United States General Accounting Office 

GAO	 Report to the Subcommittee on 

Government Efficiency and Financial 

Management, Committee on Government 

Reform, House of Representatives 

October 2003 FINANCIAL 

MANAGEMENT 

Status of the 

Governmentwide 

Efforts to Address 

Improper Payment 

Problems 

GAO-04-99


a
Highlights of GAO-04-99, a report to the 

Subcommittee on Government Efficiency 

and Financial Management, Committee on 

Government Reform, House of 

Representatives 

Improper payments are a 

longstanding, widespread, and 

significant problem in the federal 

government. This past April, the 

Office of Management and Budget 

(OMB) estimated these payments 

to be about $35 billion annually for 

major federal benefit programs. 

Importantly, this estimate does not 

account for all federal programs 

and activities and considers less 

than half of the $2.3 trillion net cost 

of the federal government for fiscal 

year 2002. 

Because of its continued interest 

and concerns regarding financial 

management in the federal 

government, the Subcommittee 

asked GAO to follow-up on the 

implementation of the 

recommendations contained in our 

August 2002 report (GAO-02-749). 

Our 2002 report recommended that 

Chief Financial Officers Act (CFO 

Act) agencies take actions to 

minimize improper payments in 

their programs and activities and 

for OMB to assist agencies in 

developing methods to identify and 

implement those actions. 

OMB described our report as 

largely fair and accurate. It 

characterized the administration’s 

current efforts to reduce erroneous 

payments as the most 

comprehensive assessment of the 

government’s payment processes in 

history. 

www.gao.gov/cgi-bin/getrpt?GAO-04-99 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-6906 or 

williamsm1@gao.gov. 

October 2003 

FINANCIAL MANAGEMENT 

Status of the Governmentwide Efforts to 

Address Improper Payment Problems 

The ultimate success of the governmentwide effort to reduce improper 

payments hinges on each federal agency’s diligence and commitment to 

identify, estimate, determine the causes of, take corrective actions on, 

measure, and report progress in reducing all improper payments. 

While each of the 23 CFO Act agencies has assigned responsibility for the 

improper payment program to a senior official, GAO’s discussions with 

officials at these agencies revealed a wide disparity in the progress made in 

implementing actions to perform risk assessments, identify and take actions 

to address internal control problems identified during the risk assessments, 

and publicly report the results of actions to reduce improper payments. 

Generally, the 14 CFO Act agencies that OMB Circular A-11 required to 

report erroneous payment information in their initial budget submissions 

were more active in conducting risk assessments, implementing corrective 

actions, and reporting on improper payments than the 9 CFO Act agencies 

not cited in the circular. 

Officials at the 14 agencies noted that their agencies had completed risk 

assessments for 15 of the 44 programs cited in the circular. Of the 9 CFO Act 

agencies not cited in the circular, officials at only one agency stated that 

they had completed risk assessments of all of the agency’s programs. 

Not all agencies have implemented control activities to address internal 

control weaknesses identified through risk assessments designed to identify 

improper payments. While officials generally acknowledged that they had 

not fully assessed all of their programs and activities to identify program 

risks of improper payments, some stated that they had considered those 

risks when designing or modernizing their program’s general internal control 

systems. Specifically, officials stated that their agencies were relying on 

general internal control activities already in place to manage improper 

payments. 

Officials at each of the 23 CFO Act agencies stated that their agency would 

meet the reporting requirements in OMB’s guidance on the implementation 

of the Improper Payments Information Act of 2002. This guidance calls for 

agencies to report significant amounts of improper payment information in 

their annual Performance and Accountability Reports. Depending on the 

agency and program, this reporting can begin as early as the fiscal year 2003 

report but not later than the fiscal year 2004 report. 

OMB has taken actions to address each of our recommendations. It has met 

with officials from each of the CFO Act agencies to provide assistance and 

has issued guidance for agencies’ use in implementing their improper 

payment program including the performance of risk assessments, the 

identification of the causes of improper payments, and the issuance of 

reports on the results of the actions taken to reduce these payments. 
Contents


Letter 1 

Results in Brief 4 

Background 7 

Recent Legislation Targets Improper Payments 8 

Executive Agency Actions to Implement Recommendations 9 

OMB’s Actions to Implement Recommendations 20 

Conclusions 26 

OMB’s Comments and Our Evaluation 27 

Appendixes 

Appendix I: 

Appendix II: 

Appendix III: 

Appendix IV: 

Appendix V: 

Scope and Methodology 29 

CFO Act Agencies and Related Programs for Which OMB 

Circular A-11 Requires Erroneous Payment Information 31 

CFO Act Agencies Included in This Review 33 

Comments from the Office of Management and Budget 34 

GAO Contacts and Staff Acknowledgments 35 

GAO Contacts 35 

Acknowledgments 35 

Abbreviations 

CFO Chief Financial Officer


CFO Act Chief Financial Officers Act


CFOC Chief Financial Officers Council


COO Chief Operating Officer


DCI Data Collection Instrument


IG Inspector General


IRS Internal Revenue Service


OMB Office of Management and Budget


PCIE President's Council on Integrity and Efficiency


PMA President's Management Agenda


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Page i GAO-04-99 Improper Payments 
Page ii GAO-04-99 Improper Payments 
Page 1 GAO-04-99 Improper Payments 

A

United States General Accounting Office 

Washington, D.C. 20548 

October 17, 2003


The Honorable Todd R. Platts


Chairman


The Honorable Edolphus Towns


Ranking Minority Member


Subcommittee on Government Efficiency and Financial Management


Committee on Government Reform


House of Representatives


Improper payments are a longstanding, widespread, and significant 


problem in the federal government and few would argue that the goal of 


reducing them is not a worthy one. This past April, the Office of 


Management and Budget (OMB) estimated these payments to be about $35


billion annually for major federal benefit programs. Importantly, this 


estimate does not account for all federal programs and activities and 


considers less than half of the $2.3 trillion net cost of the federal 


government for fiscal year 2002. In addition to these annual costs, the risk 


of improper payments and the government’s ability to prevent them has 


important long-term implications. 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. 


Improper payments include amounts that should not have been made or 


were made for incorrect amounts. Specifically, they include inadvertent 


errors, such as duplicate payments and calculation errors; payments for 


unsupported or inadequately supported claims; payments for services not 


rendered or rendered to ineligible beneficiaries; and payments resulting 


from fraud and abuse. Measuring improper payments and designing and


implementing actions to reduce or eliminate them will not be easy. 


Agencies can have success in this area, but that success will be dependent 


on the design, development, and implementation of better internal 


controls. This will require strong support and active involvement from 


agency management, the administration, and the Congress. Once 


committed to a plan of action, all parties must remain involved and 


committed to the end goals and their support must be transparent to all.


Page 1 GAO-04-99 Improper Payments 
Our August 2002 report1

 called for a coordinated approach to address the 

governmentwide improper payment problem and recommended actions to 

be taken by federal agencies and OMB. Specifically, we recommended that 

the heads of all Chief Financial Officers Act (CFO Act) agencies assign 

responsibility for managing improper payments to a senior official, such as 

the Chief Financial Officer (CFO) or the Chief Operating Officer (COO), 

and that those responsibilities include 

•	 establishing policies and procedures for assessing agency and program 

risks of improper payments; 

• taking actions to reduce those payments; and 

•	 reporting the results of the agency actions to agency management for 

oversight, and other actions, as deemed appropriate. 

