SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Improper Payments 
Elimination and Recovery Act of 2010’’. 
SEC. 2. IMPROPER PAYMENTS ELIMINATION AND RECOV-
ERY. 
(a) SUSCEPTIBLE PROGRAMS AND ACTIVITIES.—Sec-
tion 2 of the Improper Payments Information Act of 2002 
(31 U.S.C. 3321 note) is amended by striking subsection 
(a) and inserting the following: 
‘‘(a) IDENTIFICATION OF SUSCEPTIBLE PROGRAMS 
AND ACTIVITIES.— 
‘‘(1) IN GENERAL.—The head of each agency 
shall, in accordance with guidance prescribed by the 
Director of the Office of Management and Budget, 
periodically review all programs and activities that 
the relevant agency head administers and identify all 
programs and activities that may be susceptible to 
significant improper payments. 
‘‘(2) FREQUENCY.—Reviews under paragraph 
(1) shall be performed for each program and activity 
that the relevant agency head administers during the 
year after which the Improper Payments Elimi-
nation and Recovery Act of 2010 is enacted and at 
least once every 3 fiscal years thereafter. For those 
agencies already performing a risk assessment every 
3 years, agencies may apply to the Director of the
Office of Management and Budget for a waiver from 
the requirement of the preceding sentence and con-
tinue their 3-year risk assessment cycle. 
‘‘(3) RISK ASSESSMENTS.— 
‘‘(A) DEFINITION.—In this subsection the 
term ‘significant’ means— 
‘‘(i) except as provided under clause 
(ii), that improper payments in the pro-
gram or activity in the preceding fiscal 
year may have exceeded— 
‘‘(I) $10,000,000 of all program 
or activity payments made during that 
fiscal year reported and 2.5 percent of 
program outlays; or 
‘‘(II) $100,000,000; and 
‘‘(ii) with respect to fiscal years fol-
lowing September 30th of a fiscal year be-
ginning before fiscal year 2013 as deter-
mined by the Office of Management and 
Budget, that improper payments in the 
program or activity in the preceding fiscal 
year may have exceeded— 
‘‘(I) $10,000,000 of all program 
or activity payments made during that
fiscal year reported and 1.5 percent of 
program outlays; or 
‘‘(II) $100,000,000. 
‘‘(B) SCOPE.—In conducting the reviews 
under paragraph (1), the head of each agency 
shall take into account those risk factors that 
are likely to contribute to a susceptibility to sig-
nificant improper payments, such as— 
‘‘(i) whether the program or activity 
reviewed is new to the agency; 
‘‘(ii) the complexity of the program or 
activity reviewed; 
‘‘(iii) the volume of payments made 
through the program or activity reviewed; 
‘‘(iv) whether payments or payment 
eligibility decisions are made outside of the 
agency, such as by a State or local govern-
ment; 
‘‘(v) recent major changes in program 
funding, authorities, practices, or proce-
dures; 
‘‘(vi) the level, experience, and quality 
of training for personnel responsible for 
making program eligibility determinations
or certifying that payments are accurate; 
and 
‘‘(vii) significant deficiencies in the 
audit report of the agency or other rel-
evant management findings that might 
hinder accurate payment certification.’’. 
(b) ESTIMATION OF IMPROPER PAYMENTS.—Section 
2 of the Improper Payments Information Act of 2002 (31 
U.S.C. 3321 note) is amended by striking subsection (b) 
and inserting the following: 
‘‘(b) ESTIMATION OF IMPROPER PAYMENTS.—With 
respect to each program and activity identified under sub-
section (a), the head of the relevant agency shall— 
‘‘(1) produce a statistically valid estimate, or an 
estimate that is otherwise appropriate using a meth-
odology 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 accom-
panying 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 Manage-
ment and Budget.’’.
(c) REPORTS ON ACTIONS TO REDUCE IMPROPER 
PAYMENTS.—Section 2 of the Improper Payments Infor-
mation Act of 2002 (31 U.S.C. 3321 note) is amended 
by striking subsection (c) and inserting the following: 
‘‘(c) REPORTS ON ACTIONS TO REDUCE IMPROPER 
PAYMENTS.—With respect to any program or activity of 
an agency with estimated improper payments under sub-
section (b), the head of the agency shall provide with the 
estimate under subsection (b) a report on what actions 
the agency is taking to reduce improper payments, includ-
ing— 
‘‘(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 infra-
structure; 
‘‘(3) if the agency does not have sufficient re-
sources 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 im-
proper payments reduction targets that have been 
approved by the Director of the Office of Manage-
ment 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 ap-
praisal criteria for— 
‘‘(A) meeting applicable improper pay-
ments reduction targets; and 
‘‘(B) establishing and maintaining suffi-
cient internal controls, including an appropriate 
control environment, that effectively— 
‘‘(i) prevent improper payments from 
being made; and
‘‘(3) if a determination has been made that cer-
tain overpayments are not collectable, a justification 
of that determination; 
‘‘(4) an aging schedule of the amounts out-
standing; 
‘‘(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 Re-
covery Act of 2010 (31 U.S.C. 3321 note) that per-
forming recovery audits for any applicable program 
or activity is not cost effective, a justification for 
that determination. 
