U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

19–010 

" ! SENATE 

112TH CONGRESS

2d Session 

REPORT

2012

112–181 

Calendar No. 449 

IMPROPER PAYMENTS ELIMINATION AND 

RECOVERY IMPROVEMENT ACT OF 2011 

R E P O R T 

OF THE

COMMITTEE ON HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

TO ACCOMPANY

S. 1409 

TO INTENSIFY EFFORTS TO IDENTIFY, PREVENT, AND RECOVER 

PAYMENT ERROR, WASTE, FRAUD, AND ABUSE WITHIN FEDERAL 

SPENDING 

JULY 12, 2012.—Ordered to be printed 


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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

BETH M. GROSSMAN, Deputy Staff Director and Chief Counsel 

KENYA N. WILEY, Counsel 

PETER P. TYLER, Professional Staff Member, Subcommittee on Federal Financial Management, 

Government Information, Federal Services, and International Security 

NICHOLAS A. ROSSI, Minority Staff Director 

J. KATHRYN FRENCH, Minority Deputy Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

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Calendar No. 449 

112TH CONGRESS SENATE REPORT " ! 2d Session 112–181 

IMPROPER PAYMENTS ELIMINATION AND RECOVERY 

IMPROVEMENT ACT OF 2011 

JULY 12, 2012.—Ordered to be printed 

Mr. LIEBERMAN, from the Committee on Homeland Security and 

Governmental Affairs, submitted the following 

R E P O R T 

[To accompany S. 1409] 

The Committee on Homeland Security and Governmental Affairs, 

to which was referred the bill (S. 1409) to intensify efforts to identify, prevent, and recover payment error, waste, fraud, and abuse 

within Federal spending, having considered the same, reports favorably thereon with an amendment in the nature of a substitute 

and recommends that the bill, as amended, do pass. 

CONTENTS 

Page 

I. Purpose and Summary .................................................................................. 1 

II. Background and Need for the Legislation ................................................... 2 

III. Legislative History ......................................................................................... 4 

IV. Section-by-Section Analysis .......................................................................... 4 

V. Evaluation of Regulatory Impact .................................................................. 7 

VI. Congressional Budget Office Estimate ......................................................... 8 

VII. Changes in Existing Law Made by the Bill, as Reported ........................... 10 

I. PURPOSE AND SUMMARY

Each year, the Federal government makes billions of dollars in 

‘‘improper payments’’—funds sent to the wrong recipient, checks 

written for the wrong amount, or government money going for an 

improper purpose. S. 1409 seeks to prevent the loss of these taxpayer dollars by intensifying agencies’ efforts to prevent, identify, 

and recover improper payments. The Act directs the Office of Management and Budget (OMB) to issue new guidance to agencies to 

enable them to better estimate and thereby understand the scope 

of the improper payment problem. The Act also establishes a ‘‘Do 

Not Pay Initiative’’ to help federal agencies easily identify entities 

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1Pub. Law 107–300. 2Public Law 101–576. Section 901 of the CFO Act specifies the agencies subject to its mandate. 3Pub. Law 111–204. 4GAO, Status of Fiscal Year 2010 Federal Improper Payments Reporting, GAO–11–443R, 

March 25, 2011. 

to which it should not make payments, and it directs OMB to work 

with other agencies and stakeholders to curb improper payments 

made to deceased individuals. Finally, the Act requires the federal 

government to establish a set of Recovery Audit Contracting pilot 

programs through which private companies will help identify improper payments made by agencies. 

II. BACKGROUND AND NEED FOR THE LEGISLATION

Federal agencies began to deal comprehensively with improper 

payments following the enactment of the Improper Payments Information Act of 2002 (IPIA),1 which required each agency subject to 

the requirements of the Chief Financial Officers Act of 1990 2 to annually review all programs and activities that it administers, identify all such programs and activities that may be susceptible to significant improper payments, develop improper payments estimates 

for those programs deemed susceptible, and report the estimates 

annually. Congress revisited the issue in July 2010, with the enactment of the Improper Payments Elimination and Recovery Act of 

2010 (IPERA).3 This law amended IPIA by expanding on the previous requirements for identifying, estimating, and reporting on 

programs and activities susceptible to significant improper payments, and expanding requirements for recovering overpayments 

across a broad range of federal programs. 

As with IPIA, IPERA requires agencies to identify programs that 

are susceptible to significant improper payments and, for those programs, estimate the annual amount of improper payments and submit those estimates to the Congress and the public. IPERA also 

added a requirement that any program with estimated improper 

payments exceeding specific dollar amounts and error rate thresholds set out in the law must report on the actions the agency is 

taking to reduce improper payments. The law also requires improper payment recovery audits for all programs with annual expenditures greater than $1 million. The law specifies that agencies 

can direct recovered funds to pay for a variety of efforts aimed at 

ensuring better administration of its programs. IPERA also includes incentives and budgetary penalties for programs that fail to 

comply with the requirements of the law over a reasonable number 

of years. 