We also recommended that the Director of OMB 

•	 develop information on improper payments and issue specific guidance 

to agencies that provides a comprehensive approach to reducing 

improper payments, including providing the transparency in reporting 

that is crucial to addressing the problem; 

•	 work with agency officials to provide reasonable assistance in 

implementing corrective action plans developed to reduce improper 

payments; 

•	 work with agency officials and the Congress to identify and help 

eliminate or reduce the barriers that restrict agency actions to reduce 

improper payments; and 

•	 require agencies to report improper payment information in a specific, 

publicly available document. 

Because of your continued interest and concerns regarding financial 

management in the federal government, you asked us to follow-up on the 

implementation of the recommendations contained in our 2002 report. 

1

U.S. General Accounting Office, Financial Management: Coordinated Approach Needed to 

Address the Government’s Improper Payments Problems, GAO-02-749 (Washington, D.C.: 

Aug. 9, 2002). 

Page 2 GAO-04-99 Improper Payments 
Specifically, you requested that we determine the actions taken by the CFO 

Act agencies and OMB in designing and implementing programs to address 

our recommendations, including 

•	 assigning responsibility for agency improper payment activities to a 

senior official, 

•	 developing detailed action plans to determine the nature and extent of 

possible improper payments, 

•	 identifying and implementing cost-effective control activities to address 

identified risk areas, and 

• publicly reporting the results of their efforts. 

Based on the results of our initial meetings with CFO Act agency officials, it 

became clear that many agencies were in the initial stages of designing and 

implementing actions to address the recommendations. Therefore, we 

limited our efforts to interviewing agency officials and obtaining 

documentation, when available, that identified and discussed agency 

actions on the recommendations. Again, because of the early stages of 

many of the agency actions, we did not assess the effectiveness of the 

agencies’ efforts or independently validate the data they provided. We plan 

to concentrate on specific agency actions in future improper paymentsrelated assignments. We also interviewed key OMB officials to determine 

the status of their actions to address the recommendations and the 

improper payment-related guidance that OMB issued in May 2003.2 

Appendix I contains further details on our scope and methodology. 

2

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

107-300), May 21, 2003. 

Page 3 GAO-04-99 Improper Payments 
Results in Brief	 The ultimate success of the governmentwide effort to reduce improper 

payments hinges on each federal agency’s diligence and commitment to 

identify, estimate, determine the causes of, take corrective actions, and 

measure progress in reducing all improper payments. Our 2002 report 

recognized the significance of the governmentwide improper payment 

problem and addressed recommendations to the 23 CFO Act agencies3

 and 

OMB to focus attention on and take actions to reduce the problem. 

Subsequent to the issuance of our report, the Improper Payments 

Information Act of 20024

 (Improper Payments Act) was enacted. This 

legislation required many of the same actions that we previously 

recommended to federal agencies and OMB and that you asked us to 

address in this report. 

We recommended that each CFO Act agency assign responsibility for 

managing improper payments to a senior official and noted that this 

individual should be responsible for establishing policies and procedures 

for assessing risks of improper payments, taking actions to reduce 

improper payments, and publicly reporting the results of the actions taken. 

Based on discussions with officials at each of the 23 CFO Act agencies, a 

senior official, either the COO or the CFO, is now responsible for improper 

payment activities at each agency. The communication of the delegation of 

this responsibility varied by agency with 14 agencies issuing some type of 

agencywide announcement and 9 agencies assigning responsibility but 

making no official announcement of the action. 

While officials at each of the 23 CFO Act agencies told us that they had 

assigned improper payment program responsibilities to a senior official, 

our discussions revealed a wide disparity in the progress made in 

performing risk assessments, identifying and taking actions to address 

internal control problems identified during the risk assessments, and 

publicly reporting on the results of actions taken to reduce improper 

payments. The 2002 version of OMB Circular A-11, Preparation, 

Submission, and Execution of the Budget, section 57, Information on 

3

We originally made recommendations to 24 CFO Act agencies. We subsequently omitted 

the Federal Emergency Management Agency, a CFO Act agency that became part of the 

Department of Homeland Security in March 2003. 

4

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

Page 4 GAO-04-99 Improper Payments 
Erroneous Payments, required 14 CFO Act agencies5

 to report erroneous 

payment information in their initial budget submissions to OMB for 44 

programs beginning with their fiscal year 2003 budget submissions. (GAO 

considers the terms “improper payments” and “erroneous payments” to be 

synonymous.) In general, these 14 agencies were more active in 

conducting risk assessments, implementing corrective actions, and 

reporting on improper payments than the 9 CFO Act agencies that were not 

cited in the circular. Despite this, discussions with officials at the 14 

agencies revealed that the agencies had completed risk assessments for 

only 15 of the 44 programs cited in the circular. Further, these officials 

provided us with supporting documentation of these risk assessments for 

only 7 of the 15 programs. Of the 9 CFO Act agencies that were not cited in 

the circular, officials at only one agency stated that they had completed a 

risk assessment of the agency’s programs. 

Another activity the agency improper payment designee should oversee is 

the identification and implementation of actions to address the internal 

control deficiencies identified by risk assessments. Not all agencies have 

implemented control activities to address internal control weaknesses 

identified through risk assessments designed to identify improper 

payments. Officials at the 14 agencies cited in OMB Circular A-11 told us 

that they have developed and implemented some internal control activities, 

such as data-matching and recovery auditing, based on the risk assessment 

results for 15 of the 44 programs cited in the circular. 

While officials generally acknowledged that they had not fully assessed all 

of their programs and activities to identify program risks of improper 

payments, some stated that they had considered those risks when initially 

designing or modernizing their general program internal control systems. 

Specifically, officials stated that their agencies rely on general internal 

control activities already in place, and that they will make appropriate 

modifications to their control systems once risk assessments are 

completed. 

Our earlier review of agency fiscal year 2002 Performance and 

Accountability Reports showed that the type and amount of improper 

payment information reported were inconsistent across federal agencies. 

Public reporting of this information is critical to change and, under OMB’s 

5

 The circular required certain improper payment-related actions by 15 federal agencies—14 

CFO Act agencies and the Railroad Retirement Board. 

Page 5 GAO-04-99 Improper Payments 
guidance for implementing the Improper Payments Act, agencies are to 

publicly report the results of their actions to reduce improper payments. 

This guidance calls for agencies with significant amounts of improper 

payments to report improper payment-related information in their annual 

Performance and Accountability Reports. Depending on the agency and 

program, this reporting can begin as early as the fiscal year 2003 report but 

not later than the fiscal year 2004 report. Officials at each of the 23 CFO 

Act agencies stated that their agencies will meet the reporting 

requirements. 

OMB has taken several actions to address our recommendations. It has 

issued guidance for agencies’ use in implementing their improper payment 

programs including the performance of risk assessments, determining the 

causes of improper payments, and reporting on the results of the actions 

taken to reduce improper payments. In addition, OMB officials stated that 

they have met with officials from each CFO Act agency to provide improper 

payment-related assistance and to ensure that agencies (1) understand the 

requirements set forth in the guidance implementing the Improper 

Payments Act, (2) have started to inventory their programs and activities to 

identify those at significant risk of improper payments, (3) understand the 

risk assessment process, and (4) understand the reporting requirements. 

OMB officials also noted that they are working with agency officials and 

the Congress to identify and eliminate barriers that restrict agency actions 

to reduce improper payments, such as restricted access to data for 

eligibility verification and limited funding for the costs of eligibility reviews 

and other stewardship integrity activities. They further told us that, based 

on these discussions, they have initiated several actions, such as proposing 

legislation designed to improve certification of eligibility and allocating 

funds in the federal budget, to help measure, reduce, and recover improper 

payments. 

