analytical processes

to produce more accurate detection results.

In 1997, the Texas legislature mandated the use of neural networks

in the Medicaid program. After examining the results of a pilot test

An early effort at

using data mining

software in Illinois

has identified

$1.7 million

in potential

overpayments.
Page 31 GAO-02-69G Improper Payments

of neural networks conducted by the Comptroller’s Office, Texas’

Health and Human Services Commission (HHSC) responded to the

legislation and implemented MFADS. The MFADS project was

operational in January 1998 and combines both data mining and

neural network capabilities.

In Texas, models used with the neural network technology identify

fraudulent patterns from large volumes of medical claims and

patient and provider history data. For example, they can help

identify perpetrators of both known and unknown fraud schemes

through the analysis of utilization trends, patterns, and complex

interrelationships in the data. The state currently has models for

physician and dental providers and plans to initiate a model for

pharmaceutical providers.

HHSC awarded a contract for the development and operational

support of MFADS. Annual contract costs range from $2.6 million

to $3.1 million for contractor operations that include the

development and ongoing support of the models. The Texas

models are composed of 500 to 600 variables and generate an

annual report that identifies the potential unscrupulous providers

and ranks the providers according to how questionable their billing

patterns appear to be. The models detail the variances through

graphs that compare amounts billed and services rendered (among

others items) by the identified provider with the average of the

other providers. For example, one dental provider was ranked

third on a dental model listing due to unusual activity in areas such

as multisurface restoration and root canal activities. An

investigator, using MFADS, was able to run detailed reports on the

provider's activity in the identified high-risk areas and determined

that the combination of services provided, volume of services

provided, and the recurring pattern of the services provided were

indeed suspicious. Additionally, a dental consultant reviewed 100

of the provider’s dental charts and determined that many of the

services claimed were unnecessary. As a result, the provider

agreed to a settlement and has repaid the identified overpayments

of $162,000 plus other penalties. Additionally, the provider was

excluded from the Medicaid program for 15 years.

The results from both the data mining activities and the neural

network reports are reviewed and possibly investigated to

determine if the claims are fraudulent or the providers are

unscrupulous. According to Texas officials, medical judgment is

important when considering the accuracy of claims, and, as such,

medical professionals assist in reviewing medical claims.

Texas’ HHSC prepares quarterly reports for the legislature’s

review. The Second Quarter Fiscal Year 2001 Contract

Performance Report for the Medicaid Fraud and Abuse Detection

System reported that it had identified 2,567 cases (representing

over $6 million) for investigation in fiscal year 2000. As a result of

Texasí Medicaid

Fraud and Abuse

Detection System

used neural

networking to

recover

$3.4 million in

fiscal year 2000.
Page 32 GAO-02-69G Improper Payments

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Data Mining

Neural Networking

Recovery Auditing

Contract Audits

Prepayment Investigations

✔

investigating these cases, approximately $3.4 million has been

recovered. These reports also show how HHSC is performing in

relation to its performance measures. In fiscal year 2000, one of

the performance measures was that total dollars identified for

recoveries equal or exceed 139 percent ($3.7 million) of the fiscal

year contract cost amount. HHSC exceeded its goal by identifying

$6.1 million for recovery.

Recovery auditing is the practice of identifying

and recovering overpayments that examines

payment file information to identify possible

duplicate or erroneous payments. For instance,

vendors make pricing errors on their invoices,

forget to include discounts that have been

publicized to the general public, neglect to offer

allowances and rebates, miscalculate freight charges, and so forth. In

addition, the same invoices, or portions thereof, could be paid more than

once. These mistakes, when not caught, result in overpayments.

Recovery auditing can incorporate data mining techniques.

While traditionally used as a technique to identify improper payments

already made, organizations have also experienced success in using

recovery auditing to analyze records prior to payment. Because it helps to

prevent improper payments before they occur, this use of recovery

auditing eliminates the costs associated with obtaining reimbursements

for the erroneous payments or taking other actions needed to offset future

payments by the amount of the improper payment.

Recovery auditing started about 30 years ago, and it is used in several

industries, including the automobile, retail store, and food service

industries, and, to some extent, within the federal government. Some

entities use their employees to analyze their payment records while others

contract with recovery audit firms for the work. Contract firms often

perform this work on a contingency fee basis, that is, they only receive

compensation if they identify and recover amounts determined to be

improper payments. As discussed below, recovery auditing, which has a

long-standing track record in the private sector, offers an opportunity to

identify improper payments before they occur and to identify and recover

overpayments if they do occur.

● One private sector company contracted, on a contingency fee basis,

with a recovery audit firm for a review of its accounts payable files—

files in which its systems’ controls had not found errors. The review

resulted in the recovery of $8 million in improper payments. The

company recently began using recovery auditing techniques on

accounts payable information to prevent improper payments before

they occurred. It expected that this activity would identify possible

duplicate payments, and the test verified the company’s expectations.

For example, during our visit, it identified and avoided a duplicate

payment of $136,000 from the reports generated by the recovery audit
Page 33 GAO-02-69G Improper Payments

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Data Mining

Neural Networking

Recovery Auditing

Contract Audits

Prepayment Investigations

✔

software. In addition, as a result of using recovery auditing before

payments are made, the company identified and stopped the

processing of $41 million in wire payments that had already been

processed. Another advantage of the recovery audit services used by

the company is that the software identifies the employees who are

making processing errors so that the company can take appropriate

counseling and training action.

● Another private sector company contracted with a recovery audit firm,

on a contingency fee basis, to perform two separate reviews of its

disbursements—the first review was for disbursements made from

1992 through 1995, and the second for disbursements made from 1996

through 1998. Both reviews identified duplicate payments and resulted

in recovery actions and in changes to the payment system to help

reduce future overpayments. For example, from 1996 through 1998,

the company processed about 9 million invoices. The recovery audit

review of these invoices identified about $5 million in potential

overpayments and resulted in actions to recover these funds, where

appropriate. Further, based on an analysis of the overpayments

identified, the company has implemented procedures that have

reduced its dollar error rate per one million dollars of transactions

from a reported $65 in 1992 through 1995 to a reported $34 dollars in

1996 through 1998. In addition, the company is now preparing to enter

an agreement with the recovery audit contractor under which the

recovery auditing software will be installed in the company’s system,

allowing its staff to perform the recovery audit function—even as part

of the prepayment process.

Recovery auditing is also being used to some extent in the federal

government. For example, the Department of Veterans Affairs’

(VA) Financial Services Center (FSC) in Austin, Texas, had

contracted with recovery audit firms in the past, but now performs

recovery auditing in-house using about three full-time employees to

administer the program and one employee for software

development. If a duplicate payment is identified, VA takes one of

several actions, including canceling the transaction prior to

payment, notifying Treasury to stop issuance of a check, or issuing

a bill of collection. For example, FSC has identified over $2 million

in overpayments and has collected, by either offsetting future

payments or cash collection, nearly $300,000 for the first 6 months

of fiscal year 2001. A FSC official noted that recovery auditing

could be beneficial to almost any organization that makes

payments.

Postaward audits of contracts are

another technique that can help to

combat improper payments and are

used, to some degree, within the federal

government. These audits verify that

A private sector

company

recovered

$8 million in

improper

payments as a

result of a

recovery audit.
Page 34 GAO-02-69G Improper Payments

Data Sharing

Data Mining

Neural Networking

Recovery Auditing

Contract Audits

✔ Prepayment Investigations

payments are being made in accordance with contract terms and

applicable regulations. They can detect improper payments that

have been made, help avoid future payments of the same kind, and

provide oversight of companies conducting business with the

government. For example, in fiscal year 1993, the VA Office of

Acquisition and Materiel Management partnered with the VA OIG

and the VA Office of General Counsel to establish the VA

Procurement Working Group (PWG). As a result, a Contract

Review and Evaluation Division was established to provide audit

and advisory services related to contracts awarded by contracting

officers in VA’s Office of Acquisition and Materiel Management.