According to the Government Accountability Office (GAO), federal agencies reported an estimated $125.4 billion in improper payments in fiscal year 2010, an increase of about $16 billion over the 

fiscal year 2009 estimate of $109.2 billion.4 The fiscal year 2010 estimate represents about 5.5 percent of the $2.3 trillion of reported 

outlays for the related programs. The $125.4 billion in improper 

payments in fiscal year 2010 comes from over 70 programs spread 

among 20 federal agencies. An overwhelming majority of the $125.4 

billion of reported improper payments came from just 10 programs, 

which account for about $118 billion or 94 percent of the total estimstockstill on DSK4VPTVN1PROD with HEARINGS

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5The ten programs are: Federal Student Aid-Pell Grants, National School Lunch Program, 

Supplemental Nutrition Assistance Program, Old Age and Survivor’s Insurance, Supplemental 

Security Income Program, Medicare Advantage, Earned Income Tax Credit, Unemployment Insurance, Medicaid, Medicare Fee-For-Service. 6The seven high risk programs not reporting improper payment estimates are: Department 

of Education—Federal Family Education Loan Program; Department of Health and Human 

Services—Temporary Assistance for Needy Families; Department of Health and Human Services—Medicare Prescription Drug Benefit; Department of Health and Human Services—Children’s Health Insurance Program; Federal Communications Commission—High-Cost Support 

Program; Federal Communications Commission—Low-Income Program; Federal Communications Commission—Schools and Libraries. 7 ‘‘DOD Needs to Improve High Dollar Overpayment Review and Reporting,’’ D–2011–050, 

March 16, 2011, DOD Office of Inspector General. 8 ‘‘Improper Payments: Progress Made but Challenges Remain in Estimating and Reducing 

Improper Payments,’’ GAO, April 22, 2009. 9 ‘‘Assessing Efforts to Eliminate Improper Payments, May 25th, 2011; http://hsgac.senate.gov/ 

public/index.cfm?FuseAction=Hearings.Hearing&Hearinglid=7dd2c4ec-1fee-4117-8efdf0.277206607 10 ‘‘Presidential Memorandum—Enhancing Payment Accuracy Through a ‘Do Not Pay List’,’’ 

The White House, June 18th, 2010, http://www.whitehouse.gov/the-press-office/presidentialmemorandum-enhancing-payment-accuracy-through-a-do-not-pay-list. 

mated improper payments reported for fiscal year 2010.5 It is 

worth noting that these figures probably underestimate the problem; seven high risk programs, which almost certainly make some 

improper payments, still are not reporting improper payment estimates.6

Although the existing statutes and executive actions have made 

important strides in addressing improper payment rates, federal 

agencies continue to make a substantial amount of improper payments. Further, not all agencies are making robust and complete 

estimates of improper payments. For example, the DOD Office of 

Inspector General completed an audit describing the Department’s 

need for improved estimates.7 The GAO made similar comments regarding DOD.8

On May 25, 2011, the Committee’s Federal Financial Management Subcommittee held a hearing to examine the improper payments issue and to explore whether additional measures are needed to address the problem.9 Daniel I. Werfel, OMB’s Comptroller, 

discussed the Administration’s improper payments estimates and 

offered the Administration’s view on the root causes of the improper payment problem. He also described the implementation of 

IPERA. Mr. Werfel, along with Richard L. Gregg, Fiscal Assistant 

Secretary from the Department of Treasury, detailed an Administration initiative, outlined in an Executive Memorandum, to screen 

all federal payments before they are made.10 Calvin L. Scovel III, 

Vice Chairman of the Recovery Accountability and Transparency 

Board (an entity established as part of the American Recovery and 

Reinvestment Act to examine Recovery Act spending) testified 

about the Board’s history in detecting and preventing fraudulent 

payments. Kelly Croft, Deputy Commissioner for Systems at the 

Social Security Administration, and Robert F. Hale, Comptroller of 

DOD, described improper payments issues arising in their respective agencies, as well as opportunities for improving the detection, 

prevention, and recovery of improper payments. 

S. 1409 reflects the lessons learned through the May 2011 hearing, as well as the Committee’s other ongoing oversight in the area. 

The bill directs the OMB to issue new guidance to agencies to enable them to better estimate and thereby understand the scope of 

the improper payment problem. The Act also establishes a ‘‘Do Not 

Pay Initiative’’ to help federal agencies more easily identify entities 

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11 Executive Order 13520, Reducing Improper Payments, November 20, 2009. 

to which it should not make payments, and it directs OMB to work 

with other agencies and stakeholders to curb improper payments 

made to deceased individuals. Finally, the Act requires the federal 

government to establish a set of Recovery Audit Contracting pilot 

programs through which private companies will help identify improper payments made by agencies. 

III. LEGISLATIVE HISTORY

S. 1409 was introduced by Senators Carper, Collins, Lieberman, 

and Scott Brown on July 22, 2011, and referred to the Committee. 

