GAO/AIMD-00-261R Improper Payments

United States General Accounting Office

Washington, DC 20548

Accounting and Information

Management Division

B-285840

July 27, 2000

The Honorable Fred Thompson

Chairman

Committee on Governmental Affairs

United States Senate

Subject: Financial Management: Improper Payments Reported in Fiscal Year 1999

Financial Statements

Dear Mr. Chairman:

This letter responds to your request for information on the extent of improper

payments estimates—estimates for payments made for unauthorized purposes or

excessive amounts, such as overpayments to program recipients or contractors and

vendors—reported in agencies’ fiscal year 1999 financial statements.1In these

financial statement reports, 12 of the 24 CFO Act agencies have taken the initiative to

collectively report improper payment estimates of $20.7 billion, which has resulted in

the disclosure of important information for oversight and decision-making.2These

improper payment estimates include $4.4 billion of receivables3

that these agencies

expect to collect and relate to 20 major programs, which we have defined as those

that disburse $1 billion or more annually. The enclosure to this letter lists the 12

agencies and the manner in which they reported improper payments in their fiscal

year 1999 financial statement reports for the 20 programs identified.

1

The Chief Financial Officers Act of 1990 (CFO), as expanded by the Government Management Reform

Act of 1994 (GMRA), requires 24 major departments/agencies to prepare agencywide financial

statements and have them audited.

2

Improper payments reported by the Department of Health and Human Services (HHS) for Medicare

Fee-for-Service claim payments, the Department of Agriculture for the Food Stamp program, and the

Department of Housing and Urban Development for Housing Subsidy programs are estimates made

using statistical sampling. According to the HHS Office of Inspector General, the majority of the

improper payments for Medicare Fee-for-Service claim payments were detected through medical

record reviews. Once an improper payment is identified for Medicare Fee-for-Service claims

payments, the provider has the option to appeal the decision and provide more documentation to

support the payment.

3

Improper payments reported as receivables represent overpayments made over multiple fiscal years,

including 1999.
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Page 2 GAO/AIMD-00-261R Improper Payments

Last year, we reported4that 8 of these 12 agencies reported improper payments in

their fiscal year 1998 financial statements. This year, we identified four additional

agencies—the Departments of Defense, Energy, Justice, and State—that reported

improper payments in their fiscal year 1999 financial statements. Another agency—

the Agency for International Development—which reported making improper

payments in its fiscal year 1998 financial statements, did not report any improper

payments in its fiscal year 1999 financial statements. Our prior report also noted that

9 agencies collectively reported improper payment estimates of $19.1 billion in their

fiscal year 1998 financial statements.

Our audits and those of agency inspectors general continue to demonstrate that

improper payments are much more widespread than agency financial statement

reports have disclosed thus far. For example, the Internal Revenue Service (IRS) and

the Department of Education did not report improper payments, even though audit

reports indicate that they have made such payments. For IRS, the audit report

disclosed that the full magnitude of improper refunds IRS disbursed is unknown but

could be billions of dollars.5

Additionally, not all agencies are performing comprehensive internal studies or

reviews to determine the propriety of program expenditures for certain programs,

including some of those that disclosed improper payments in their fiscal year 1999

financial statements. For example, certain agencies6

—some of which are major

departments—acknowledged making improper payments in their fiscal year 1999

financial statements but did not disclose amounts.

Because the methodologies used by some agencies to estimate improper payments do

not always result in complete estimates and many other agencies have not attempted

to identify or estimate improper payments, the government does not have a

reasonable basis for gauging the extent of its improper payments. Ascertaining the

extent of improper payments is the first step in assessing the need for and extent of

corrective actions required. Obtaining these data would give agencies baseline

information for assessing causes and making cost-effective decisions about

enhancing controls to minimize future improper payments.

At your request, we are currently (1) determining the extent to which the Office of

Management and Budget has implemented the recommendations made in our prior

report, (2) assessing the extent to which agencies’ fiscal year 1999 financial

4

Financial Management: Increased Attention Needed to Prevent Billions in Improper Payments

(GAO/AIMD-00-10, October 29, 1999).

5

Financial Audit: IRS’ Fiscal Year 1999 Financial Statements (GAO/AIMD-00-76, February 29, 2000).