In commenting on this report, OMB stated that the report provided an 

assessment of the administration’s initiative to reduce erroneous payments 

that is largely fair and accurate. The response further noted that the 

administration’s initiative to reduce improper payments is the most 

comprehensive assessment of the government’s payment processes in its 

history. It further suggested changes to the report to reflect the progress 

made, or the benefits that have been, or will be, achieved when the 

administration’s initiative is fully implemented. 

Page 6 GAO-04-99 Improper Payments 
Background	 As the steward of taxpayer dollars, the federal government is accountable 

for how its agencies and grantees spend hundreds of billions of dollars and 

is responsible for safeguarding those funds against improper payments. 

Our work over the past several years has demonstrated that improper 

payments are a significant and widespread problem in federal agencies. In 

addition, reports such as the Senate Committee on Governmental Affairs’ 

Government at the Brink,6

 the administration’s President’s Management 

Agenda, Fiscal Year 20027

 (PMA), and the House Committee on 

Government Reform’s The Federal Government’s Continuing Efforts to 

Improve Financial Management8

 highlight the impact of improper 

payments on federal programs and the need for actions to strengthen the 

system of internal control over areas where improper payments occur. 

Our past reports have shown that relatively few agencies report improper 

payments in their financial statements, even though our audits and those of 

agency offices of the Inspector General (IG) continue to identify serious 

improper payment problems and related internal control issues. Federal 

agency financial statements for fiscal years 2000, 2001, and 2002 reported 

improper payments of about $20 billion each year. In April 2003, OMB 

estimated that improper payments amount to about $35 billion annually for 

major federal benefit programs. Importantly, this estimate does not 

account for all federal programs and activities and considers less than half 

of the $2.3 trillion net cost of the federal government for fiscal year 2002. 

The PMA includes five governmentwide initiatives—one of which is 

improved financial management. This initiative calls for the administration 

to establish a baseline on the extent of erroneous payments. Under it, 

agencies were to include, in their 2003 budget submissions to OMB, 

information on improper payment rates, including actual and target rates, 

where available, for benefit and assistance programs over $2 billion. The 

PMA also notes that, using this information, OMB will work with agencies 

6

Senator Fred Thompson, Committee on Governmental Affairs, United States Senate, 

Government at the Brink, Volume I, Urgent Federal Government Management Problems 

Facing the Bush Administration (Washington, D.C.: June 2001). 

7

Executive Office of the President, Office of Management and Budget, The President’s 

Management Agenda, Fiscal Year 2002 (Washington, D.C.: Aug. 2001). 

8

Dan Burton, Committee on Government Reform, United States House of Representatives, 

The Federal Government’s Continuing Efforts to Improve Financial Management 

(Washington, D.C.: Oct. 2002). 

Page 7 GAO-04-99 Improper Payments 
to establish goals to reduce improper payments identified in their 

programs. 

In July 2001, as part of its efforts to advance the PMA initiative, OMB 

revised Circular A-11 to require 16 federal agencies (15 CFO Act agencies 

and the Railroad Retirement Board) to submit erroneous payment data, 

assessments, and action plans for about 50 programs to OMB with their 

initial budget submissions. Specifically, the circular required that agencies 

submit information including estimated erroneous payment rates, target 

rates for future reductions in these payments, the types and causes of these 

payments, and variances from targets or goals established. In addition, 

agencies were to provide a description and assessment of the current 

methods for measuring the rate of erroneous payments and the quality of 

data resulting from these methods. Based on an August 2001 memorandum 

from the Deputy Controller, OMB, to the CFOs and budget officers of 

executive departments and agencies, agencies were to first include this 

erroneous payment information in their initial fiscal year 2003 budget 

submissions. A June 2002 revision to the circular reduced the number of 

CFO Act agencies required to submit erroneous payment data to 14 (OMB 

removed the Agency for International Development from the list) and 

reduced the number of programs for which improper payment information 

was required to 44. (Appendix II lists the agencies and programs.) In July 

2003, OMB revised the circular by eliminating the requirement for 

information on improper payments. Despite this action, OMB officials have 

stated that they will require the agencies cited in the earlier version of the 

circular to report their efforts to reduce improper payments in the 

programs previously identified in the circular. 

Recent Legislation 

Targets Improper 

Payments 

In November 2002, the Congress passed the Improper Payments Act. The 

requirements of the act correspond to the recommendations in our 2002 

report. Specifically, it requires agency heads to annually review all 

programs and activities that they administer and identify those that may be 

susceptible to significant improper payments. Once agencies identify their 

susceptible programs, the act requires them to estimate the annual amount 

of improper payments in those programs and activities. For programs for 

which estimated improper payments exceed $10 million, agencies are to 

report to the Congress on the actions they are taking to reduce those 

payments. The report is also to include a discussion of the causes of the 

improper payments identified, actions taken to correct those causes, and 

the results of the actions taken to address those causes. It further requires 

Page 8 GAO-04-99 Improper Payments 
OMB to prescribe guidance for federal agency use in implementing the act. 

OMB issued this guidance in May 2003. 

Executive Agency 

Actions to Implement 

Recommendations 

While all 23 CFO Act agencies have assigned responsibility for improper 

payment activities to a senior official, we found limited progress in the 

performance of risk assessments, the design and implementation of actions 

to address improper payment problems identified, and public reporting of 

improper payment amounts. Of the 23 CFO Act agencies, OMB Circular A11 (2002)9

 required 14 agencies to report improper payment information in 

their initial budget submissions to OMB beginning with their fiscal year 

2003 submissions. However, even though the requirements have existed 

for two years, the applicable agencies have only conducted risk 

assessments for 15 of the 44 programs listed in the circular. In addition, 

these agencies had implemented more of our recommendations than the 9 

CFO Act agencies not cited in the circular. 

Assign Responsibility to a Officials at each of the 23 CFO Act agencies told us that a senior official 

Senior Official	 now has responsibility for managing improper payments. The 

communication of that responsibility varied by agency with 14 agencies 

issuing some type of announcement of the designation and 9 agencies 

making no formal announcement of the assignment. 

Recommendation: The head of each CFO Act agency should assign responsibility to a 

senior official, such as the COO or the CFO, for establishing policies and procedures for 

assessing agency and program risks of improper payments, taking actions to reduce 

those payments, and reporting the results of the actions to agency management for 

oversight and other actions as deemed appropriate. 

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 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 

9

Unless noted otherwise, when referring to OMB Circular A-11 in this report, we are 

referring to the circular as revised in June 2002. 

Page 9 GAO-04-99 Improper Payments 
clearly defined and accountability for achieving these improvements is set. 

The actions of these officials should include setting and maintaining the 

ethical tone, delegating roles and responsibilities, and implementing human 

capital initiatives clearly communicating the need for change. 

Based on our discussions with officials at the 23 CFO Act agencies and 

review of documents that they provided, 21 agencies have assigned 

responsibility for managing improper payments to the agency CFO and 2 

have assigned the responsibility to the COO. This assignment of 

responsibility was communicated to agency personnel by various means. 

Fourteen of the agencies made either oral or written announcements of the 

designation and 9 made no formal announcement. Specifically, agency 

officials described the communication of the assignment as follows. 

•	 Nine agencies communicated the assignment by issuing written 

communications or sending e-mail to bureau CFOs or office directors. 

•	 Four agency officials told us that the agency had communicated this 

assignment agencywide through staff meetings. 

•	 One agency communicated the assignment orally through high-level 

meetings held with executive management or department CFOs. 

•	 Officials at five agencies told us that, while the role was assigned to an 

agency official, there was no official communication or documentation 

of the assignments. 