The Committee considered S. 1409 at a business meeting on October 19, 2011. The Committee adopted by voice vote a substitute 

amendment offered by Senators Carper, Collins, Lieberman, and 

Brown. Members present for the vote on the substitute were Senators Lieberman, Akaka, Carper, Pryor, McCaskill, Begich, Collins, 

Brown, and Johnson. The Committee then voted to report the bill, 

again by voice vote. Members present for the vote on the bill were 

Senators Lieberman, Akaka, Carper, Pryor, McCaskill, Begich, Collins, Brown, and Johnson. 

The substitute amends S. 1409 to make several substantive improvements. Some of the definitions of Section 2 were clarified. The 

language in Section 3 that requires more consistent estimates of 

improper payments was modified for purposes of clarity, and to 

more closely address the recommendations of both the Government 

Accountability Office and Inspectors General. The requirement of 

the original language to develop a database of incarcerated individuals was changed to become a requirement to report on recommendations for such a database. The requirement for a plan by 

OMB to develop potential statutory recommendations for implementing the ‘‘Do Not Pay Initiative’’ was modified to, in addition, 

place in statute allowing multilateral data use agreements. Finally, 

there were some small modifications to the description of databases 

and types of Recovery Audit Contracts. 

IV. SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

This section titles the bill as the ‘‘Improper Payments Elimination and Recovery Improvement Act of 2012’’. 

Section 2. Definition 

This section defines the term ‘‘agency’’ used in the bill by reference to 5 U.S.C. § 105, part of the Chief Financial Officers Act 

laying out the major agencies covered under current statutes defining executive branch agencies. 

Section 3. Improving the determination of improper payments by 

Federal agencies 

Subsection (a) amends the IPIA of 2002 by strengthening the 

identification and reporting of agency improper payments, including codifying an existing Executive Order on improper payments 

estimating and reporting.11

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12 Executive Order 13520, Sec. 2(a). 13 Executive Order 13520, Sec. 3(f). 14M–11–16, Part I (A). 

It requires the Director of the OMB annually to identify high-priority programs for greater oversight and review based on those 

that have the highest dollar value or percentage of improper payments on a government-wide basis, or for which there is high risk 

of improper payments. For these programs, OMB, in conjunction 

with the agency identified as having a high-priority program or 

programs, would establish annual targets, and semi-annual or 

quarterly actions, for reducing improper payments.12

In addition, agencies would be required to report annually to 

their Inspectors General and make available to the public a report 

on any high-dollar improper payments identified by the agency.13

This public disclosure would occur in compliance with existing privacy policies and would not include referrals to the Department of 

Justice. These reports would also include action planned or taken 

by the agency to recover improper payments and would be made 

public by OMB on a central, publicly available website. Upon submission of these reports, the Inspector General would (1) review 

the risk level associated with the program, including the quality of 

the improper payments estimates and the methodology used by the 

agency; 2) assess the adequacy of financial controls to identify and 

prevent improper payments; and 3) make recommendations to the 

agency, including those regarding the improper payments determination and estimation methodology. 

Subsection (b) would require the OMB Director to provide guidance to federal agencies for improving agency estimates of improper payments not later than 180 days after enactment. This requirement is intended to strengthen the estimation process by having OMB set standards to ensure the underlying validity of sampled payments, including by: 1) instructing agencies to give persons 

or entities performing improper payments estimates access to all 

necessary payment data, including relevant documentation; 2) explicitly barring agencies from basing estimates solely on self-reporting by the sub-agencies that made the payments or outside contractors who received the payments; 3) reporting all overpayments regardless of whether they have been recovered; 4) capturing payments to employees, including salary, locality pay, travel pay, purchase card use, and other employee payments, subjecting them to 

risk assessments and including them in the improper payment estimation where appropriate; and 5) requiring agencies to tailor corrective action for high-priority programs to better reflect the 

unique procedures, processes, and risks of each program. 

Subsection (c) provides for technical and conforming amendments 

to IPERA. 

Section 4. Improper payments information 

This section would provide for a technical correction to IPERA 

that has already been addressed in guidance by OMB.14 This correction would require that, beginning in fiscal year 2014 and in 

each fiscal year thereafter, agencies subject to IPERA are required 

to report programs with improper payments of $10 million annually or that represent 1.5 percent of program outlays, or programs 

with improper payments over $100 million. The date in the enacted 

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legislation was incorrect, and the technical correction conforms 

IPERA to Congressional intent. 