From 1993 through September 2000, PWG reported recoveries

resulting from postaward audits of contracts totaling about

$119 million. This represents a reported return of $18 for every

dollar spent in support of these audits. PWG attributes its success

to the establishment of a knowledgeable and professional group of

contract auditors in the pharmaceutical and medical/surgical

supply industries. As a result of the audits and PWG’s efforts,

many contractors have voluntarily elected to perform internal

reviews and have submitted 65 voluntary disclosures and refund

offers to VA. Prior to 1993, VA received almost no voluntary

disclosures. Some contractors have also developed and

implemented corporate responsibility plans to ensure compliance

with acquisition regulations and statutes.

In 1996, IDPA established a Fraud

Prevention Investigations Program

(FPI) to prevent ineligible persons

from receiving Food Stamps, TANF,

and Medicaid. Under this program,

case managers in the Illinois

Department of Human Services

(IDHS) refer applications that contain suspicious or conflicting

information to IDPA’s Bureau of Investigations (BOI) for action

before benefit payments begin. Case managers use certain referral

criteria, such as applications that contain contradictory

information about household composition or employment, to

identify these applications. BOI submits referred cases to a private

investigation firm, under contract with the IDPA OIG, which

investigates the information on the application. This investigation

may consist of interviews; contacts with employers, landlords, or

neighbors; or a visit to the applicant’s home. The results are

reported to BOI within 8 business days (5 business days for food

stamps) and then to the local IDHS office for appropriate action—

approval, denial, or reduction of benefits.

The program was piloted in 1995 and was implemented in 1996, with five

Cook County (Chicago) IDHS offices participating. Currently, all 23 IDHS

local offices in Cook County participate in the program. FPI reports total

savings, since program inception, of about $12 for every dollar spent.

Illinois reports

saving $12 for

every dollar spent

on fraud

prevention

investigations.

VA reported

recoveries of

$119 million from

contract audits.
Page 35 GAO-02-69G Improper Payments

Specifically, in fiscal year 2000, FPI prevented $9.5 million in improper

payments from being issued at a cost of $823,000. Savings are calculated

based on the administrative and contract costs of the program as a

percentage of gross savings and cost avoidance for cases that resulted in

denied or reduced benefits.

The preceding examples of control activities are meant to illustrate a

sample of the type of activities that may be useful to agency managers. An

agency’s internal control activities should be flexible, weighing costs and

benefits, to allow agencies to tailor control activities to fit their special

needs. Once control activities are in place, the internal control cycle

continues with the prompt communication of information that managers

need to help them carry out these activities and run their operations

efficiently and effectively.

Strategies to Consider—Control Activities

In taking action to address identified risks, the following strategies should

be considered:

● based on an analysis of the specific risks facing the organization, and

taking into consideration the nature of the organization and the

environment in which it operates, determine which types of control

activities would be most effective in addressing the identified risks;

● where in-house expertise is not available, investigate the possibility of

contracting activities out to firms that specialize in specific areas, such

as recovery auditing and neural networking;

● perform cost-benefit analyses of potential control activities before

implementation to help ensure that the cost of those activities to the

organization is not greater than the potential benefit control;

● ensure that personnel involved in developing, maintaining, and

implementing control activities have the requisite skills and

knowledge, recognizing that staff expertise needs to be frequently

updated in evolving areas such as information technology and fraud

investigation; and

● recognize and consider the importance of privacy and information

security issues when developing and implementing control activities.
Page 36 GAO-02-69G Improper Payments

Objective:

Manage

Improper

Payments 

Risk

Assessment

Control

Activities

Information and

Communications

Monitoring

Control Environment

Information and Communications: Using and Sharing Knowledge to

Manage Improper Payments

Top-level agency officials, program

managers, and others responsible

for managing and controlling

program operations need relevant,

reliable, and timely financial and

nonfinancial information to make

operating decisions, monitor

performance, and allocate

resources. This information can be

obtained from a variety of sources

using a wide range of data

collection methodologies. The

organizations that participated in

our study used internal and

external sources to obtain needed

information. Further, these

sources varied widely, from

information contained in multiple computer databases to periodic

meetings of individuals to share information on emerging issues and other

areas relevant to effective program operations.

The need for information and communication extends beyond

organizational boundaries. Many of the governmental programs

with improper payments are benefit programs that involve

recipients and providers of services. Organizations in our study

developed educational programs to assist these participants in

understanding eligibility and other requirements and, for service

providers, information on issues including common claim filing

errors.

Having information available to provide feedback to management

on initiatives is necessary to adequately evaluate performance. At

Centrelink in Australia, information showing achievement against

key performance indicators (KPI) for compliance activity is

provided to managers monthly, within 9 days of the end of the

month. Information is provided about the number of compliance

reviews (cases identified as high risk for incorrect payment)

completed, savings, incorrect payments identified for recovery, and

the level of incorrect payment. Information is also provided on

prosecution activity. In addition, comparative information is made

available so that the managers see how they are doing compared to

other managers. While these reports are available within 9 days of

the end of the reporting period, a database containing review

information can be accessed within 48 hours. This enables

managers to produce detailed, flexible, reports on-line. As a result
Page 37 GAO-02-69G Improper Payments

of having this timely information, managers can more effectively

manage the resources available to them.

Minimizing improper payments often requires the exchange of

relevant, reliable, and timely information between individuals and

units within an organization and with external entities with

oversight and monitoring responsibilities. This can be achieved by

establishing working groups. For example, in 1997 Illinois

established its Medicaid Fraud Prevention Executive Workgroup.

The purpose of the workgroup is to develop reasonable and

prudent measures consistent with the provision of quality health

care to combat fraud and abuse in the Medical Assistance Program.

The workgroup has approximately 15 members from both the

program and integrity sides of IDPA, including members from

claims processing, technical support, budget and analysis, fraud

research, investigations, information technology, and information

systems. The cooperation between the program and the integrity

divisions is the vehicle by which emerging issues are addressed.

The group meets monthly to discuss the status of previously

discussed and/or implemented initiatives and to propose and

discuss current problems and potential initiatives. Topics

discussed have resulted in ongoing changes to computer edits and

policies, reflecting the dynamic nature of fraud.

While timely, accurate, and reliable information is necessary for

internal use, the organizations we visited stressed that

communication with the public, benefit providers, and

beneficiaries was also necessary. Educating the parties involved in

the transaction reduces the risk of potential errors and strengthens

joint responsibility and accountability of those involved.

Texas considers the various forms of education to be costbeneficial in its Medicaid program. For example, in 1997 it

implemented several initiatives to educate new providers before

they enroll in the Texas Medicaid program. First, each new

Medicaid provider receives a “Success with Medicaid” package

containing information on claim filing, including helpful tips, and

instructions on how to use the automated phone system for

inquiries. This “welcome” package is hand delivered during a site

visit by one of Texas’ 19 Medicaid field representatives. Three

months after enrollment, the field representatives evaluate a

sample of each new provider’s claims to see if there are any issues

that should be discussed. Then, the same representative who made

the initial visit revisits the new provider to answer questions and

discuss any problems noted in the claims sample. In addition,

program personnel conduct various workshops for and make

educational materials available to new providers.

In another example, Australia’s Health Insurance Commission

(HIC) implemented a feedback program to provide medical

"We are always

working to

achieve balance

between program

integrity and

access to health

care for

recipients."