‘‘(e) GOVERNMENTWIDE REPORTING OF IMPROPER 
PAYMENTS AND ACTIONS TO RECOVER IMPROPER PAY-
MENTS.— 
‘‘(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 re-
garding 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 Gov-
ernment Reform of the House of Representa-
tives. 
‘‘(2) CONTENTS.—Each report under this sub-
section shall include— 
‘‘(A) a summary of the reports of each 
agency on improper payments and recovery ac-
tions 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 to-
wards meeting governmentwide improper pay-
ment reduction targets.’’. 
(e) DEFINITIONS.—Section 2 of the Improper Pay-
ments Information Act of 2002 (31 U.S.C. 3321 note) is 
amended by striking subsections (f) (as redesignated by 
this section) and inserting the following: 
‘‘(f) 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 ‘im-
proper payment’— 
‘‘(A) means any payment that should not 
have been made or that was made in an incor-
rect amount (including overpayments and un-
derpayments) under statutory, contractual, ad-
ministrative, or other legally applicable require-
ments; and 
‘‘(B) includes any payment to an ineligible 
recipient, any payment for an ineligible good or 
service, any duplicate payment, any payment 
for a good or service not received (except 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-Fed-
eral 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.’’. 
(f) GUIDANCE BY THE OFFICE OF MANAGEMENT 
AND BUDGET.—Section 2 of the Improper Payments In-
formation Act of 2002 (31 U.S.C. 3321 note) is amended 
by striking subsection (g) (as redesignated by this section) 
and inserting the following: 
‘‘(g) GUIDANCE BY THE OFFICE OF MANAGEMENT 
AND BUDGET.— 
‘‘(1) IN GENERAL.—Not later than 6 months 
after the date of enactment of the Improper Pay-
ments Elimination and Recovery Act of 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 para-
graph (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.’’. 
(g) DETERMINATIONS OF AGENCY READINESS FOR 
OPINION ON INTERNAL CONTROL.—Not later than 1 year 
after the date of enactment of this Act, the Director of 
the Office of Management and Budget shall develop— 
(1) specific criteria as to when an agency 
should initially be required to obtain an opinion on 
internal control over financial reporting; and 
(2) criteria for an agency that has dem-
onstrated a stabilized, effective system of internal 
control over financial reporting, whereby the agency 
would qualify for a multiyear cycle for obtaining an 
audit opinion on internal control over financial re-
porting, rather than an annual cycle. 
(h) RECOVERY AUDITS.— 
(1) DEFINITION.—In this subsection, the term 
‘‘agency’’ has the meaning given under section 2(f) 
of the Improper Payments Information Act of 2002 
(31 U.S.C. 3321 note) as redesignated by this Act. 
(2) IN GENERAL.— 
(A) CONDUCT OF AUDITS.—Except as pro-
vided under paragraph (4) and if not prohibited 
under any other provision of law, the head of
each agency shall conduct recovery audits with 
respect to each program and activity of the 
agency that expends $1,000,000 or more annu-
ally if conducting such audits would be cost-ef-
fective. 
(B) PROCEDURES.—In conducting recovery 
audits under this subsection, the head of an 
agency— 
(i) shall give priority to the most re-
cent payments and to payments made in 
any program or programs identified as sus-
ceptible to significant improper payments 
under section 2(a) of the Improper Pay-
ments Information Act of 2002 (31 U.S.C. 
3321 note); 
(ii) shall implement this subsection in 
a manner designed to ensure the greatest 
financial benefit to the Government; and 
(iii) may conduct recovery audits di-
rectly, by using other departments and 
agencies of the United States, or by pro-
curing performance of recovery audits by 
private sector sources by contract (subject 
to the availability of appropriations), or by 
any combination thereof.
(C) RECOVERY AUDIT CONTRACTS.—With 
respect to recovery audits procured by an agen-
cy by contract— 
(i) subject to subparagraph (B)(iii), 
and except to the extent such actions are 
outside the agency’s authority, as defined 
by section 605(a) of the Contract Disputes 
Act of 1978 (41 U.S.C. 605(a)), the head 
of the agency may authorize the contractor 
to notify entities (including persons) of po-
tential overpayments made to such entities, 
respond to questions concerning potential 
overpayments, and take other administra-
tive actions with respect to overpayment 
claims made or to be made by the agency; 
and 
(ii) such contractor shall have no au-
thority to make final determinations relat-
ing to whether any overpayment occurred 
and whether to compromise, settle, or ter-
minate overpayment claims. 