Section 5. Do Not Pay Initiative 

Subsection (a) establishes the Do Not Pay Initiative, which would 

require prepayment and contract award screening against databases containing relevant information on payees to verify eligibility 

and prevent improper payments. The subsection requires that each 

agency review its prepayment and pre-award procedures and ensure a thorough review of available databases containing relevant 

information on payee eligibility in order to determine payment or 

award eligibility and prevent improper payments. At a minimum, 

before payment and award, agencies would check as appropriate 

the: (1) Social Security Administration’s Death Master File; (2) 

General Services Administration’s Excluded Parties List System; 

(3) Debt Check Database of the Department of the Treasury; (4) 

Credit Alert System or Credit Alert Interactive Voice Response 

System of the Department of Housing and Urban Development; 

and (5) List of Excluded Individuals/Entities of the Office of Inspector General of the Department of Health and Human Services. 

Subsection (b) requires OMB to establish a Do Not Pay Initiative 

comprised of the databases above, and other databases as designated by the OMB Director, which may assist in preventing improper payments. Each agency would have access to and use the 

Do Not Pay Initiative for pre-payment and pre-award screening 

once the OMB Director determines its appropriateness for use by 

the agency. When using the Do Not Pay Initiative, agencies should 

recognize that there may be circumstances under law that require 

payment(s) or award(s) be made to a recipient, irrespective of 

whether that recipient is on the Do Not Pay Initiative. 

Subsection (c) requires that within 60 days of enactment, the 

OMB Director must provide Congress with a plan for including 

other databases in the Do Not Pay Initiative, establishing lawful 

agency access to the databases, and creating a multilateral data 

use agreement setting parameters for database access between relevant agencies. 

Subsection (d) requires OMB to establish the initial Do Not Pay 

Initiative system within 90 days of enactment. The initial system 

may be located within an appropriate agency, shall include at least 

three participating agencies, and must include investigation activities for fraud and systemic improper payment detection through 

analytic technologies, which may include commercial database use 

or access. Each agency would be required to review all of its payments and awards through the Do Not Pay Initiative no later than 

January 1, 2013. 

Subsection (e) requires that within 60 days of enactment, OMB 

shall establish a plan for executing multilateral data use agreements for the Do Not Pay Initiative, including access to the New 

Hires Database (a database maintained by the U.S. Department of 

Health and Human Services and that includes specific employment 

information) and other databases. The subsection amends the Privacy Act to allow for the multilateral data use agreements between 

and among federal agencies. Currently, that Act only allows bilateral agreements between two agencies. The subsection requires 

multilateral data use agreements to include regulations and guidemstockstill on DSK4VPTVN1PROD with HEARINGS

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lines that ensure data access, as well as transfer and storage of 

data in a manner consistent with relevant privacy, security, and 

disclosure laws. The OMB Director would be required to consult 

with the Council of Inspectors General on Integrity and Efficiency, 

the Secretary of Health and Human Services, the Social Security 

Administrator, and other agency heads as appropriate. 

Subsection (f) requires that within one year of enactment, the Attorney General would submit to Congress recommendations for increasing the use of, access to, and technical feasibility of using Federal, State, and local conviction and incarceration databases to determine the incarceration status of individuals in order to identify 

and prevent improper payments. 

Subsection (g) requires the OMB Director, in consultation with 

stakeholders, States, and the Social Security Administrator, to establish a plan for improving the quality and timeliness of death 

data maintained by the Social Security Administration. The plan 

must include actions to increase the quality and frequency of access 

by agencies, including a goal of at least once-daily access. It must 

also provide for improved electronic means of accessing and providing data. The plan must also address potential proactive steps 

for identifying improper payments to deceased individuals, as well 

as address specific issues relevant to federal retirement programs. 

Within 120 days of enactment, the OMB Director must report to 

Congress on the plan. 

Section 6. Improving recovery of improper payments 

Subsection (a) requires the OMB Director to determine current 

and historical rates and amounts of improper payment recovery by 

audit contractors, and identify numerical or percentage targets for 

recovering improper payments. 

Subsection (b) requires the OMB Director, within 90 days of enactment, to establish and implement a plan for no fewer than ten 

recovery audit contracting programs at ten agencies. The ten programs must represent programs of varying size, payment types, 

and recipient types. These programs must become operational within one year of the plan establishment and be conducted for three 

years. Within two years of establishment, the agency head conducting the program would be required to report to Congress regarding the program’s impact on savings and recoveries, and provide recommendations to extend or expand the program. 

V. EVALUATION OF REGULATORY IMPACT

Pursuant to the requirement of paragraph 11(b)(1) of rule XXVI 

of the Standing Rules of the Senate, the Committee has considered 

the regulatory impact of this bill and has determined that the bill 

will have no regulatory impact within the meaning of the rule. The 

Committee agrees with CBO’s statement that the bill contains no 

intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would impose no costs on state, 

local, or tribal governments. 

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VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 1409—Improper Payments Elimination and Recovery Improvement Act of 2011 

Summary: S. 1409 would amend federal law to require federal 

agencies to expand their efforts to identify, recover, and prevent 

improper payments (including overpayments, underpayments, payments that were not adequately documented, and fraudulent payments). The legislation would require the Office of Management 

and Budget (OMB) to provide guidance, oversight, and review of 

agencies’ efforts to manage improper payments. S. 1409 also would 

establish additional responsibilities for agencies and require them 

to operate Recovery Audit Contracting (RAC) programs. 