Robb Miller,

Inspector General,

Illinois Department

of Public Aid
Page 38 GAO-02-69G Improper Payments

practitioners with regular information about their own benefit

authorization, age and gender patient demographics, and

comparative statistical information showing the number of

services rendered and dollar value of benefits paid. All 32,000

practitioners receive correspondence once a year from HIC. The

program’s educational feedback encourages compliance and can

act as a deterrent to future wrongdoing, as practitioners are aware

that HIC tracks what is claimed for reimbursement on an annual

basis. While, at first, most practitioners did not realize that HIC

was able to accumulate and analyze this information, the program

has now become both an effective deterrent and a desired source

of information for the practitioners. For example, some

practitioners have asked for additional information or statistics

prior to the annual feedback report. In October 1999, the HIC

Internet Feedback Reporting Facility was established to provide

on-line feedback and statistics to general practitioners. About

2,100 general practitioners accessed their feedback reports on-line

during 1999, and HIC implemented further enhancements to

include feedback to other medical practitioners.

Also in Australia, Centrelink has determined that 65 percent of its

preventable incorrect payments13 relate to incorrect declaration of income

by the customer or beneficiary. Based on this risk assessment, Centrelink

developed a range of specific prevention strategies aimed at educating

beneficiaries and employers on income reporting requirements.

These include

● educating the beneficiaries on the correct way to declare earnings and

reminding them of the consequences of failing to correctly declare

earnings and

● outreaching employers in industries whose employees are traditionally

more likely to receive improper payments, such as those with seasonal

or part-time employees.

In the latter case, Centrelink provides these employers with materials to

distribute to existing and new employees who are receiving benefits from

Centrelink. For example, to encourage accurate income reporting, the

employers distribute “payslips” envelopes to employees for their use in

storing their wage records.

In addition to working groups, coordination and cooperation with

local law enforcement and other sources external to an agency can

establish an infrastructure conducive to preventing and detecting

fraud. Our case illustration shows the value of such an

 13Centrelink defines all incorrect payments as preventable unless the payment is

unavoidable, such as legislated advance payments. Furthermore, Centrelink

categorizes preventable payments into three areas: preventable by the customer,

preventable by staff, and preventable by the system. Centrelink reports

$410 million to $460 million in incorrect payments a year, of which 70 percent is

classified as preventable payments.
Page 39 GAO-02-69G Improper Payments

infrastructure in preventing large-scale Medicaid fraud

perpetrators from receiving payment for fraudulent claims.
Page 40 GAO-02-69G Improper Payments

Case Illustration: Information and Communications in Illinois

To coordinate fraud efforts, IDPA OIG established the position of Fraud and

Abuse Executive (FAE) whose objective is to develop and maintain

relationships with internal and external parties and be the conduit for all fraud

issues. Earlier this year, the following events occurred, demonstrating the

importance of direct and clear communication.

An Illinois bank teller, suspicious of a bank customer’s attempt to cash an

improperly endorsed Medicaid check, which was made out to a provider for

$123,000, phoned the State Treasurer’s Office, which referred the teller to the

FAE.

Based on the referral, the FAE queried the data warehouse and ascertained

that checks totaling $700,000 in payments had been issued to a provider within

a 2-week period, based on 40,000 claims that had been filed for 43 recipients, 4

of whom were deceased. The FAE contacted the Illinois State Police Medicaid

Fraud Control Unit and requested that officers drive by the mailing address

identified on the checks, and that they also investigate a sample of the

recipients. The Illinois State Police Medicaid Fraud Control Unit immediately

investigated and reported that the location was vacant and that periodically two

people checked the mail. Based on this information, the FAE stopped payment

on all checks to the potentially fraudulent provider and notified the Controller’s

Office that outgoing checks to the provider should be removed from the

mailroom.

A few days later, another bank customer attempted to cash one of the checks

made to the provider in the amount of $185,000. The corporate investigator at

the bank contacted the FAE. The FAE called the Illinois State Police Medicaid

Fraud Control Unit who then coordinated with the bank, the state investigator

with the Medicaid Fraud Control Unit, the U.S. Attorney’s Office, and the

Attorney General’s office for possible arrests.

A sting operation followed. The bank called its customer to come into the bank

to pick up the money. Two suspects were subsequently arrested. While under

arrest, one suspect received a cell-phone call from a person notorious for

Medicaid fraud, who had previously been permanently excluded from the

Medicaid program. The police were able to lure this suspect to the police

station, where the person was promptly arrested. One suspect was recently

sentenced to 4 years in state prison; the other suspect is awaiting trial.

The FAE continues to use the data warehouse to develop possible relationships

between the suspects and other providers. The OIG attributes the speed and

success of this investigation to the cooperation between investigative bodies

throughout the state and to the data warehouse technology.
Page 41 GAO-02-69G Improper Payments

Effective communications should occur in a broad sense with information

flowing down, across, and up the organization. In addition to internal

communications, management should ensure there are adequate means of

communicating with, and obtaining information from, external

stakeholders that may have a significant impact on the agency achieving

its goals. Moreover, effective information technology management is

critical to achieving useful, reliable, and continual recording and

communication of information. Program managers need operational and

financial data to monitor whether they are meeting their agencies’

strategic and annual performance plans and meeting their goals for

accountability and effective use of resources. Monitoring strategies are

discussed in the next section.

Strategies to Consider—Information and

Communications

To effectively use and share knowledge to manage improper payments,

the following strategies should be considered:

● determine what information is needed by managers to meet and

support initiatives aimed at reducing improper payments;

● ensure that needed information is provided to managers in an

accurate and timely manner;

● provide managers with timely feedback on applicable performance

measures so they can use the information to effectively manage their

programs;

● develop educational programs to assist program participants in

understanding program requirements;

● ensure that there are adequate means of communicating with, and

obtaining information from, external stakeholders that may have a

significant impact on improper payment initiatives, such as periodic

meetings with oversight bodies; and

● develop working relationships with other organizations to share

information and pursue potential instances of fraud or other

wrongdoing.
Page 42 GAO-02-69G Improper Payments

Objective:

Manage

Improper

Payments 

Risk

Assessment

Control

Activities

Information and

Communications

Monitoring

Control Environment

Monitoring: Tracking the Success of Improvement Initiatives

Monitoring performance, over

time, is critical to program

management and oversight.

Evaluation of an organization’s

programs and its successes in

meeting its established goals

and in identifying additional

actions is an integral element of

performance measurement and

continued improvement in

operations. Monitoring focuses

on the assessment of the quality

of performance over time and

on the prompt resolution of

problems identified either

through separate program

evaluations or audits. Once an

organization has identified its

risks related to improper payments and undertaken activities to reduce

such risks by upgrading its control activities, monitoring performance

allows the organization to gauge how well its efforts are working.

In the United Kingdom, the Department for Work and Pensions

(DWP) annually reviews its Income Support and Jobseeker’s

Allowance programs to estimate the level of fraud and error in the

programs, measure progress toward meeting established

performance goals, and report performance results to Parliament.

As a result of the program monitoring and evaluation activities

these reviews permit, the government has set new, more

challenging targets for future performance.

In addition, the National Audit Office (NAO) in the United Kingdom uses

the review results in its annual audits of DWP’s financial statements. NAO

reviews DWP’s sampling methodology and sample results, reviews some of

the cases DWP examined, and selects its own sample to verify the

accuracy of the reviews. The auditing standards issued by the United

Kingdom’s Audit Practices Board require NAO to plan and perform its

audits to provide for reasonable assurance that the financial statements

are “free from material misstatement, whether caused by error, or by fraud

or other irregularity.” Further, Her Majesty’s Treasury requires disclosure

in the notes to the financial statements on a cash basis of all instances of

significant irregular expenditures arising from erroneous benefit awards

and fraud by claimants. After considering the results of DWP’s review and

its evaluation of those results, NAO qualified its fiscal year 1995 through

fiscal year 2000 opinions on DWP’s financial statements because of the

amount of fraud and error in the benefit programs. NAO has also provided

ìWe will want to

know what action is

being taken and

what more could be

done to get a grip

on the burgeoning

levels of fraud and

inaccuracy in

benefit claims.î

David Davis,

Chairman of the

Parliamentary

Committee of Public

Accounts, United

Kingdom
Page 43 GAO-02-69G Improper Payments

constructive advice on how DWP might improve its internal control and

risk management procedures.