•	 Officials at four agencies informed us that job descriptions in the agency 

personnel manual, agency policies, directives, and delegations of 

authority—which usually give a broad range of financial management 

responsibility to the CFO/COO but do not specifically mention improper 

payments—sufficiently covered the assignment and the agencies did not 

issue any formal or official communication to agency staff regarding the 

designated agency official’s improper payment responsibilities. 

Page 10 GAO-04-99 Improper Payments 
Regardless of the method used to delegate improper payment 

responsibilities and communicate that delegation, successful 

implementation of an improper payment program depends on the ability of 

the individual given the responsibility to set the tone that the organization 

regards improper payments as unacceptable. This may require a change in 

organizational culture for some agencies and programs. In the 

organizations we studied in our executive guide,10 the pressures for change 

applied by top management were instrumental as change agents. These 

officials 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, top management set 

expectations and obtained buy-in on the need for and importance of change 

from individuals throughout the organizations. This culture of 

accountability was essential to begin the critical next step in managing 

improper payments—the risk assessment process. 

Status of Actions to 

Determine the Nature and 

Extent of Improper 

Payments 

Based on our discussions with officials at the 23 CFO Act agencies, 9 of the 

14 CFO Act agencies cited in OMB Circular A-11 had not yet developed 

action plans to conduct or had conducted risk assessments for all of their 

programs and activities cited in the circular. Officials at 8 of the 9 CFO Act 

agencies not cited in the circular stated that their agencies were in the 

initial stages of developing action plans to perform risk assessments. 

Officials at the other agency stated that the risk assessments have been 

completed. 

Recommendation: Develop detailed action plans to determine the nature and extent 

of possible improper payments for all agency programs and/or activities spending 

federal funds. 

Agencies demonstrate a strong control environment and interest in 

addressing improper payment issues by taking appropriate actions to 

address risks. An essential element of developing an action plan is the 

completion of a risk assessment, which can be used to prioritize time and 

resources and set error rate reduction targets. A risk assessment is a key 

step in gaining assurance that programs are operating as intended and are 

achieving their expected outcomes. It entails a comprehensive review and 

10U.S. General Accounting Office, Strategies to Manage Improper Payments: Learning 

From Public and Private Sector Organizations, GAO-02-69G (Washington, D.C.: Oct. 2001). 

Page 11 GAO-04-99 Improper Payments 
analysis of program operations to determine where risks exist, what those 

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

operations. The specific risk assessment methodology used can vary by 

organization because of differences in missions and the methods used in 

assigning risk levels. The information developed during a risk assessment 

forms the foundation or basis upon which management can determine the 

nature and type of corrective actions needed. It also gives management 

baseline information for measuring progress in reducing improper 

payments. 

The performance of risk assessments will make information on the causes 

and extent of improper payments available to agency officials, program 

managers, and others with oversight and monitoring responsibilities. While 

no requirement to perform assessments to identify the risk of improper 

payments for all agency programs and activities existed prior to the 

Improper Payments Act, OMB Circular A-11 required that 14 CFO Act 

agencies perform these assessments for 44 selected programs. Specifically, 

the circular required the agencies to 

•	 determine program-wide estimates for each listed program for which 

erroneous payments are currently being estimated, 

•	 provide the implementation status of action plans to perform risk 

assessments or develop baseline estimates for programs that are not 

currently estimating erroneous payments, 

•	 provide the status of action plans for preventing and/or reducing 

erroneous payments for all programs cited in the circular, and 

•	 report the results of these assessments in agency initial budget 

submissions to OMB. 

The Improper Payments Act and the related OMB guidance to implement 

the act extended the improper payment requirements to programs and 

activities beyond those cited in OMB Circular A-11. The act requires all 

agencies 

•	 to review all programs and activities and identify those that are 

susceptible to significant improper payments; 

Page 12 GAO-04-99 Improper Payments 
•	 to identify programs where the risk of improper payments is significant, 

estimate the annual amount of improper payments, and submit those 

estimates to the Congress; 

•	 that identify programs with estimates of improper payments that exceed 

$10 million, to include, with the improper payment estimates, a report 

discussing the causes, actions taken, and results of actions taken to 

address those causes. The report should also include a statement 

regarding the capability of the agencies’ information systems and 

infrastructure to reduce improper payments or a description of the 

related resources needed to do so, as well as a description of the steps 

the agency has taken to ensure that agency managers are held 

accountable for reducing improper payments. 

Although the act did not quantify “significant improper payments,” OMB’s 

May 2003 guidance on implementing the act—which we will discuss later in 

this report—defined the term as “annual erroneous payments in the 

program exceeding both 2.5 percent of program payments and $10 million.” 

As a result of OMB Circular A-11, improper payment-related identification 

and reporting requirements existed at 14 of the CFO Act agencies before 

such requirements existed at the remaining 9 CFO Act agencies. Because 

of this earlier requirement, we will summarize and present the results of 

our interviews and documentation reviews for the 14 agencies cited in the 

circular separately from the 9 CFO Act agencies not cited. 

We found that, according to agency officials, 9 of the 14 CFO Act agencies 

cited in OMB Circular A-11 had not yet developed action plans to conduct 

or had conducted risk assessments for all of their programs and activities 

cited in the circular. 

•	 While the agencies identified in OMB Circular A-11 are responsible for 

additional programs and activities other than those identified in the 

circular, agency officials told us that the focus at those agencies has 

been on the programs cited in the circular. They further stated that their 

primary attention was on programs of higher risk or those constituting 

larger dollar amounts. 

•	 Agency officials told us that they had completed risk assessments for 15 

of 44 programs cited in the circular. Officials could provide us with 

supporting documentation of these risk assessments for only 7 of the 15 

programs. 

Page 13 GAO-04-99 Improper Payments 
•	 We found that three of the agencies that had not completed 

comprehensive risk assessments of a circular program had estimated 

and reported improper payment amounts in those programs in their 

annual Performance and Accountability Reports. Another agency was 

able to report improper payment estimates because, according to 

agency officials, it had assessed a portion of its programs listed in the 

circular. However, they further told us that they were still assessing 

other aspects of their programs for the risk of improper payments and 

would consider additional controls and revise their estimate based on 

the assessment results. 

•	 Officials at five of the agencies stated that the significance of the risk of 

improper payments in their programs—including some of the OMB 

Circular A-11 programs—that were not yet assessed was unknown. 

Officials at two CFO Act agencies identified in the circular told us that 

they believed the risk of improper payments in the programs not yet 

assessed was insignificant, but acknowledged that they had not 

performed detailed risk assessments to confirm that view. 

Prior to the passage of the Improper Payments Act, the nine CFO Act 

agencies not cited in the circular had no requirement to perform the 

improper payment-related activities called for in the legislation. In general, 

we found that most of these agencies were in the initial stages of 

developing action plans to perform risk assessments, as indicated below. 

•	 Seven agencies were in the process of planning and developing action 

plans for conducting risk assessments of their programs and activities. 

•	 One agency had completed its risk assessments and provided us with 

supporting documentation. The agency requires department managers 

to submit quarterly reports on improper payments and then, based on a 

review of those reports, may require corrective actions such as 

automating a previous manual process or providing training to 

individuals processing payments. According to agency officials, these 

detailed reports allow agency leaders to continually monitor payment 

performance. 

•	 One agency had no plans to conduct a risk assessment because the 

agency only made administrative payments, such as payroll and 

commercial and travel payments, and did not consider those payments 

to be susceptible to improper payments. 