(D) CONTRACT TERMS AND CONDITIONS.— 
The agency shall include in each contract for 
procurement of performance of a recovery audit 
a requirement that the contractor shall—
(i) provide to the agency periodic re-
ports on conditions giving rise to overpay-
ments identified by the contractor and any 
recommendations on how to mitigate such 
conditions; and 
(ii) notify the agency of any overpay-
ments identified by the contractor per-
taining to the agency or to any other agen-
cy or agencies that are beyond the scope of 
the contract. 
(E) AGENCY ACTION FOLLOWING NOTIFI-
CATION.—An agency shall take prompt and ap-
propriate action in response to a report or noti-
fication by a contractor under subparagraph 
(D)(ii), to collect overpayments and shall for-
ward to other agencies any information that ap-
plies to such agencies. 
(3) DISPOSITION OF AMOUNTS RECOVERED.— 
(A) IN GENERAL.—Amounts collected by 
agencies each fiscal year through recovery au-
dits conducted under this subsection shall be 
treated in accordance with this paragraph. The 
agency head shall determine the distribution of 
collected amounts, less amounts needed to fulfill 
the purposes of section 3562(a) of title 31,
United States Code, in accordance with sub-
paragraphs (B), (C), and (D). 
(B) USE FOR FINANCIAL MANAGEMENT IM-
PROVEMENT PROGRAM.—Not more than 25 per-
cent of the amounts collected by an agency 
through recovery audits— 
(i) shall be available to the head of 
the agency to carry out the financial man-
agement improvement program of the 
agency under paragraph (4); 
(ii) may be credited, if applicable, for 
that purpose by the head of an agency to 
any agency appropriations and funds that 
are available for obligation at the time of 
collection; and 
(iii) shall be used to supplement and 
not supplant any other amounts available 
for that purpose and shall remain available 
until expended. 
(C) USE
FOR
ORIGINAL
PURPOSE.—Not 
more than 25 percent of the amounts collected 
by an agency— 
(i) shall be credited to the appropria-
tion or fund, if any, available for obligation 
at the time of collection for the same gen-
eral purposes as the appropriation or fund 
from which the overpayment was made; 
(ii) shall remain available for the 
same period and purposes as the appro-
priation or fund to which credited; and 
(iii) if the appropriation from which 
the overpayment was made has expired, 
shall be newly available for the same time 
period as the funds were originally avail-
able for obligation, except that any 
amounts that are recovered more than five 
fiscal years from the last fiscal year in 
which the funds were available for obliga-
tion shall be deposited in the Treasury as 
miscellaneous receipts, except that in the 
case of recoveries of overpayments that are 
made from trust or special fund accounts, 
such amounts shall revert to those ac-
counts. 
(D) USE
FOR
INSPECTOR
GENERAL
AC-
TIVITIES.—Not more than 5 percent of the 
amounts collected by an agency shall be avail-
able to the Inspector General of that agency— 
(i) for—
(I) the Inspector General to carry 
out this Act; or 
(II) any other activities of the In-
spector General relating to inves-
tigating improper payments or audit-
ing internal controls associated with 
payments; and 
(ii) shall remain available for the 
same period and purposes as the appro-
priation or fund to which credited. 
(E) REMAINDER.—Amounts collected that 
are not applied in accordance with subpara-
graph (A), (B), (C), or (D) shall be deposited 
in the Treasury as miscellaneous receipts, ex-
cept that in the case of recoveries of overpay-
ments that are made from trust or special fund 
accounts, such amounts shall revert to those ac-
counts. 
(F) 
DISCRETIONARY
AMOUNTS.—This 
paragraph shall apply only to recoveries of over-
payments that are made from discretionary ap-
propriations (as that term is defined by para-
graph 7 of section 250 of the Balanced Budget 
and Emergency Deficit Control Act of 1985) 
and shall not apply to recoveries of overpay-
ments that are made from discretionary 
amounts that were appropriated prior to enact-
ment of this Act. 
(G) APPLICATION.—This paragraph shall 
not apply to recoveries of overpayments if the 
appropriation from which the overpayment was 
made has not expired. 
(4) FINANCIAL
MANAGEMENT
IMPROVEMENT 
PROGRAM.— 
(A) REQUIREMENT.—The head of each 
agency shall conduct a financial management 
improvement program, consistent with rules 
prescribed by the Director of the Office of Man-
agement and Budget. 
(B) PROGRAM FEATURES.—In conducting 
the program, the head of the agency— 
(i) shall, as the first priority of the 
program, address problems that contribute 
directly to agency improper payments; and 
(ii) may seek to reduce errors and 
waste in other agency programs and oper-
ations. 
(5) PRIVACY
PROTECTIONS.—Any nongovern-
mental entity that, in the course of recovery auditing 
or recovery activity under this subsection, obtains in-