Illinois assessed the risk of improper payments in its Medicaid

program, and, based on the results, implemented initiatives

designed to improve payment accuracy. To monitor the effects of

the new initiatives, Illinois will use random claims sampling to test

the accuracy of the payments by reviewing 150 randomly selected

claims per month, or 1,800 per year. The goal of this project is to

ensure that every paid claim faces an equal, random chance of

review. The judgment of field staff, auditors, nurses, and policy

experts will be used to determine if they are paid correctly. This

approach not only provides periodic estimates of payment and

service accuracy rates to help measure the results of existing

enforcement and detection efforts, but also helps deter future

erroneous and fraudulent billings.

Performance measures are key to monitoring progress in

addressing improper payments. New Zealand requires entities

from which the government purchases a significant quantity of

goods and services to include audited statements of objectives and

statements of service performance with their financial statements.

These statements include, where appropriate, performance

measures related to improper payments. For example,

performance measures relating to entitlement accuracy, services to

reduce benefit crime, and debt management have been established

for Work and Income New Zealand (WINZ), a government agency

that provides income support and/or employment assistance to

eligible people. WINZ’s financial statements are the main

accountability reports used by Parliament to monitor the agency’s

performance. In addition, Parliament uses the audited information

to make informed decisions on resource allocation, and, through a

Public Service Monitoring Body (the State Services Commission),

to hold the entity’s chief executive officer responsible if

performance standards are not met. For example, the government,

in its role as purchaser, can offer rewards and apply sanctions to a

chief executive officer to ensure performance. In addition, the

government may seek to purchase goods and services from more

than one source.

WINZ’s monitoring of its payment accuracy is discussed further in

the case illustration on the following page.

ìThe probability

of review should

never be zero.

Not for any

provider, no

matter how

reputable; nor for

any claim, no

matter how

small.î

Malcolm K.

Sparrow, License

to Steal; Why

Fraud Plagues

Americaís Health

Care System,

1996
Page 44 GAO-02-69G Improper Payments

Case Illustration: Monitoring at the Department of Work and Income New

Zealand

WINZ is one of the largest government departments in New Zealand. It

administers over $5 billion of transfer payments on behalf of the government,

and is expected to affect the lives of at least one-third of the people in New

Zealand at any one time. The primary purpose of WINZ is to help eligible

people participate in employment, education, training, and community life

through income support and/or employment assistance.

The purchase agreements between WINZ and the government include

performance measures related to the accuracy of entitlement benefit

decisions and the timeliness with which the decisions are made. WINZ

established an Accuracy Reporting Program to help ensure that its

contractual performance goals would be met. Through a monthly

sampling process, cases are reviewed for accuracy and timeliness—

that the right person was paid the right benefit in the right amount at the

right time. Results of the accuracy reporting reviews are incorporated

into the monthly service delivery KPI reports provided to regional

operations managers for monthly monitoring. Performance reports are

also provided quarterly to Responsible Ministers of Parliament.

WINZ officials stated that payment accuracy was just over 70 percent

when it began the program in 1996. When the first KPI reports came

out, staff were surprised by the areas that were below standard and

wanted to know how they could improve. Some regional managers

wondered why and how certain regions were doing better than their

own. To monitor performance, WINZ utilized performance summaries,

which include information about each region’s standing in relation to the

performance goals. An example of such a performance summary is

depicted below.

First Quarter

Performance 

7

5

4

2 Exceptional

1 Over Standard

0 Below Standard

Region A

Region B

Region C

Services to Working Age Beneficiaries KPIs

Benefit

Accuracy 

Benefit

Timeliness 

Client

Satisfaction Total Score Stable

Employment 
Page 45 GAO-02-69G Improper Payments

Several years ago, the performance summaries reflected numerous

areas of below standard achievement. Over time, staff found it

rewarding to track their progress. An official told us that comparing

performance between regions fostered an atmosphere of healthy

competition and a focus on ongoing improvement. In addition to this

summary level performance reporting, WINZ implemented a team

coaching program to monitor individual employee performance and

provide individual feedback and support to case managers. The team

coach reviews each case manager’s work based on his/her level of

experience. For example, a trainee has five cases per month selected

for review of timeliness and accuracy. WINZ attributes team coaching,

in part, to its recently reported increase in accuracy. For the period

from June 30, 1999 through June 30, 2000, WINZ reported that the

accuracy rate improved from 88 to 94 percent for Services to Seniors

and from 89 to 90 percent for Services to Working Age Beneficiaries.
Page 46 GAO-02-69G Improper Payments

Monitoring the activities used by an organization to address improper

payments should be performed continually and should be ingrained in the

entity’s operations. Ongoing monitoring enables an organization to

measure how well it is doing, track performance measures, and adjust

control activities based on the results of monitoring activities. The

monitoring process should also include policies and procedures for

ensuring that the results of the reviews are communicated to the

appropriate individuals within the organization so that they can be

promptly resolved.

Strategies to Consider—Monitoring

To track the success of improvement initiatives, the following strategies

should be considered:

● establish agency-specific goals and measures for reducing improper

payments;

● using baseline information for comparison, periodically monitor the

progress in achieving the established performance measures;

● make the results of performance reviews widely available to permit

independent evaluations of the success of efforts to reduce improper

payments;

● ensure timely resolution of problems identified by audits and other

reviews; and

● adjust control activities, as necessary, based on the results of

monitoring activities.
Page 47 GAO-02-69G Improper Payments

Observations

Our study identified many techniques and approaches that organizations

have used and found effective in reducing their levels of improper

payments that could be used by federal agencies to help reduce improper

payments in their programs. The techniques and approaches shared a

common focus of improving the internal control systems over the problem

areas and generally included actions in five areas—control environment,

risk assessment, control activities, information and communications, and

monitoring. Our observations on the key factors for successful actions in

each of these areas follow.

In the area of control environment, we found that, for improper payment

initiatives to be successful, setting the tone at the top is critical. The

pressures applied by top management and oversight entities are

instrumental in clearly defining and communicating the need for improved

program operations and, most important, in redefining the organizational

culture. The goals and objectives of the initiatives being implemented

must be transparent to all in the organization. Without ongoing strong

support, both in spirit and in action, of top-level program officials and

legislative bodies, the chances for success in implementing the changes

needed to address improper payments are slim. This top-level support is

especially critical given that an investment of time and money is often

needed in these types of efforts.

One of the biggest hurdles that many entities face in the process of

managing improper payments is overcoming the propensity toward denial

of the problem. It is easy to rationalize avoiding or deferring taking action

to address a problem if you do not know how big the problem is. The

nature and magnitude of the problem—determined through a systematic

risk assessment process—needs to be determined and openly

communicated to all relevant parties. When this occurs, especially in a

strong control environment, denial is no longer an option, and managers

have the information, as well as the incentive, to begin addressing

improper payments. This risk assessment is used to determine where

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

those risks on program operations. As such, it helps identify the areas

most in need of corrective action and helps form a basis for determining

how to allocate resources, human and monetary, to the problem areas. By

performing risk assessments on a recurring basis, organizations also

obtain information on the status of their efforts to reduce improper

payments and on areas needing further attention.

In the area of control activities, we found that organizations need to tailor

their actions to fit their particular needs. There is a wide range of

activities that can be used to effectively address improper payments.