Based on information from federal agencies, CBO estimates that 

implementing S. 1409’s new requirements to identify, recover, and 

prevent improper payments would cost $735 million over the 2013– 

2017 period, subject to appropriation of the necessary funds. CBO 

expects that conducting RAC programs would lead to net recoveries 

that would exceed the costs of operating the programs, with net 

savings for the federal government that would probably be several 

million dollars. However, the savings cannot be attributed to S. 

1409 because of long-standing rules established by the Congress for 

estimating the effects of proposed legislation that could generate 

programmatic savings stemming from new authority for administrative activity. Enacting S. 1409 would not affect direct spending 

or revenues; therefore, pay-as-you-go procedures do not apply. 

S. 1409 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) 

and would impose no costs on state, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary impact of S. 1409 is shown in the following table. The costs 

of this legislation fall within most budget functions. 

By fiscal year, in millions of dollars— 

2013 2014 2015 2016 2017 2013– 

2017 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Estimated Authorization Level ...................................................... 50 245 245 195 0 735 

Estimated Outlays ........................................................................ 45 225 245 200 20 735 

Basis of estimate: For this estimate, CBO assumes that S. 1409 

will be enacted in fiscal year 2012, that the necessary funds will 

be provided for each year, and that spending will follow historical 

patterns for similar programs. 

S. 1409 would expand upon current law, Executive Order 13520, 

and two Presidential memoranda to require federal agencies to expand their efforts to identify, recover, and prevent improper payments. The legislation would require that 10 RAC pilot programs 

be initiated for three years. (Recovery auditing is a process of using 

contractors to review payment transactions and supporting data to 

identify and recover overpayments and respond to underpayments.) 

In addition, the legislation would require additional reporting by 

agencies and an expansion of the federal government’s ‘‘Do Not Pay 

List’’ (a database to prevent the government from paying benefits, 

contracts, grants, and loans to ineligible people or organizations). 

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1Those programs were: Medicare fee-for-service, Medicaid, Earned Income Tax Credit, Unemployment Insurance, Medicare Advantage, Supplemental Security Income, Old Age Survivors 

and Disability Insurance, Supplemental Nutrition Assistance, National School Lunch, and Medicare Prescription Drug Benefit. 

Improper payments include payments of an incorrect amount 

(both overpayments and underpayments), to the wrong recipient, 

made without proper documentation, or for unauthorized or inappropriate purposes. Not all improper payments involve fraud or result in a loss to the federal government. The Government Accountability Office has reported that federal agencies estimate they 

made $115.3 billion in improper payments during fiscal year 2011. 

Just 10 federal programs accounted for 93 percent of those improper payments.1

In 2005, the Centers for Medicare and Medicaid Services (CMS) 

started a RAC demonstration program. As part of the demonstration, CMS made available to recovery audit contractors claims from 

2001 through 2007, and the contractors identified and corrected errors in about 0.3 percent of those claims. The demonstration program cost about $200 million to operate and returned about $695 

million to the Medicare trust funds. A RAC program was subsequently implemented nationwide for fee-for-service claims: over the 

2008–2011 period, CMS spent about $570 million to develop the 

Recovery Audit Contractor Data Warehouse, to improve data collection and analysis, and to pay for recurring costs of the contract. As 

a result, it recovered overpayments of $873 million and corrected 

underpayments of almost $160 million, for a net savings of about 

$140 million. In 2012 and subsequent years, net recoveries should 

exceed the recurring costs of the program by a larger margin as the 

nonrecurring expenditures to establish the program continue to 

produce savings. 

Assuming other agencies would have similar costs for establishing RAC programs, CBO expects that implementing 10 RAC 

programs would cost $735 million over the 2013–2017 period. This 

would include about $1 million annually to implement each of several smaller RACs and about $50 million annually per RAC for 

larger programs with improper payments, including health care, 

taxes, Social Security, unemployment, and nutrition. 

CBO also expects that, over time, net recoveries from RACs 

would exceed payments to contractors for program management 

costs. That is, net recoveries would probably exceed $735 million. 

Based on the current program operated by CMS, CBO expects that 

the new RACs would incur net costs over the first few years for development, implementation, and administration, but would have 

net gains in later years. Net savings over time would depend upon 

the programs reviewed. CBO expects that such savings would likely total several million dollars over the 2013–2017 period, but 

would likely be significantly less than the RAC program run by 

CMS. The current program recoups payments from institutions 

such as hospitals, skilled nursing facilities, and other providers, including physicians and suppliers of durable medical equipment. 

Amounts can be recovered by reducing future program payments to 

those institutions or by seeking reimbursement from their assets. 

In contrast, many of the new RACs would seek to recover overpayments to many individual beneficiaries of income support programs 

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ance. Agencies may face limits on the amount that they can garnish from subsequent payments to such individuals, who are also 

less likely to have savings or other income with which to repay the 

federal government. 