Page 14 GAO-04-99 Improper Payments 
While we found that most improper payment-related risk assessments 

conducted focused on the OMB Circular A-11 programs, under the 

requirements of the Improper Payments Act, all agencies are now required 

to annually assess all of their programs and activities for improper 

payments. OMB’s guidance for agency implementation of the Improper 

Payments Act states that agencies are required to annually review all 

programs, identify those susceptible to significant erroneous payments, 

and maintain documentation to support the review and the results. 

Agency Actions to Identify 

and Implement Control 

Activities to Reduce 

Improper Payments 

By identifying programs and activities with improper payments and the 

causes of these payments, risk assessments set the stage for the 

identification, design, and implementation of control activities to address 

the causes of the problems. We found that, although most agencies 

acknowledged that they had not fully assessed all of their programs and 

activities to identify the magnitude of improper payments, if any, some 

stated that they had addressed those risks when initially designing or 

modernizing their general program internal control systems. Specifically, 

the agency officials we interviewed said that they rely on general internal 

control activities already in place to minimize improper payments. These 

general internal control activities include data-sharing, computer-editing 

techniques, on-site visits, manual claims reviews, prepayment accuracy 

reviews, inspector general reviews, and postpayment recovery audits. 

Further, some agency officials indicated that, with the diverse missions of 

their programs and the different processes used in the administration of 

those programs, developing an agencywide methodology for assessing risk 

and accumulating the resulting data might take considerable time. Rather 

than waiting for comprehensive risk assessments to be completed, some 

agency officials told us that they had begun to implement additional preand postpayment controls designed to help identify and reduce improper 

payments resulting from duplicate payments, split purchases, and 

miscalculations. They noted that, as additional data become available from 

the risk assessments, control system weakness can be remedied. 

Recommendation: Identify cost-effective control activities to address identified risk areas. 

Control activities are the policies, procedures, techniques, and other 

mechanisms designed to help ensure that management’s decisions and 

plans are carried out and program objectives are met. The control 

activities used by organizations to address improper payments vary 

Page 15 GAO-04-99 Improper Payments 
according to the specific risks incurred. As noted in our executive guide, 

the types of payment activities identified as presenting the most significant 

risk of improper payments and the kinds of data and other resources 

available dictate the specific changes in internal control systems needed to 

adequately guard against improper payments. 

Not all agencies have implemented control activities to address internal 

control weaknesses identified through risk assessments designed to 

identify improper payments. Officials of programs already required by 

OMB Circular A-11 to report improper payment information in their initial 

budget submissions to OMB told us that they understand some of the 

causes of their improper payments and have begun implementing actions, 

as demonstrated below. 

•	 According to officials at 6 of the 14 agencies, their control activities 

include monitoring and reviewing the results of Single Audit Act11 and 

IG audits and reviews for questionable costs or other potential improper 

payment activity. 

11The Single Audit Act, as amended, requires nonfederal entities that expend $300,000 

($500,000 for fiscal years ending after December 31, 2003) or more in a year in federal 

awards to have a single or program-specific audit conducted for that year and provide a 

copy of the audit report to the Federal Audit Clearinghouse. The Clearinghouse will 

forward a copy of the report to the awarding agency when the report discloses audit 

findings relating to that agency’s programs. 

Page 16 GAO-04-99 Improper Payments 
•	 Officials at three agencies reported that they are analyzing payment data 

for potential improper payments and are using data-mining techniques 

as a postpayment procedure to review and analyze diverse data for 

relationships that have not previously been discovered.12 

•	 Officials at five agencies stated that they perform data-sharing or datamatching with other government agencies to compare information from 

different sources to verify that accurate eligibility information is 

reported to help ensure that payments are appropriate before they are 

made. 

•	 Officials at four agencies mentioned their use of recovery auditing—the 

examination of agency payments to identify duplicate payments, errors 

on invoices, payments for items not received, errors in determining 

payment amounts and executing payments, and the failure to account 

for credits for applicable discounts or returned merchandise. 

Officials at most of the 9 agencies not cited in OMB Circular A-11 stated 

that they are generally still assessing their programs for risks and have not 

identified cost-effective controls designed to target improper payment 

activities. They rely on their general internal control procedures already in 

place to ensure payments are correct. However, like the 14 CFO Act 

agencies that were cited in the circular, some plan to implement, have 

begun to implement, or have implemented pre- and postpayment controls 

designed to help identify and reduce improper payments resulting from 

duplicate payments, split purchases, and miscalculations. 

•	 Officials at one agency told us that they have initiated recovery auditing 

programs, as required by legislation, to identify errors made in paying 

contractors and to recover amounts erroneously paid to contractors. 

•	 Officials at two agencies cited plans to begin a recovery auditing 

program. Officials at one of these agencies stated that the agency has 

12 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 data 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 separate databases. 

Page 17 GAO-04-99 Improper Payments 
begun a recovery auditing pilot program while the other agency was still 

meeting with outside auditors to discuss contracting the effort. 

•	 Officials at two agencies mentioned that a portion of their funds were 

cross-serviced by another federal government agency. For these funds, 

they are relying exclusively on the internal controls of the agency 

service provider in detecting and preventing improper payments. 

Although comprehensive risk assessments and action plans to perform 

them may not be completed, some agency officials reported that they are 

developing and performing risk assessments and, at the same time, are 

beginning to develop additional control activities to reduce improper 

payment activity in their programs. As further risk assessments are 

completed and potential improper payments are identified, additional 

controls can be developed and implemented to target these problem areas. 

Public Reporting on 

Improper Payments and 

Progress in Reducing Them 

Improper payments are a significant problem and information on federal 

actions and the results of those actions is a critical element in the overall 

process of reducing those payments. Currently, few agencies publicly 

report the amounts of their improper payments or other information such 

as barriers to identifying and/or reducing improper payments, targets and 

goals set for improvement, and progress in identifying, minimizing, and 

recovering improper payments. For example, for fiscal years 2000 through 

2002, agencies reported improper payment information in their annual 

Performance and Accountability Reports totaling about $20 billion each 

year. However, the type and amount of information reported was 

inconsistent across federal agencies. Some agencies estimated amounts 

for one or some of their programs but not others, while others 

acknowledged making improper payments but did not report specific 

improper payment amounts. Some agencies reported amounts in their 

Performance and Accountability Reports one year but not the next. One 

agency did not update its annual estimate one year and reported the same 

estimated amount from the prior year. 

Recommendation: Agencies should periodically report, through publicly available 

documents, to the agency head, OMB, and the Congress on the progress made in 

achieving improper payment reduction targets and future action plans for controlling 

improper payments. 

Page 18 GAO-04-99 Improper Payments 
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 or interests. As we reported in our executive guide, 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. 

An August 2001 memorandum from the Deputy Controller, OMB, to the 

CFOs and budget officers of executive departments and agencies noted 

that “Public reporting of progress in meeting goals for minimizing 

erroneous payments enhances accountability and we expect agencies to do 

so.” OMB strengthened its position on the importance of public reporting 

when, in May 2003, it issued guidance on implementing the Improper 

Payments Act and required agencies to report improper payment 

information in their annual Performance and Accountability Reports. 

Depending on the agency and program, this reporting can begin as early as 

the fiscal year 2003 report but not later than the fiscal year 2004 report. 

To determine the extent that agencies were already reporting improper 

payment information publicly, we reviewed agency fiscal year 2002 

Performance and Accountability Reports. Of the 14 CFO Act agencies that 

were required to report improper payment rates, estimates, and other 

information for 44 programs in their initial budget submissions to OMB, 4 

reported improper payment estimates for all required programs in their 

fiscal year 2002 financial statements. (Financial statements are an integral 

component of the annual Performance and Accountability Reports.) 