These include the use of computer-assisted activities ranging from simple
Page 48 GAO-02-69G Improper Payments

comparative analyses (e.g., comparing beneficiaries with mortality rolls)

to the use of sophisticated computer models for interactive analysis of

large amounts of information (e.g., using neural networking to identify

suspicious patterns of payments). Regardless of the level of sophistication

involved, the key to success is having the right people perform the right

jobs. While these technology-based solutions can be expensive, such

investments usually more than pay for themselves in terms of dollars

saved. They also can be a significant deterrent and provide for a level of

program integrity that could not otherwise be achieved.

When obtaining, storing, and using computer-generated information, an

organization must always be mindful of privacy and security issues. In the

federal arena, including federal programs managed by state organizations,

computer-assisted activities must be implemented consistent with all

protections of the Privacy Act of 1974, as amended by the Computer

Matching and Privacy Protection Act of 1988, and other privacy statutes.

We also found that organizations use both computer-generated

information and nontechnical methods to obtain, summarize, and

communicate information needed to evaluate program performance.

Whatever method is used, the flow of relevant, reliable, and timely

information regarding performance should lead to improved performance,

particularly if an atmosphere of healthy competition is introduced into the

process.

Educational activities for both beneficiaries and other program

participants also serve as an effective communication approach to help

reduce improper payments and strengthen program operations. The

better educated agency employees, contractors, and beneficiaries are

about what is expected of them and the consequences of not meeting

those expectations, the greater the chances for reducing fraud and errors

in the payment process.

Another key point is that just putting control activities in place is not the

end of the process—monitoring progress and results is essential and must

include the involvement of top-level officials. In addition to monitoring

day-to-day performance, it is important for an organization to track

performance over time and measure it against established performance

goals or indicators. This monitoring activity provides information on the

effectiveness of the control activities implemented and helps oversight and

top-level management officials identify areas needing further attention or a

shift in focus.

High levels of improper payments need not and should not be an accepted

cost of running federal programs. The organizations that participated in

our study found they could effectively and efficiently manage improper

payments by (1) changing their organizations’ control environments or

cultures, (2) performing risk assessments, (3) implementing activities to

reduce fraud and errors, (4) providing relevant, reliable, and timely

information and communication of results to management, and

(5) monitoring performance over time.
Page 49 GAO-02-69G Improper Payments

In the federal government, implementation of this process will likely not

be easy or quick. It will require strong support, not just in words but in

actions, from the President, the Congress, top-level administration

appointees, and agency management officials. Once committed to a plan

of action, they must remain steadfast supporters of the end goals and their

support must be transparent to all.

Further, there must be a willingness to dedicate the human capital and

monetary resources needed to implement the changes. In the human

capital area, this could involve performing needs assessments and taking

the actions necessary to hire individuals with the skills and knowledge

necessary to turn the planned actions into reality. Regarding funding,

many actions that proved successful to the organizations in our study

involved computer-assisted analyses of data. Effectively and efficiently

implementing some of these practices could require funding for computer

software and hardware, additional staff, and/or training.

In addition, it is important that the results of the actions taken be openly

communicated or available not only to the Congress and agency

management, but also to the general public. This transparency

demonstrates the importance that the government places on the need for

change and openly communicates performance results. It also acts as an

incentive for agencies to be ever vigilant in their efforts to address the

wasteful spending that results from lapses in controls that lead to

improper payments.
Page 50 GAO-02-69G Improper Payments

Appendix I

Objectives, Scope, and Methodology

The objectives of this study were to identify effective practices and

provide case illustrations and other information for federal agencies’

consideration when developing strategies and planning and implementing

actions to manage improper payments. In performing this study, we

conducted extensive research and identified three federal agencies, three

state governments, three foreign countries, and three private sector

companies that took actions that they considered effective in reducing

improper payments in their programs.

In general, for the organizations that participated in this study, we

(1) conducted extensive Internet and literature searches to identify actions

that each had taken to reduce improper payments, (2) made site visits to

interview representatives involved in identifying and taking actions to

reduce improper payments, and (3) obtained and reviewed organization

reports and other documentation describing the actions taken, the results

of those actions, and future plans in the area.

As outlined below, we used several techniques to identify the study

participants.

Federal Agencies

We formed a focus group within GAO that was composed of program and

financial analysts familiar with each federal agency. This group identified

agencies that had implemented practices to reduce improper payments.

Additionally, we contacted the inspectors general of the 24 Chief Financial

Officers (CFO) Act agencies to obtain their views on agency activities, if

any, designed to reduce improper payments. Once we identified potential

participants, we conducted extensive Internet searches of their Web sites

and reviewed entity and GAO audit reports and other documents to obtain

background and other information for potential best practice efforts. We

then contacted three agencies, discussed our study objectives and planned

approach, and asked each if it had any programs in which actions to

reduce improper payments were effective. Representatives at the three

agencies (the Department of Veterans Affairs, the Social Security

Administration, and the Department of Health and Human Services’

Centers for Medicare and Medicaid Services (formerly the Health Care

Financing Administration) identified programs in which their

organizations had taken actions considered effective and agreed to

participate.

State Governments

We conducted extensive Internet searches for all 50 states to identify

reports and other studies that identified states that had taken actions that
Page 51 GAO-02-69G Improper Payments

appeared to identify and reduce improper payments. We also coordinated

with other GAO representatives to identify states that had taken actions to

reduce improper payments in federal programs in which program

management is a state responsibility, such as the Food Stamp program.

Based on the information obtained, we asked representatives in the states

of Illinois, Kentucky, and Texas if they had any activities that they believed

were effective in reducing improper payments. Each identified some

actions and agreed to participate in the study.

Private Sector Organizations

We contacted the Private Sector Council, a public service organization that

assists in the sharing of knowledge between the private and public sectors.

Through this organization, three companies volunteered to participate in

our study and supplied us with information on the techniques they used

and considered effective in reducing improper payments.

Foreign Governments

Our External Liaison Office contacted our counterparts in 12 countries

and two world organizations to explain our study objective and ask for

input on activities, if any, each had taken to reduce improper payments in

its programs. We also conducted extensive Internet searches to identify

programs in each of these entities in which actions had been taken to

reduce improper payments. Based on the responses from our initial

requests for information from the countries and organizations and our

Internet search results, we selected three countries (Australia, New

Zealand, and the United Kingdom) as possible study participants. We

contacted representatives for each, and they agreed to participate.

In the course of identifying actions that possible participants in our study

had taken to reduce improper payments, we identified numerous Web

sites that might provide organizations with useful information that they

can consider when attempting to address improper payment or other

problems in their programs. Appendix III lists these resources.

We conducted our fieldwork from May 2000 through March 2001. We

asked officials of the various organizations highlighted in the case

illustrations and throughout the report to verify the accuracy of the

information presented on their activities and incorporated their comments

as appropriate. We did not independently verify the accuracy of that

information. In addition, we issued an exposure draft of this executive

guide to obtain comments from interested parties including members of

the CFO and OIG community, OMB, and selected professional

organizations in the United States and abroad. We incorporated

comments as appropriate.
Page 52 GAO-02-69G Improper Payments

Appendix II

Entity Descriptions

This appendix provides descriptions of the foreign governments’ agencies

and U.S. federal agencies, state governments, and private sector

organizations that participated in this study. For our study, we contacted

and visited various people from the listed organizations who spent many

hours planning and hosting our visits, coordinating meetings, and

preparing and presenting information. We thank them for their willingness

to participate in our study, for the valuable information and insights they

provided, and for their hospitality.

Foreign Governments

Several agencies responsible for delivering a variety of government

services in Australia, New Zealand, and the United Kingdom

participated in our study. The government services provided by

the agencies range from providing audit oversight and tax

collection activities to benefit administration and benefit

payments.

Australia

The Australian Federation has a three-tier system of government, under

the provisions of a written constitution that includes the legislative,

executive, and judicial branches of government at both the national and

state levels. The division of powers between the federal and state

parliaments broadly follows the American model—states and territories

are responsible for matters not assigned to the federal government.