For this cost estimate, however, CBO cannot attribute savings to 

S. 1409’s RAC provisions because any such savings would either be 

contingent on future legislation or would be subject to Scorekeeping 

Guideline 14 (as established by the Congress and explained below). 

While S. 1409 would authorize and direct agencies to operate RAC 

programs, this bill would not provide any funds to operate those 

new programs. In some cases, the amounts necessary to operate 

such programs would stem from subsequent appropriation acts; 

thus, S. 1409 cannot be credited for achieving those savings itself. 

In other cases, a mandatory spending program might directly fund 

the administrative costs of a RAC program, but Scorekeeping 

Guideline 14 states that: ‘‘No increase in receipts or decrease in direct spending will be scored as a result of provisions of a law that 

provides direct spending for administration or program management activities.’’ Therefore, any savings that may result from additional spending on administrative activities aimed at achieving 

operational efficiencies cannot be counted (for Congressional 

scorekeeping purposes) as a direct result of the legislation providing such a funding source. If enacted, any expected savings attributable to the creation of new RAC programs would ultimately 

be included in baseline budget projections, and any savings 

achieved would be reflected in the budget data. 

Pay-As-You-Go considerations: None. 

Intergovernmental and private-sector impact: S. 1409 contains no 

intergovernmental or private-sector mandates as defined in UMRA 

and would impose no significant costs on state, local, or tribal governments. 

Estimate prepared by: Federal costs: David Newman, Matthew 

Pickford, and Lara Robillard; Impact on state, local, and tribal governments: Elizabeth Cove Delisle; Impact on the private sector: 

Paige Piper/Bach. 

Estimate approved by: Peter H. Fontaine, Assistant Director for 

Budget Analysis. 

VII. CHANGES TO EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing law made by S. 1409 as 

reported are shown as follows (existing law proposed to be omitted 

is enclosed in brackets, new matter is printed in italic, and existing 

law in which no change is proposed is shown in roman): 

TITLE 5—GOVERNMENT ORGANIZATION AND 

EMPLOYEES 

* * * * * * * 

PART I—THE AGENCIES GENERALLY 

* * * * * * * 

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CHAPTER 5—ADMINISTRATIVE PROCEDURE 

* * * * * * * 

Subchapter II—Administrative Procedure 

* * * * * * * 

SEC. 552A. RECORDS MAINTAINED ON INDIVIDUALS. 

* * * * * * * 

MATCHING AGREEMENTS 

(o) MATCHING AGREEMENTS.— 

(1) No record which is contained in a system of records may 

be disclosed to a recipient agency or non-Federal agency for 

use in a computer matching program except pursuant to a 

written agreement between the source agency and the recipient agency or non-Federal agency or an agreement governing 

multiple agencies’ specifying— 

(A) the purpose and legal authority for conducting the 

program; 

* * * * * * * 

TITLE 31—MONEY AND FINANCE 

Subtitle III—Financial Management 

CHAPTER 33—DEPOSITING, KEEPING, AND PAYING 

MONEY 

Subchapter II—Payments 

IMPROPER PAYMENTS INFORMATION ACT OF 2002. Act Nov. 26, 

2002, P.L. 107–300, 116 Stat. 2350; July 22, 2010, P.L. 111–204, 

2(a)–(f), 124 Stat. 2224, provides: 

SECTION 1. SHORT TITLE. 

* * * * * * * 

SEC. 2. ESTIMATES OF IMPROPER PAYMENTS AND REPORTS ON ACTIONS TO REDUCE THEM. 

(a) IDENTIFICATION OF SUSCEPTIBLE PROGRAMS AND ACTIVITIES.— 

(1) * * * 

(2) * * * 

(3) RISK ASSESSMENTS. 

(A) * * * 

(i) * * * 

(ii) øwith respect to fiscal years following September 

30th of a fiscal year beginning before fiscal year 2013 

as determined by the Office of Management and Budget,¿ with respect to fiscal year 2014 and each fiscal 

year thereafter that improper payments in the program 

or activity in the preceding fiscal year may have exceeded— 

* * * * * * * 

(b) IMPROVING THE DETERMINATION OF IMPROPER PAYMENTS.— 

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(1) IN GENERAL.—The Director of the Office of Management 

and Budget shall on an annual basis— 

(A) identify a list of high-priority Federal programs for 

greater levels of oversight and review— 

(i) in which the highest dollar value or highest frequency of improper payments occur; or 

(ii) for which there is a higher risk of improper payments; and 

(B) in coordination with the agency responsible for administering the high-priority program, establish annual 

targets and semi-annual or quarterly actions for reducing 

improper payments associated with each high-priority program. 