Another 3 agencies reported partial estimates for some of their programs. 

The remaining 7 agencies—accounting for 20 of the 44 programs—did not 

report current estimates of improper payments in their fiscal year 2002 

Performance and Accountability Reports. 

In our discussions with agency officials about public reporting, officials at 

one agency reported that the agency makes improper overpayment and 

underpayment rate information available for one of its programs, but that it 

does not report annual dollar estimates. An official at another agency told 

us that when required to do so, the agency will publicly report all improper 

Page 19 GAO-04-99 Improper Payments 
payment information; however, it feels that this is sensitive information and 

is concerned that the information may be used inappropriately. 

Further, officials at some agencies stated that they consider disclosure of 

improper payment information in public hearings or in federal budget 

documents submitted to OMB to be public reporting. In making our 

recommendation, we envisioned a more transparent medium such as 

agency annual Performance and Accountability Reports where not only the 

Congress but the public and others with oversight and monitoring interests 

could obtain and use the information to hold agencies accountable for 

achieving target rates or otherwise implementing specifically planned 

actions to reduce improper payments. 

Eventually, agencies will provide public reporting since current OMB 

guidance, which resulted from the Improper Payments Act, calls for 

agencies to report significant amounts of improper payment-related 

information in their annual Performance and Accountability Reports. This 

reporting can begin as early as the fiscal year 2003 report but not later than 

the fiscal year 2004 report. Officials at each of the 23 CFO Act agencies 

stated that their agency will meet the reporting requirements. 

OMB’s Actions to 

Implement 

Recommendations 

As the President’s agent for managing and implementing policy, OMB issues 

guidance and oversees the administrative organization and operations of 

federal agencies. Its role in managing, implementing, and overseeing 

governmentwide administrative policy, its interagency perspective, and its 

leadership role on interagency councils make it a key player in the 

government’s effort to reduce improper payments. OMB, which has shown 

leadership in the improper payments area, has issued guidance to federal 

agencies on the design and implementation of improper payment programs 

and has initiated contact and is working with agency officials to address 

improper payment-related issues. OMB Circular A-11’s improper paymentrelated requirements, the OMB guidance issued for implementing the 

Improper Payments Act, and OMB contacts with agency and congressional 

officials have fulfilled the intent of the majority of our OMB-related 

recommendations. It is important to remember, however, that the 

effectiveness of the governmentwide effort to reduce improper payments is 

largely dependent on individual agency assessments of the extent of their 

improper payment problems, the causes of those problems, and the 

implementation of actions to reduce their problems. 

Page 20 GAO-04-99 Improper Payments 
Issue Specific Guidance on OMB has issued two key guidance documents that, in addition to 

an Approach to Reduce addressing our recommendations, have provided agencies with 

Improper Payments instructions for identifying, measuring, and reporting their improper 

payments. 

Recommendation: Issue specific guidance to agencies that provides a comprehensive 

approach to reducing improper payments. 

The PMA established priorities for five crosscutting initiatives to improve 

the management and performance of the federal government. One of the 

initiatives, to improve financial performance, focuses special attention on 

addressing improper payments. To assist agencies in implementing the 

PMA initiatives, in June 2001 OMB revised Circular A-11, adding Section 57, 

Information on Erroneous Payments, which provided some degree of 

guidance to agencies by 

• defining the term “erroneous payments,” 

•	 establishing a formula for determining error rates and amount 

estimates, and 

• setting the format for agency reporting. 

While this guidance was a good first start, the circular was not applicable to 

all agencies or all programs and activities and the required reporting was 

limited to the agency’s initial budget submissions to OMB. Since these 

submissions are not publicly disclosed, the improper payment information 

contained in them is not routinely or consistently available for 

congressional or public review and analysis, or for holding federal agencies 

accountable for improvement. OMB updated the guidance in June 2002 

and required a more in-depth analysis of improper payment information 

from agencies, but the reporting mechanism continued to be the initial 

budget submissions. 

In May 2003, OMB included a requirement for public reporting in its 

guidance on implementing the Improper Payments Act. This guidance 

defines key terms used in the law, addresses the specific reporting 

requirements provided by the act, and lays out the steps necessary for 

agencies to meet those requirements. For example, it 

Page 21 GAO-04-99 Improper Payments 
•	 defines annual improper payments to include both over-and 

underpayments; 

•	 defines the term “programs and activities” to include “activities or sets 

of activities recognized as programs by the public, OMB, or Congress as 

well as those that entail program management or policy direction;” 

•	 defines “significant erroneous payments” as annual erroneous payments 

in the program exceeding both 2.5 percent of program payments and 

$10 million, 

•	 denotes that “grants” include competitive and block/formula grant 

programs, regulatory activities, research and development activities, 

direct federal programs, all procurements including capital assets and 

service acquisition, credit programs, and agency activities that support 

its programs; 

•	 sets statistical sampling confidence and precision levels for estimating 

improper payments; and 

•	 requires agencies with estimated improper payments exceeding 

$10 million in any program or activity to include, along with the 

estimated amount, a discussion of the amount of actual improper 

payments the agency expects to recover and how it will go about 

recovering them in the management discussion and analysis section of 

their annual Performance and Accountability Report. 

The guidance provides information for agency use that had not previously 

been available. However, as with any legislation or implementing guidance, 

the ultimate success or failure of the Improper Payments Act hinges on 

each agency’s diligence and its commitment to identify, estimate, determine 

the causes of, take corrective actions on, measure, and report progress in 

reducing all improper payments. 

Page 22 GAO-04-99 Improper Payments 
Work With Agencies to According to officials at OMB, they have been working with agency 

Reduce Improper Payments	 officials and interagency councils to provide assistance to agencies as they 

begin to address their improper payment problems. 

Recommendation: Work together with agency officials to provide reasonable 

assistance in implementing corrective action plans developed to reduce improper 

payments. 

As part of the PMA initiative to improve financial performance, officials at 

OMB told us they have met with officials from all relevant agencies to 

provide assistance and to ensure that agencies (1) understand the 

requirements set forth in the guidance implementing the Improper 

Payments Act, (2) have started to inventory their programs and activities 

for significant risk of improper payments, (3) understand the risk 

assessment process, and (4) understand the reporting requirements under 

the Improper Payments Act. 

OMB officials also told us that they have been working with a joint work 

group of members of the Chief Financial Officers Council (CFOC) and the 

President’s Council on Integrity and Efficiency (PCIE)13 to address 

improper and erroneous payments. The work group periodically convenes 

to discuss and develop best practices and other methods to reduce or 

eliminate, where possible, improper and erroneous payments made by 

federal government agencies. It has issued reports and other outputs to the 

CFOC/PCIE, reflecting work group deliberations and determinations. For 

example, the following guidance documents are available through the 

website www.ignet.gov/pande/audit.html#sub. 

•	 Report on improper payment indicators—lists events or conditions that 

either demonstrate that an erroneous payment has been made or 

suggest that erroneous payments are likely to occur. The report 

includes a list of methods used to identify erroneous payments, possible 

indicators of erroneous payments, and limitations or obstacles to 

agencies’ use of indicators to identify and prevent improper payments. 

13The PCIE is an interagency council comprising principally the Presidentially appointed 

and Senate-confirmed IGs, which were established by Executive Order No. 12301 in 1981 to 

coordinate and enhance the work of the IGs. 

Page 23 GAO-04-99 Improper Payments 
•	 Report on benchmarks—discusses the process of continually measuring 

performance and comparing against the best performing organizations 

to gain information on best practices that will help organizations 

improve performance. 