Australia is an independent nation and retains constitutional links with

Queen Elizabeth II of Great Britain who is Queen of Australia. A Minister

of State is accountable to Parliament for each department’s functions and

activities. Under the Minister is the head of a department, usually referred

to as the Secretary.

Centrelink

Centrelink is a “one-stop shop” that pays a variety of Australian

government benefits. Centrelink is an agency not individually funded by

the Treasury, but rather through business partnership agreements with

government departments. The agency has agreements with 11 government

departments, including the Department of Family and Community Services

(FACS); the Department of Employment, Workplace Relations and Small

Business; the Department of Veterans’ Affairs; and the Department of

Education, Training and Youth Affairs. The one-stop shop was formed by

merging functions and staff from the social security and employment

departments with strong support from the Department of Finance. It is in

the top 100 of Australian companies in terms of size and turnover. Its

budget is $818 million, and it distributes $22.4 billion social security
Page 53 GAO-02-69G Improper Payments

payments on behalf of FACS.14 Centrelink has 6.1 million customers, pays

9.2 million individual entitlements each year, and employs a staff of 22,000

in 1,000 service delivery locations across Australia.

Health Insurance Commission

The Health Insurance Commission (HIC) is a government agency that

administers Australian health programs such as Medicare and the

Pharmaceutical Benefits Scheme. In addition to administering these

programs, HIC is charged with preventing and detecting fraud and abuse.

Medicare is a universal health insurance scheme available to all Australian

citizens. From 1999 through 2000, HIC paid over $3.5 billion in benefits,

processing over 209 million claims to 11 million active enrollees in

Medicare. Through the Pharmaceutical Benefits Scheme during the same

year, HIC processed over 149 million claims totaling over $1.8 billion in

benefits.

New Zealand

New Zealand is an independent nation within the British Commonwealth.

Queen Elizabeth II of Great Britain is represented in New Zealand by the

Governor-General. New Zealand has no written constitution but rather it

has two documents of importance—the Treaty of Waitangi and the Bill of

Rights Act. Much of the business of government is performed by

ministries, government departments, and other government agencies,

which are collectively known as the public sector.

Inland Revenue Department

The Inland Revenue Department (IRD) provides tax services as well as

social policy services, including the administration of child support and

family assistance programs and the collection of student loan repayments.

IRD revenues include $7 billion in individual taxes, $3.76 billion in Goods

and Services Tax revenue, and $1.85 billion in company tax. Total tax

revenue in 1999 was $13.5 billion. During the 1999/2000 year, IRD

processed 7.2 million tax returns. Additionally, IRD processed 7.3 million

payments during the same year.

Work and Income New Zealand

The Department of Work and Income New Zealand (WINZ) is a

government agency that aids job seekers, pays income support, and

administers superannuation (retirement) payments and student loans and

allowances. WINZ was established in 1998 by combining the income

support function from the Department of Social Welfare and the

employment services and local employment coordination functions from

 14Amounts included in this report have been converted to U.S. dollars using the

following exchange rates, effective April 16, 2001, for one U.S. dollar: 0.697064

British pounds, 1.95665 Australian dollars, and 2.43533 New Zealand dollars.
Page 54 GAO-02-69G Improper Payments

the Department of Labor. Total benefits exceed $5.34 billion in transfer

payments to

● over 460,000 seniors for superannuation and transitional retirement

benefits payments,

● over 404,000 people for income support payments,

● approximately 56,000 students for student allowances, and

● approximately 143,000 students for student loans.

United Kingdom

The United Kingdom is a constitutional monarchy and parliamentary

democracy under Queen Elizabeth II and two houses of Parliament—the

House of Lords and the House of Commons. The executive power rests

with the Cabinet, headed by the Prime Minister.

National Audit Office

The National Audit Office (NAO) scrutinizes public spending on behalf of

Parliament. It is an independent body that audits the accounts of all

government departments and agencies, as well as a wide range of other

public bodies, and reports to Parliament on the economy, efficiency, and

effectiveness of government agencies.

NAO is headed by the Comptroller and Auditor General, who is also an

officer of the House of Commons. NAO employs 750 people in offices

throughout the United Kingdom.

Department for Work and Pensions

The Department for Work and Pensions (formerly the Department of

Social Security) administers the United Kingdom’s welfare programs

through four agencies—the Benefits Agency, Child Support Agency, War

Pensions Agency, and Appeals Service Agency. The Benefits Agency

administers programs such as Income Support and Jobseeker’s Allowance

Benefits. The Benefits Agency employs about 71,000 people and delivers

more than 20 social security benefits, making payments in excess of $156

billion each year.

Federal Agencies

Department of Health and Human Services—Centers for

Medicare and Medicaid Services

The Department of Health and Human Services (HHS) is the U.S.

government’s principal agency for protecting the health of all Americans

and providing essential human services. In addition to the Medicare and

Medicaid programs, the department includes more than 300 programs,

covering a wide spectrum of activity from medical research, financial

assistance to low-income families, to substance abuse treatment and

prevention programs.
Page 55 GAO-02-69G Improper Payments

The Centers for Medicare and Medicaid Services (CMS) (formerly the

Health Care Financing Administration), one of HHS’ operating divisions,

administers both the Medicare and Medicaid programs, which provide

health care to about one in every four Americans.

Medicaid

Medicaid, established in 1965 by Title XIX of the Social Security Act, is a

federal-state matching entitlement program that pays for medical

assistance for certain vulnerable and needy individuals and families with

low incomes and resources. In fiscal year 2000, it provided health care

assistance to an estimated 33 million persons, at a cost of about

$118.6 billion to the federal government. CMS is responsible for the

overall management of Medicaid; however, each state is responsible for

managing its own program. Within broad federal statutory and regulatory

guidelines, each state (1) establishes its own eligibility standards,

(2) determines the types and ranges of services, (3) sets the rate of

payment for services, and (4) administers its own program.

Medicare Fee-for-Service

Authorized by Title XVIII of the Social Security Act in 1965, Medicare is the

nation’s largest health insurance program handling more than

900 million claims per year on behalf of elderly and disabled individuals at

a cost of about $214.6 billion in fiscal year 2000. Fee-for-service payments

account for about $173.6 billion of Medicare payments. CMS contracts

with over 50 insurance companies to process fee-for-service claims;

however, CMS is responsible for overseeing these contractors and for

ensuring that claims are paid accurately and efficiently.

Social Security Administration

In 1935, the Social Security Act established a program to help protect aged

Americans against the loss of income due to retirement. Since that time,

various amendments were added, creating the programs that the Social

Security Administration (SSA) administers today. Established in 1994 as

an independent agency within the U.S. government, SSA is responsible for

administering the Old Age and Survivors Insurance (OASI) and Disability

Insurance (DI) programs as well as the Supplemental Security Income

(SSI) program. SSA’s organization features centralized management of the

programs and a decentralized nationwide network of 10 regional offices

overseeing 1,340 field offices, 138 hearings offices, 36 teleservice centers, 7

processing centers, and 1 data operations center. OASI provides for the

protection from loss of income for aged Americans as well as survivors of

deceased workers. OASI had fiscal year 2000 outlays of about

$347.9 billion, with about 39 million beneficiaries. DI protects disabled

workers and their dependents from loss of income, and had fiscal year

2000 outlays of $54.2 billion, serving about 6.6 million beneficiaries.

Workers are considered disabled if they have severe physical or mental

conditions that prevent them from engaging in substantial gainful activity.
Page 56 GAO-02-69G Improper Payments

SSI had outlays of $30.8 billion in fiscal year 2000, providing cash

assistance to about 6.6 million financially needy individuals who are

elderly, blind, or disabled.