(2) REPORT ON HIGH-PRIORITY IMPROPER PAYMENTS.— 

(A) IN GENERAL.—Subject to Federal privacy policies and 

to the extent permitted by law, each agency with a program 

identified under paragraph (1)(A) on an annual basis shall 

submit to the Inspector General of that agency, and make 

available to the public (including availability through the 

Internet), a report on that program. 

(B) CONTENTS.—Each report under this paragraph— 

(i) shall describe—(I) any action the agency— 

(aa) has taken or plans to take to recover improper payments; and 

(bb) intends to take to prevent future improper 

payments; and 

(ii) shall not include any referrals the agency made 

or anticipates making to the Department of Justice, or 

any information provided in connection with such referrals. 

(C) PUBLIC AVAILABILITY ON CENTRAL WEBSITE.—The Office of Management and Budget shall make each report 

submitted under this paragraph available on a central 

website. 

(D) AVAILABILITY OF INFORMATION TO INSPECTOR GENERAL.—Subparagraph (B)(ii) shall not prohibit any referral 

or information being made available to an Inspector General as otherwise provided by law. 

(E) ASSESSMENT AND RECOMMENDATIONS.—The Inspector 

General of each agency that submits a report under this 

paragraph shall— 

(i) review— 

(I) the assessment of the level of risk associated 

with the applicable program, and the quality of the 

improper payment estimates and methodology of 

the agency; and 

(II) the oversight or financial controls to identify 

and prevent improper payments; and 

(ii) provide recommendations, for modifying any 

plans of the agency, including improvements for improper payments determination and estimation methodology; 

* * * * * * * 

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13 

øb¿ (c) ESTIMATION OF IMPROPER PAYMENTS.—With respect to 

each program and activity identified under subsection (a), the head 

of the relevant agency shall— 

(1) produce a statistically valid estimate, or an estimate that 

is otherwise appropriate using a methodology approved by the 

Director of the Office of Management and Budget, of the improper payments made by each program and activity; and 

(2) include those estimates in the accompanying materials to 

the annual financial statement of the agency required under 

section 3515 of title 31, United States Code, or similar provision of law and applicable guidance of the Office of Management and Budget. 

øc¿ (d) REPORTS ON ACTIONS TO REDUCE IMPROPER PAYMENTS.— 

With respect to any program or activity of an agency with estimated improper payments under subsection ø(b)¿ (c), the head of 

the agency shall provide with the estimate under subsection ø(b)¿ 

(c) a report on what actions the agency is taking to reduce improper payments, including— 

(1) a description of the causes of the improper payments, actions planned or taken to correct those causes, and the planned 

or actual completion date of the actions taken to address those 

causes; 

(2) in order to reduce improper payments to a level below 

which further expenditures to reduce improper payments 

would cost more than the amount such expenditures would 

save in prevented or recovered improper payments, a statement of whether the agency has what is needed with respect 

to— 

(A) internal controls; 

(B) human capital; and 

(C) information systems and other infrastructure; 

(3) if the agency does not have sufficient resources to establish and maintain effective internal controls under paragraph 

(2)(A), a description of the resources the agency has requested 

in its budget submission to establish and maintain such internal controls; 

(4) program-specific and activity-specific improper payments 

reduction targets that have been approved by the Director of 

the Office of Management and Budget; and 

(5) a description of the steps the agency has taken to ensure 

that agency managers, programs, and, where appropriate, 

States and localities are held accountable through annual performance appraisal criteria for— 

(A) meeting applicable improper payments reduction targets; and 

(B) establishing and maintaining sufficient internal controls, including an appropriate control environment, that 

effectively— 

(i) prevent improper payments from being made; 

and 

(ii) promptly detect and recover improper payments 

that are made. 

ø(d)¿ (e) REPORTS ON ACTIONS TO RECOVER IMPROPER PAYMENTS.—With respect to any improper payments identified in recovery audits conducted under section 2(h) of the Improper Paymstockstill on DSK4VPTVN1PROD with HEARINGS

14 

ments Elimination and Recovery Act of 2010 (31 U.S.C. 3321 note), 

the head of the agency shall provide with the estimate under subsection ø(b)¿ (c) a report on all actions the agency is taking to recover improper payments, including— 

(1) a discussion of the methods used by the agency to recover 

overpayments; 

(2) the amounts recovered, outstanding, and determined to 

not be collectable, including the percent such amounts represent of the total overpayments of the agency; 

(3) if a determination has been made that certain overpayments are not collectable, a justification of that determination; 

(4) an aging schedule of the amounts outstanding; 

(5) a summary of how recovered amounts have been disposed 

of; 

(6) a discussion of any conditions giving rise to improper payments and how those conditions are being resolved; and 

(7) if the agency has determined under section 2(h) of the 

Improper Payments Elimination and Recovery Act of 2010 (31 

U.S.C. 3321 note) that performing recovery audits for any applicable program or activity is not cost-effective, a justification 

for that determination. 