•	 Critique on the effectiveness of the differing processes used to 

determine improper payment rates—identifies and discusses the 

effectiveness of the methodologies used by 9 federal agencies and 17 

different programs, ranging from entitlement programs to grant and 

credit programs, to determine improper payment rates. 

The work group is considering further best practices guidance to assist 

agencies in implementing the Improper Payments Act. 

In July 2003, OMB and the joint CFOC/PCIE Erroneous and Improper 

Payments Working Group hosted an Improper Payments Act kick-off 

meeting. This meeting provided agencies with information on the 

legislation and the guidance and presented information on various ways 

agencies could begin to address their improper payment problems. 

OMB officials also told us that the meetings with agency officials, along 

with meetings of the joint CFOC/PCIE Erroneous and Improper Payments 

Working Group, have provided OMB with the opportunity to explicitly 

encourage information sharing across agencies, offer assistance to 

agencies in measuring their improper payments and developing action 

plans, and discuss actions to reduce or eliminate barriers that restrict 

agency actions to reduce improper payments. 

Work With Agencies to OMB and agency officials told us that they have jointly identified and 

Address Barriers to discussed barriers that restrict agency actions to better manage their 

Reducing Improper improper payments. OMB further told us that, based on these discussions, 

it has initiated several actions, such as proposing legislation designed to Payments	 improve certification of eligibility and allocating funds in the Budget of the 

United States Government, Fiscal Year 2004, to help measure, reduce, and 

recover improper payments. 

Page 24 GAO-04-99 Improper Payments 
Recommendation: Work with agency officials and the Congress to identify and help 

eliminate or reduce, to the extent practicable, the barriers that restrict agency actions 

to reduce improper payments. 

Examples of agency barriers that OMB stated it has begun to contend with 

include restricted access to data for verification of benefit eligibility and 

the lack of agency funding to perform analysis of payment accuracy and/or 

implement corrective actions. To address these barriers, OMB stated that it 

has proposed data-sharing legislation to the Congress to address restricted 

agency access to needed data and has acted as an advocate for agencies’ 

needs in requesting funding for improper payment-related efforts to 

implement the PMA’s call for actions to better manage improper payments. 

For example, the Budget of the United States Government, Fiscal Year 

2004, includes the following improper payment-related provisions. 

•	 A proposal allows the Internal Revenue Service (IRS) to match income 

data reported in the Department of Education’s student aid applications 

with the applicant’s tax data to ensure that students do not receive 

awards in excess of the amount for which they are eligible. The 

proposal is projected to save $638 million in Pell Grant costs over 2003-

2004. 

•	 Allocate $20 million in Health Care Fraud and Abuse Control funding to 

help finance an initiative for the Health and Human Services agency to 

develop a methodology to measure Medicaid and State Children’s Health 

Insurance Program improper payments, including producing error rates. 

•	 Increase the IRS budget by $100 million to lower erroneous earned 

income tax credit payments. 

Transparency in Reporting	 OMB has set a requirement for the 14 CFO Act agencies identified in OMB 

Circular A-11 to begin annual reporting of improper payment information in 

their fiscal year 2003 Performance and Accountability Reports and for all 

other agencies to begin annual reporting in their fiscal year 2004 

Performance and Accountability Reports. 

Page 25 GAO-04-99 Improper Payments 
Recommendation: Require all federal agencies to report the information called for by 

OMB Circular A-11 on improper payments in a specific, publicly available document. 

In May 2003, OMB issued guidance implementing the Improper Payments 

Act that states that information on the results of improper payment-related 

efforts must be reported in agency Performance and Accountability 

Reports for fiscal years ending on or after September 30, 2004. (These 

reports should be available in November 2004.) Moreover, the guidance 

requires the 14 CFO Act agencies already required by OMB Circular A-11 to 

report improper payment information in their initial budget submissions to 

OMB to also include that improper payment information in their fiscal year 

2003 Performance and Accountability Reports. This should result in 

publicly available information on improper payments for about 44 major 

federal programs, such as Medicare and Food Stamps, about one year 

earlier than the reporting date for all other federal programs and activities. 

These actions will help ensure transparency in reporting for those agencies 

with programs and activities with significant risks for improper payments. 

While OMB has shown progress in developing the framework and issuing 

guidance to agencies to implement the requirements of the Improper 

Payments Act, additional or supplemental guidance may be necessary to 

ensure consistency in measuring and reporting among agencies. 

Importantly, commitment from the CFO Act agencies and OMB’s continued 

leadership and support will be needed as agencies begin to scrutinize their 

programs and activities for improper payments and design and implement 

actions to address the causes of the improper payments identified. 

Conclusions	 The governmentwide effort to identify and assess the magnitude of 

improper payments, to take actions to reduce those payments, and to 

publicly report the results of those efforts is generally in its infancy stages. 

All CFO Act agencies have assigned improper payment evaluation and 

reduction responsibilities to a senior level official. However, while some 

agencies have taken significant actions to identify improper payments in 

selected programs, officials at only one of these agencies indicated that 

they have completed assessments of all agency programs and activities to 

determine if improper payments are occurring, their magnitude, and the 

need for actions to address the problems identified. Further, although 

OMB Circular A-11 has required 14 CFO Act agencies to report selected 

improper payment information on 44 programs to OMB beginning with 

their fiscal year 2003 budget submissions, those agencies have completed 

Page 26 GAO-04-99 Improper Payments 
risk assessments for only 15 of the programs. Based on discussions with 

officials at the 23 CFO Act agencies, risk assessments have either not 

begun or are in progress for the other programs cited in the circular and all 

other agency programs and activities. 

By legislatively requiring assessment of significant improper payments, 

corrective action, and reporting responsibilities, the Improper Payments 

Act could result in a focused governmentwide approach to clearly defining 

the magnitude of the improper payment problem and to actions to reduce 

or eliminate the problem. However, as we stated in our 2002 report, 

measuring improper payments and designing and implementing actions to 

reduce or eliminate them are not simple tasks. They will require strong 

support and active involvement from agency top management, the 

administration, and the Congress. As important as this OMB and 

congressional involvement is, however, the ultimate success of the 

govenrmentwide effort to reduce improper payments hinges on each 

federal agency’s diligence and commitment to identify, estimate, determine 

the causes of, take correction actions on, measure, report progress on, and 

hold officials accountable for reducing all improper payments. 

The public reporting of improper payment information called for in the 

Improper Payments Act will begin with the fiscal year 2003 Performance 

and Accountability Reports for selected agencies and programs and for all 

other agencies beginning no later than their fiscal year 2004 Performance 

and Accountability Reports. Review and evaluation of the information in 

these reports should help clarify the actual magnitude of the 

governmentwide improper payments problem, the actions taken to address 

them, and future planned efforts in this area. The reports will also provide 

a clearer picture of the level of effort and importance that each agency has 

placed on the identification and reduction of improper payments within 

their programs and activities. As such, they will provide useful information 

for continuing coordination and communications among the agencies, the 

administration, and the Congress. 

OMB’s Comments and 	 We received written comments from OMB on a draft of this report, which 

are reprinted in appendix IV. In its response, OMB stated that the report Our Evaluation	 provided an assessment of the administration’s initiative to reduce 

erroneous payments that is largely fair and accurate. The response further 

noted that the administration’s initiative to reduce improper payments is 

the most comprehensive assessment of the government’s payment 

processes in its history. It further suggested changes to the report to reflect 

Page 27 GAO-04-99 Improper Payments 
the progress made, or the benefits that have been, or will be, achieved 


when the administration’s initiative is fully implemented. 