Department of Veterans Affairs

In 1930, the Congress consolidated and coordinated various veterans’

programs with the establishment of the Veterans Administration. It

became a cabinet-level position in March 1989—the Department of

Veterans Affairs (VA). VA administers the laws providing benefits and

other services to veterans and their dependents and beneficiaries. Through

21 organizations, including the Veterans Health Administration and the

Veterans Benefits Administration, VA ensures that veterans receive

medical care, benefits, and social support. Major programs of VA include

medical care, education, research, compensation, pension, education, and

burial. In fiscal year 2000, more than 3.8 million patients used VA health

care, over 2.6 million veterans and family members received monthly VA

disability compensation payments, and nearly 2.4 million graves were

maintained at national cemeteries.

State Governments

The state agencies that participated in our study are responsible

for administering a variety of benefit programs in Illinois,

Kentucky, and Texas.

State of Illinois

The Illinois Department of Human Services (IDHS) was created in 1997 by

consolidating three human services agencies, one of which was the Illinois

Department of Public Aid (IDPA), and parts of three others. IDHS

assumed the responsibility for administering cash assistance, food stamps,

and Medicaid eligibility programs. However, IDPA retains most of the

responsibility for administering Medicaid. IDPA has an Office of Inspector

General (OIG) that helps enforce policies and investigates misconduct in

the Medicaid, Food Stamp, and welfare programs administered by IDPA

and IDHS. IDPA OIG includes a staff of 311 employees, and, in fiscal year

2000, it operated under a budget of $19.6 million and collected or avoided

costs totaling $38.3 million. According to preliminary fiscal year 2000 data,

Illinois’ Food Stamp program provided approximately $777 million in

benefits to over 779,000 recipients. In fiscal year 1999, Illinois spent

approximately $390 million of its Temporary Assistance for Needy

Families (TANF) funds. In fiscal year 1998, Illinois spent approximately

$6.2 billion for Medicaid covering over 1.3 million recipients.

Commonwealth of Kentucky

Kentucky’s Cabinet for Families and Children protects and promotes the

well being of Kentuckians by delivering quality human services. It

administers the state’s human services programs, such as Food Stamps,

foster care, disability, and cash assistance. Meanwhile, the state’s Cabinet
Page 57 GAO-02-69G Improper Payments

for Health Services administers programs to promote mental and physical

health, emphasizing education and prevention. It administers Medicaid

through the Department of Medicaid Services. According to preliminary

fiscal year 2000 data, Kentucky’s Food Stamp program provided

approximately $337 million in benefits to over 403,000 recipients. In fiscal

year 1999, Kentucky spent approximately $82 million of its TANF funds. In

fiscal year 1998, Kentucky spent approximately $2.4 billion for Medicaid

covering over 644,000 recipients.

State of Texas

Texas has a number of departments involved in the administration of its

medical and general assistance programs. Its Health and Human Services

Commission (HHSC), which provides overall leadership and strategic

direction to the health and human services system in Texas, oversees the

work of 13 state agencies, including the Texas Department of Health

(TDH) and the Texas Department of Human Services (TDHS). TDH

administers more than 200 separate programs and operational units,

including Medicaid. This department has more than 5,500 employees and

an annual appropriation of approximately $6.5 billion. TDHS administers

state and federal human services programs, including TANF and the Food

Stamp program, to more than 2 million needy, elderly, or disabled Texans

each month. As one of the largest human services agencies in the country,

TDHS employs more than 15,000 and has an annual budget of $3.5 billion.

According to fiscal year 2000 data, Texas’ Food Stamp program provided

approximately $1.2 billion in benefits to over 1.3 million recipients. In

addition, Texas spent approximately $228 million of its TANF funds in

serving more than 300,000 recipients. In fiscal year 1998, Texas spent

approximately $7.1 billion for Medicaid covering over 2.3 million

recipients.

Private Sector Companies

Private Sector Council

The Private Sector Council (PSC) is a nonprofit, nonpartisan public

service organization committed to assisting the federal government in

improving its efficiency, management, and productivity. Since its founding

in 1983, PSC has continued to promote and further the notion that private

sector “know-how” can, and should, be utilized to assist in solving public

sector challenges by supplying federal managers with modern ideas,

methodologies, and applications through over 300 projects. Member

companies consist of prominent Fortune 500 companies from across

North America, including telecommunications, defense, finance, and

energy businesses. PSC assembled three volunteer companies to

participate in our study. These companies included a telecommunications

company with $33.6 billion in fiscal year 2000 sales, a document

management company with $18.6 billion in fiscal year 2000 sales, and a

consulting firm with $1.95 billion in revenues.
Page 58 GAO-02-69G Improper Payments

Appendix III

Other Resources

We identified the following Web sites during the course of our work,

which may be useful to organizations as sources of additional information.

Best Practice Web Sites

Best Practices in the Federal Government

http://hydra.gsa.gov/fitec/bestprac.htm

The CFO Electronic Commerce Task Force has created an interagency

team, the Financial Implementation Team for Electronic Commerce

(FITEC), to help create integrated strategies, execution plans, and

schedules for achieving the federal CFO financial community’s electronic

commerce goals. This site, created by FITEC, provides agencies with a

resource for locating financial and/or electronic commerce practices that

can be used throughout the federal government.

The Cabinet Office

www.cabinet-office.gov.uk/servicefirst/index/guidhome.htm

The United Kingdom’s Cabinet Office works in partnership with other

parts of the central government, local government, and other bodies in the

public and private sectors to modernize and coordinate government in

order to secure excellence in policymaking and responsive, high-quality

public services. The Cabinet Office’s best practices site includes a best

practice database, best practice guides, best practice links, and different

forums organizations can use to share information on their various

initiatives.

National Association of State Procurement Officials

www.naspo.org

The National Association of State Procurement Officials is a nonprofit

association dedicated to strengthening the procurement community

through education, research, and communication. Under its

“Whitepapers” section, this site includes a “Best Practices Compendium”

that lists innovative procurement practices in state government.

Organisation for Economic Co-operation and Development

www.oecd.org/puma/focus/compend/matrixframe.htm

The Organisation for Economic Co-operation and Development provides a

setting in which 30 member countries can discuss, develop, and perfect

economic and social policy. Countries can compare experiences, seek

answers to common problems, and work to coordinate domestic and

international policies. This site provides examples of public management
Page 59 GAO-02-69G Improper Payments

initiatives in a variety of areas, including ethics, performance management,

and regulatory reform.

Award Winners

Government Technology Leadership Awards

www.govexec.com/tech/award

Government Executive magazine annually presents Government

Technology Leadership Awards to recognize federal agencies and state

governments for their excellent performance with information technology

programs. This site includes a list of all award winners and a searchable

database of Government Executive articles.

National Association of State Information Resource Executives

www.nasire.org/awards/index.cfm

The National Association of State Information Resource Executives

(NASIRE) represents state chief information officers (CIO) and

information resource executives who share a mission to shape national

information technology policy through collaborative partnerships,

information sharing, and knowledge transfer. Each year, NASIRE presents

Recognition Awards for Outstanding Achievement in the Field of

Information Technology to those programs and systems that have created

cost-effective, innovative solutions in the operation of state government.

This site provides a list of award winners.

Publications

CIO Magazine

www.cio.com

CIO magazine aims to provide actionable insight and decision support for

information technology and business executives so that they may use

information technology to obtain a competitive advantage. This Web site

includes discussion forums, research centers on topics such as leadership

and management and data warehouses, and a searchable database.

Federal Computer Week

www.fcw.com

Federal Computer Week (FCW) is directed toward users and buyers of

federal information technology. It focuses on desktop, client/server, and

enterprisewide computing. This site can be used to access previous FCW

articles, which can be searched by topic or by keyword.