øe¿ (f) GOVERNMENTWIDE REPORTING OF IMPROPER PAYMENTS

AND ACTIONS TO RECOVER IMPROPER PAYMENTS.— (1) REPORT.—Each fiscal year the Director of the Office of 

Management and Budget shall submit a report with respect to 

the preceding fiscal year on actions agencies have taken to report information regarding improper payments and actions to 

recover improper overpayments to— 

(A) the Committee on Homeland Security and Governmental Affairs of the Senate; and 

(B) the Committee on Oversight and Government Reform of the House of Representatives. 

(2) CONTENTS.—Each report under this subsection shall include— 

(A) a summary of the reports of each agency on improper 

payments and recovery actions submitted under this section; 

(B) an identification of the compliance status of each 

agency to which this Act applies; 

(C) governmentwide improper payment reduction targets; and 

(D) a discussion of progress made towards meeting governmentwide improper payment reduction targets. 

øf¿ (g) DEFINITIONS.—In this section: 

(1) AGENCY.—The term ‘‘agency’’ means an executive agency, 

as that term is defined in section 102 of title 31, United States 

Code. 

(2) IMPROPER PAYMENT.—The term ‘‘improper payment’’— 

(A) means any payment that should not have been made 

or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; and 

(B) includes any payment to an ineligible recipient, any 

payment for an ineligible good or service, any duplicate 

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15 

payment, any payment for a good or service not received 

(except for such payments where authorized by law), and 

any payment that does not account for credit for applicable 

discounts. 

(3) PAYMENT.—The term ‘‘payment’’ means any transfer or 

commitment for future transfer of Federal funds such as cash, 

securities, loans, loan guarantees, and insurance subsidies to 

any non-Federal person or entity, that is made by a Federal 

agency, a Federal contractor, a Federal grantee, or a governmental or other organization administering a Federal program 

or activity. 

(4) PAYMENT FOR AN INELIGIBLE GOOD OR SERVICE.—The 

term ‘‘payment for an ineligible good or service’’ shall include 

a payment for any good or service that is rejected under any 

provision of any contract, grant, lease, cooperative agreement, 

or any other funding mechanism. 

øg¿ (h) GUIDANCE BY THE OFFICE OF MANAGEMENT AND BUDG- ET.— (1) IN GENERAL.—Not later than 6 months after the date of 

enactment of the Improper Payments Elimination and Recovery Act of 2010 øenacted July 22, 2010¿, the Director of the Office of Management and Budget shall prescribe guidance for 

agencies to implement the requirements of this section. The 

guidance shall not include any exemptions to such requirements not specifically authorized by this section. 

(2) CONTENTS.—The guidance under paragraph (1) shall prescribe— 

(A) the form of the reports on actions to reduce improper 

payments, recovery actions, and governmentwide reporting; and 

(B) strategies for addressing risks and establishing appropriate prepayment and postpayment internal controls.’’. 

* * * * * * * 

RECOVERY AUDITS.—Act July 22, 2010, P.L. 111–204, 2(h), 124 

Stat. 2228, provides: 

(1) DEFINITION.—In this subsection, the term ‘‘agency’’ has 

the meaning given under øsection 2(f) of the Improper Payments Information Act of 2002 (31 U.S.C. 3321 note) as redesignated by this Act.¿ section 2(g) of the Improper Payments Information Act of 2002 (31 U.S.C. 3321 note). 

* * * * * * * 

COMPLIANCE.—Act July 22, 2010, P.L. 111–204, 3, 124 Stat. 

2232, provides: 

(a) DEFINITIONS.—In this section: 

(1) AGENCY.—The term ‘‘agency’’ has the meaning given 

under øsection 2(f) of the Improper Payments Information Act 

of 2002 (31 U.S.C. 3321 note) as redesignated by this Act.¿ section 2(g) of the Improper Payments Information Act of 2002 (31 

U.S.C. 3321 note). 

* * * * * * * 

(3) COMPLIANCE.—The term ‘‘compliance’’ means that the 

agency— 

(A) * * * 

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16 

(B) * * * 

(C) if required, publishes improper payments estimates 

for all programs and activities identified under section 

ø2(b)¿ 2(c) of the Improper Payments Information Act of 

2002 (31 U.S.C. 3321 note) in the accompanying materials 

to the annual financial statement; 

(D) publishes programmatic corrective action plans prepared under section ø2(c)¿ 2(d) of the Improper Payments 

Information Act of 2002 (31 U.S.C. 3321 note) that the 

agency may have in the accompanying materials to the annual financial statement; 

(E) publishes improper payments reduction targets established under section ø2(c)¿ 2(d) of the Improper Payments Information Act of 2002 (31 U.S.C. 3321 note) that 

the agency may have in the accompanying materials to the 

annual financial statement for each program assessed to 

be at risk, and is meeting such targets; and 

(F) has reported an improper payment rate of less than 

10 percent for each program and activity for which an estimate was published under section ø2(b)¿ 2(c) of the Improper Payments Information Act of 2002 (31 U.S.C. 3321 

note). 

Æ 

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