6

These agencies and their related programs are the Department of Energy (no specific program

identified); the United States Department of Agriculture—Federal Crop Insurance Corporation; the

Department of Justice—Federal Bureau of Investigation; the Department of Housing and Urban

Development—Federal Housing Administration; the Department of Health and Human Services—

Medicaid; the Department of State (no specific program identified); and the Department of Veterans

Affairs—Veterans Benefits programs.
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Page 3 GAO/AIMD-00-261R Improper Payments

management plans and fiscal year 2001 performance plans address improper

payments, and (3) identifying other actions that might encourage agencies to better

report the extent of their improper payments. We will report to you separately on

these issues.

-----

As agreed with your office, unless you publicly announce the contents of this report

earlier, we will not distribute it until 30 days from its date. Then, we will send copies

to Senator Joseph Lieberman, Ranking Minority Member, Senate Committee on

Governmental Affairs; Senator Pete V. Domenici, Chairman, and Senator Frank R.

Lautenberg, Ranking Minority Member, Senate Committee on the Budget;

Representative Dan Burton, Chairman, and Representative Henry A. Waxman,

Ranking Minority Member, House Committee on Government Reform; Representative

John R. Kasich, Chairman, and Representative John M. Spratt, Jr., Ranking Minority

Member, House Committee on the Budget. We will also send copies to the Honorable

Jacob J. Lew, Director of the Office of Management and Budget, and the heads of the

24 CFO Act agencies, and their respective agency CFOs and inspectors general.

Please contact me at (202) 512-4476 or by e-mail at jarmong.aimd@gao.gov if you or

your staff have any questions concerning this letter. Key contributors to this letter

were Kevin Carey, Kelly Lehr, Meg Mills, and Debra Sebastian.

Sincerely yours,

Gloria L. Jarmon

Director, Health, Education, and Human Services

Accounting and Financial Management Issues

Enclosure
Enclosure

Page 4 GAO/AIMD-00-261R Improper Payments

Agencies and Programs That Reported Improper Payments

in Their Fiscal Year 1999 Financial Statements

(Dollars in millions)

Department or Agency Program

Estimated

amount

reported as a

cost of

operations

Amount reported

as part of

multiyear

accounts

receivable

Department of Agriculture (USDA) Federal Crop Insurance

Corporation

$0.0a

Food Stamp Program $1,290.0

Department of Defense Military Retirement Fund 25.3

Department of Energy No specific program identified 0.0a

Medicare Fee-for-Service

Claim Payments 13,500.0

Department of Health and Human

Servicesb

Cost Reports 600.0

Medicaid 0.0c

Department of Housing and Urban

Development

Housing Subsidy Programs 935.0

Federal Housing Administration 0.0a

Department of Justice Federal Bureau of Investigation 0.0a

Federal Employees’

Compensation Act

Department of Labor 19.2

Unemployment Insurance 142.3

Federal Employees’ Group Life

Insurance

0.2

Federal Employees’ Health

Benefits

93.0

Office of Personnel Management

Retirement 84.0

Disability Insurance 1,118.0

Old Age and Survivors

Insurance

1,325.0

Social Security Administration

Supplemental Security Income 1,578.0

Department of State No specific program identified 0.0a

Department of the Treasury – Customs Drawbacks and Refunds 0.4

Department of Veteran Affairs (VA) Veterans Benefits programs 0.0a

Total $16,325.0 $ 4,385.4

a

The agencies administering these programs acknowledged making improper payments as part of their

discussion of accounts receivables in their fiscal year 1999 financial statements but did not disclose specific

dollar amounts for the improper payments. The appropriate segments of these accounts receivable—such as

receivables with the public—ranged from $1 million at USDA to $581 million at VA. However, there was no

indication as to how much of these accounts receivable had stemmed from improper payments.

b

Within its financial statement footnotes, HHS also acknowledged that various programs under the Administration

for Children and Families, the Health Resources and Services Administration, and the Substance Abuse and

Mental Health Administration may have made improper payments. However, HHS stated that it did not believe

that these amounts would be material to the agency’s financial statements.

c

HHS acknowledged making improper payments related to the Medicaid Program as part of its management’s

discussion and analysis in its fiscal year 1999 financial statements but did not disclose a specific dollar amount.

Source: GAO analysis based on a review of the CFO Act agencies’ fiscal year 1999 financial statement reports.

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