Government Executive Magazine

www.govexec.com

Government Executive magazine provides daily news for federal

managers and executives. This site provides information about the
Page 60 GAO-02-69G Improper Payments

Government Performance and Results Act, as well as links to research

reports and organizations. In addition, articles from past issues can be

searched by keyword.

Government Technology Magazine

www.govtech.net

Government Technology magazine is dedicated to providing government

executives with key information they need to succeed in running modern

government. This site provides a solution center containing best practices

and case studies in state and local government.

Other Bookmarks

Australian National Audit Office

www.anao.gov.au

The Australian National Audit Office (ANAO) is a specialist public sector

entity providing a full range of audit services to Parliament and

Commonwealth public sector agencies and statutory bodies. ANAO’s site

includes links to its various publications, including its audit reports and

better practice guides. These publications can be searched by title, theme,

or date.

C.A. MacDonald & Associates

www.camacdonald.com

C.A. MacDonald & Associates, a health and human services

consulting company, was established in 1993 to assist policy

developers and decisionmakers in government in achieving their

program and service goals. This site allows users to read the

company’s public reports that relate to various fraud and error

programs in both the United States and Canada.

Center for Technology in Government

www.ctg.albany.edu

The Center for Technology in Government is an applied research center

devoted to improving government and public services through policy,

management, and technology innovation. The center’s Web site includes

information about its projects, research, and publications. Among the

center’s publications are a best practices starter kit, a report on data

warehousing, and information on the center’s project to find best practices

in state and local information systems. This site also includes links to

other related resources.

Chief Information Officers Council

www.cio.gov

The CIO Council was established in 1996. The CIO Council serves as the

principal interagency forum for improving practices in the design,
Page 61 GAO-02-69G Improper Payments

modernization, use, sharing, and performance of federal agency

information resources. This site contains a library of documents, a

searchable database, and a discussion area.

The Data Warehousing Institute

www.dw-institute.com

The Data Warehousing Institute provides education and training in the

data warehousing and business intelligence industry. The institute is

dedicated to educating business and information technology professionals

about the strategies, techniques, and tools required to successfully design,

build, and maintain data warehouses. This site lists winners of its Best

Practices and Leadership in Data Warehousing Awards. In addition, it

provides case studies, lessons from experts, and a forum allowing users to

share information or to ask questions.

Government Performance Project

www.maxwell.syr.edu/gpp/index.htm

The Government Performance Project is the joint effort of the Maxwell

School of Citizenship and Public Affairs at Syracuse University and

Governing magazine, which are working to rate the management capacity

of local and state governments and selected federal agencies in the United

States. This site includes reports on those rankings in addition to

highlighted innovative practices.

Illinois Department of Public Aid’s Office of Inspector General

www.state.il.us/agency/oig/index.htm

IDPA’s OIG’s mission is to prevent, detect, and eliminate fraud, waste,

abuse, and misconduct in various payment programs. This site contains

research reports conducted by the OIG, including the first ever payment

accuracy review performed on Medicaid. This site also contains a

searchable database of sanctioned providers and barred individuals within

the state of Illinois.

National Medicaid Fraud and Abuse Initiative

www.hcfa.gov/medicaid/fraud/default.htm

HCFA (now the Centers for Medicare and Medicaid Services) began its

National Medicaid Fraud and Abuse Initiative in June 1997. This initiative

works to facilitate communication, information sharing, and a national

forum for Medicaid fraud and abuse issues for the states. This Web site

contains guidance and reports, including information about executive

seminars conducted by Dr. Malcolm Sparrow, a leading authority in the

area of health care fraud, and state Medicaid contacts.
Page 62 GAO-02-69G Improper Payments

Related Organizations

Association of Certified Fraud Examiners

www.cfenet.com

The Association of Certified Fraud Examiners consists of approximately

25,000 certified fraud examiners and associated members in 70 different

countries. The association’s mission is to reduce the incidence of fraud

and white-collar crime through prevention and education. This site

provides information about membership, events, and products and

services offered by the association.

Association for Federal Information Resources Management

www.affirm.org

The Association for Federal Information Resources Management

(AFFIRM) is a nonprofit, professional organization whose overall purpose

is to improve the management of information, and related systems and

resources, within the federal government. Founded in 1979, AFFIRM’s

members include information resource management professionals within

the federal, academic, and industry sectors. This site contains information

on membership, a calendar of events, and links to AFFIRM’s publications.

Association of Government Accountants

www.agacgfm.org

The Association of Government Accountants (AGA) serves the

professional interests of financial managers from local, state, and federal

governments, as well as public accounting firms responsible for effectively

using billions of dollars and other monetary resources every day. AGA is

recognized as a leading advocate for improving the quality and

effectiveness of government fiscal administration. Its Web site includes

information on membership, conferences, and its publications.

Council for Excellence in Government

www.excelgov.org

The Council for Excellence in Government, whose members include

former leaders in both government and the private sector, works toward

practical public sector reform. This Web site provides information on the

council’s programs and publications.

Highway 1

www.highway1.org

Highway 1 is a nonprofit organization, made up of companies such as IBM

and Microsoft, whose goal is to educate the government on the potential of

information technology by being a source for information and by

demonstrating technologies that are shaping our society, economy, and

public policy. This Web site includes a list of Highway 1’s programs and

an information center.
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Information Technology Resources Board

www.itrb.gov

The Information Technology Resources Board (ITRB) is a group of

information technology, acquisition, and program managers and

practitioners with significant experience in developing, acquiring, and

managing information systems in the federal government. The primary

focus of ITRB is to provide a review of major system initiatives at the joint

request of the Office of Management and Budget and an agency and to

publicize lessons learned and promising practices. This site includes a list

of ITRB’s members, events, publications, and related links.

The Institute of Internal Auditors

www.theiia.org

Established in 1941, the Institute of Internal Auditors serves as the

profession’s watchdog and resource on significant auditing issues around

the globe. This site provides standards, guidance, and information on

internal auditing best practices for its members.

National Contract Management Association

www.ncmahq.org

The mission of the National Contract Management Association (NCMA) is

to help contract managers best achieve their objectives to manage

customer and supplier expectations and relationships, control risk and

cost, and contribute to organizational profitability and success. This site

contains information about NCMA’s member services, event calendar,

publications, and professional resources.

National Health Care Anti-Fraud Association

www.nhcaa.org

Founded in 1985 by several private health insurers and federal/state law

enforcement officials, the National Health Care Anti-Fraud Association is a

unique, issue-based organization comprising private and public sector

organizations and individuals responsible for the detection, investigation,

prosecution, and prevention of health care fraud. This site includes

information on upcoming education and training events.

Private Sector Council

www.privatesectorcouncil.org

PSC is a nonprofit, nonpartisan public service organization committed to

helping the federal government improve its efficiency, management, and

productivity. This site provides information about PSC’s upcoming events.
Page 64 GAO-02-69G Improper Payments

Standards Australia

www.standards.com.au

Standards Australia International Limited is an organization with principal

activities focused on business-to-business services based on the creation,

distribution, sharing, and application of knowledge using a variety of

technologies. One of the major activities of the organization is the

development of technical and business standards. This site provides a

means of acquiring the Australian/New Zealand Standard 4360: Risk

Management.
Page 65 GAO-02-69G Improper Payments

Appendix IV

GAO Contacts and Staff Acknowledgments

GAO Contacts

Tom Broderick, (202) 512-8705

Marie Novak, (202) 512-4079

Staff Acknowledgments

In addition to those named above, the following individuals made

important contributions to this report: Cheryl Driscoll, Valerie A. Freeman,

Sharon Loftin, Elizabeth Martinez, Mary Merrill, Debra Sebastian, Ruth

Sessions, Brooke Whittaker, and Maria Zacharias.

(190032)
The General Accounting Office, the 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.

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