We recognize that OMB has shown leadership in the improper payments


area, however, as we stated in our report, the ultimate success of the 


governmentwide effort to reduce improper payments is largely dependent 


on the specific actions taken by each of the agencies. Until the 


administration’s initiative is fully or significantly implemented and the 


results of agency actions to address improper payments are made public, it 


would be premature to assess the achievement of actual or potential


benefits. We considered all of OMB’s comments and made changes to the 


report as appropriate. 


We are sending copies of this report to the Chairman and Ranking Minority 


Members of the Senate Committee on Governmental Affairs, the House 


Committee on Government Reform, the Senate Committee on the Budget, 


the House Committee on the Budget, and other appropriate congressional


committees. We will also be sending copies to the Director of the Office of 


Management and Budget and the heads of the CFO Act agencies. Copies 


will also be made available to others upon request. In addition, the report 


will be available at no cost on the GAO Web site at http://www.gao.gov.


This report was prepared under the direction of McCoy Williams, Director, 


Financial Management and Assurance, who may be reached at (202) 512-


6906 or williamsm1@gao.gov if you or your staff have any questions. Staff 


contacts and other key contributors to this report are listed in appendix V.


McCoy Williams


Director


Financial Management and Assurance


Page 28 GAO-04-99 Improper Payments 
Appendix I 

Scope and Methodology


The Government Management Reform Act of 1994 expanded the 

requirements of the Chief Financial Officers Act of 1990 by requiring, 

among other things, the annual preparation and audit of organizationwide 

financial statements of 24 executive departments and agencies. Since 

March 2003, when the Federal Emergency Management Agency was 

incorporated into the Department of Homeland Security, 23 agencies are 

subject to this act. 

To obtain information on the status of agency actions on the 

recommendations contained in our 2002 report, we developed a data 

collection instrument (DCI) that contained a standardized set of questions 

for each recommendation. Using this instrument, we interviewed officials 

at each of the 23 CFO Act agencies and OMB to obtain information on the 

status of their implementation of the recommendations and to discuss 

implementation of the Improper Payments Information Act of 2002 and the 

related OMB implementation guidance. A list of the CFO Act agencies, 

which accounted for about 89 percent of the government’s net cost in fiscal 

years 2001 and 2002, is presented in appendix III. We also requested that 

the agency officials provide all available documentation to support their 

statements about the status of agency actions to implement the 

recommendations. At one agency’s request, we conducted the interview by 

telephone. In addition, we reviewed relevant agency documents including 

strategic plans, agency performance plans and reports, and reports from 

agency program partners.1 

We completed DCIs for all 23 CFO Act agencies and OMB. We reviewed the 

completed DCIs and all accompanying documentation. To facilitate our 

analysis, we developed a database to sort agency responses and categorize 

them across several dimensions. Where necessary, we contacted agencies 

to clarify responses, request additional information, and update the initial 

responses. Because the agencies are generally in the initial stages of their 

implementation efforts, we did not determine the validity of 

representations made or the documentation provided. 

We performed our work in Washington, D.C. between January and 

September 2003 in accordance with generally accepted government 

auditing standards. We requested written comments on a draft of this 

1

Program partners can include other agencies or intermediaries responsible for carrying out 

different aspects of the program and might include federal agencies, states or localities, 

grant recipients, participating financial institutions, regulated bodies, and contractors. 

Page 29 GAO-04-99 Improper Payments 
Appendix I


Scope and Methodology


report from the Director of the Office of Management and Budget. The 

comments are discussed in the section entitled OMB Comments and Our 

Evaluation and are reprinted in appendix IV. We considered all of OMB’s 

comments and made changes to the report as appropriate. 

Page 30 GAO-04-99 Improper Payments 
Appendix II 

CFO Act Agencies and Related Programs for 

Which OMB Circular A-11 Requires Erroneous 

Payment Information 

1. Department of Agriculture 

1 Food Stamps


2 Commodity Loan Program


3 National School Lunch and Breakfast 


4 Women, Infants, and Children


2. Department of Defense 

5 Military Retirement 

6 Military Health Benefits 

3. Department of Education 

7 Student Financial Assistance 

8 Title I 

4. Department of Health and Human Services 

9 Head Start


10 Medicare


11 Medicaid


12 TANF


13 Foster Care – Title IV-E


14 State Children’s Insurance Program


15 Child Care and Development Fund


5. Department of Housing and Urban Development 

16 Low Income Public Housing


17 Section 8 Tenant Based


18 Section 8 Project Based


19 Community Development Block Grants (Entitlement Grants, States/Small Cities)


6. Department of Labor 

20 Unemployment Insurance 

21 Federal Employee Compensation Act 

22 Workforce Investment Act 

7. Department of the Treasury 

23 Earned Income Tax Credit 

8. Department of Transportation 

24 Airport Improvement Program 

25 Highway Planning and Construction 

26 Federal Transit – Capital Investment Grants 

27 Federal Transit – Formula Grants 

9. Department of Veterans Affairs 

28 Compensation


29 Dependency and Indemnity Compensation


30 Pension


31 Insurance Programs


Page 31 GAO-04-99 Improper Payments 
Appendix II 

CFO Act Agencies and Related Programs for 

Which OMB Circular A-11 Requires 

Erroneous Payment Information 

(Continued From Previous Page) 

10. Environmental Protection Agency 

32 Clean Water State Revolving Funds 

33 Drinking Water State Revolving Funds 

11. National Science Foundation 

34 Research and Education Grants and Cooperative Agreements 

12. Office of Personnel Management 

35 Retirement Program (Civil Service Retirement System and Federal Employees’ 

Retirement System) 

36 Federal Employees Health Benefits Program 

37 Federal Employees’ Group Life Insurance 

13. Small Business Administration 

38 7(a) Business Loan Program


39 504 Certified Development Companies


40 Disaster Assistance


41 Small Business Investment Companies


14. Social Security Administration 

42 Old Age and Survivors’ Insurance


43 Disability Insurance


44 Supplemental Security Income Program


Source: GAO. 

Page 32 GAO-04-99 Improper Payments 
Appendix III 

CFO Act Agencies Included in This Review1


CFO Act Agencies With Prior Improper Payment Reporting Requirement 

1. Department of Agriculture


2. Department of Defense


3. Department of Education


4. Department of Health and Human Services


5. Department of Housing and Urban Development


6. Department of Labor


7. Department of the Treasury


8. Department of Transportation


9. Department of Veterans Affairs


10. Environmental Protection Agency


11. National Science Foundation


12. Office of Personnel Management


13. Small Business Administration


14. Social Security Administration


CFO Act Agencies With No Prior Improper Payment Reporting Requirement 

15. Department of Commerce


16. Department of Energy


17. Department of the Interior


18. Department of Justice


19. Department of State


20. Agency for International Development


21. General Services Administration


22. National Aeronautics and Space Administration


23. Nuclear Regulatory Commission


Source: GAO. 

1

This list, previously comprising 24 agencies, has been revised to omit the Federal 

Emergency Management Agency, a former independent CFO Act agency that became part of 

the Department of Homeland Security in March 2003. 

Page 33 GAO-04-99 Improper Payments 
Appendix IV 

Comments from the Office of Management 

and Budget 

Page 34 GAO-04-99 Improper Payments 
Appendix V


GAO Contacts and Staff Acknowledgments


GAO Contacts	 Tom Broderick, (202) 512-8705


Bonnie McEwan, (202) 512-4668


Acknowledgments	 In addition to those named above, Donell Ries made important 

contributions to this report. 

(195004) Page 35 GAO-04-99 Improper Payments 
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