Improper Payments: Recent Efforts to Address Improper Payments and Remaining Challenges
Published: 2011-04-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO's work over the past several years has highlighted long-standing, widespread, and significant problems with improper payments in the federal government. Fiscal year 2010 marked the 7th year of implementation of the Improper Payments Information Act of 2002 (IPIA). IPIA requires executive-branch agencies to identify programs and activities susceptible to significant improper payments, estimate annual amounts improperly paid, and report these estimates and actions taken to reduce them. On July 22, 2010, the Improper Payments Elimination and Recovery Act of 2010 (IPERA) was enacted. IPERA amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs. This testimony addresses (1) progress federal agencies have reported in estimating and reducing improper payments in fiscal year 2010, (2) challenges that continue to hinder full reporting of improper payment information, and (3) recent efforts by Congress and the executive branch intended to improve transparency and accountability for reporting, reducing, and recovering improper payments. This testimony is primarily based on prior GAO reports. GAO summarized available fiscal year 2010 improper payment information reported by federal executive-branch agencies and actions taken by the executive branch and Congress intended to improve transparency over, accountability for, and reduction of improper payments.
section_title: What GAO Found
paragraphs: Federal agencies reported an estimated $125.4 billion in improper payments for fiscal year 2010. The $125.4 billion estimate of improper payments federal agencies reported in fiscal year 2010 was attributable to over 70 programs spread among 20 agencies. Federal agencies' fiscal year 2010 estimated improper payment amount is an increase of $16.2 billion from federal agencies' prior year reported estimate of $109.2 billion. (1) Progress Reported in Estimating and Reducing Improper Payments. Since the initial implementation of IPIA in fiscal year 2004, federal agencies have consistently identified new programs or activities as risk-susceptible and reported estimated improper payment amounts. In addition, federal agencies have reported progress in reducing improper payments and payment error rates in some programs and activities. From fiscal years 2004 through 2010, 28 programs have consistently reported estimated improper payment error rates for each year. Of these 28, 17 agency programs reported reduced error rates in comparison with their initial or baseline error rates reported in fiscal year 2004. (2) Challenges Remain in Meeting Legislative Requirements to Fully Report Improper Payments Information. Agency reporting highlighted challenges that remain in meeting the requirements of IPIA, including determining the full extent of improper payments across the federal government and in reasonably assuring that effective actions are taken to reduce improper payments. Specifically, two agencies did not report on risk assessments of their programs and activities and three agencies did not develop and report on improper payments estimates for seven risk-susceptible programs with significant amounts of outlays. (3) Recent Efforts to Address Improper Payments. During fiscal year 2010, a number of changes and initiatives were put in place that are intended to strengthen the framework for reducing and reporting improper payments. For example, the President issued Executive Order 13520, Reducing Improper Payments. The President also issued two memoranda intended to expand agency efforts to recapture overpayments and directed that a Do Not Pay List be established to help prevent improper payments. Further, IPERA was enacted. In addition to amending the IPIA existing requirements, IPERA establishes additional requirements, among others, related to (1) federal agency management accountability; and (2) recovery auditing aimed at identifying and reclaiming payments made in error. We view these actions as positive steps; however, it is too soon to determine whether these activities will achieve their goal of reducing improper payments while continuing to ensure that federal programs serve and provide access to intended beneficiaries.

section_title: Letter
paragraphs: Thank you for the opportunity to be here today to discuss the issue of  improper payments in federal programs and activities, including efforts by  federal agencies to identify and remediate improper payments. Since  fiscal year 2000, we have issued a number of reports and testimonies  aimed at raising the level of attention and corrective actions surrounding  improper payments. Our work over the past several years has highlighted  long-standing, widespread, and significant problems with improper  payments across the federal government. Fiscal year 2010 marked the 7th  year of implementation of the Improper Payments Information Act of 2002  (IPIA). IPIA requires executive-branch agencies to annually review all  programs and activities to identify those that are susceptible to significant  improper payments, estimate the annual amount of improper payments for  such programs and activities, and report these estimates along with  actions taken to reduce improper payments for programs with estimates  that exceed $10 million. The Improper Payments Elimination and  Recovery Act of 2010 (IPERA), enacted July 22, 2010, amended IPIA by  expanding on the previous requirements for identifying, estimating, and  reporting on programs and activities susceptible to significant improper  payments and expanding requirements for recovering overpayments  across a broad range of federal programs. IPERA provisions generally  become effective in fiscal year 2011. As the steward of taxpayer dollars,  the federal government is accountable for how its agencies and grantees  spend hundreds of billions of taxpayer dollars annually, including  safeguarding those expenditures against improper payments, as well as for  establishing mechanisms to recoup those funds when improper payments  occur.
The Office of Management and Budget (OMB) continues to play a key role  in the oversight of the governmentwide improper payments problem. OMB  has established guidance for federal agencies on reporting, reducing, and  recovering improper payments and has established various work groups  intended to develop recommendations aimed at improving federal  financial management activities related to reducing improper payments.
Today, my testimony will focus on three key areas:  federal agencies’ reported progress in estimating and reducing  improper payments under IPIA for fiscal year 2010; challenges hindering full reporting of improper payment information;  and recent efforts by Congress and the executive branch intended to  improve transparency and accountability for reporting, reducing, and  recovering improper payments.
In preparing this statement, we drew upon our previously issued work  related to fiscal year 2010 improper payments. Our previous reports are  listed at the end of this statement. That work was conducted in  accordance with generally accepted government auditing standards. For  fiscal year 2010 data in those reports, we summarized information  reported by federal executive-branch agencies and the actions they  reported taking to help reduce improper payments. In those reports, we  also summarized actions taken by the executive branch and Congress  during fiscal year 2010 intended to improve transparency over,  accountability for, and reduction of improper payments. Our scope  included the 24 Chief Financial Officer Act agencies and 11 other entities  that are significant to the 2010 Financial Report of the United States  Government. In conducting that work, we obtained 31 federal entities’  fiscal year 2010 performance and accountability reports (PAR), agency  financial reports (AFR), or annual reports to identify and aggregate the  reported improper payment information. We did not independently  validate the improper payment data reported in these PARs, AFRs, and  annual reports.
subsections: section_title: Progress Reported in Estimating and Reducing Improper Payments
paragraphs: Federal agencies reported improper payments of an estimated $125.4  billion in fiscal year 2010. This estimate represents about 5.5 percent of the  $2.3 trillion of reported outlays for the related programs in fiscal year 2010.  The $125.4 billion estimate is an increase of $16.2 billion from federal  agencies’ prior year reported estimate of $109.2 billion. Estimated  improper payment amounts for both of these years may include estimates  based on prior years’ data, if current reporting year data were not  available, as allowed by OMB guidance. The $125.4 billion in estimated  federal improper payments reported for fiscal year 2010 was attributable  to over 70 programs spread among 20 agencies. As shown in table 1, the  highest reported improper payment estimated amounts were associated  with 10 programs. Specifically, the 10 programs accounted for about $118  billion or 94 percent of the total estimated improper payments reported for  fiscal year 2010.
It is important to recognize that the $125.4 billion in improper payments  federal agencies reported in fiscal year 2010 is not intended to be an  estimate of fraud in federal agencies’ programs and activities. Rather,  reported improper payment estimates include many types of  overpayments, underpayments, and payments that were not adequately  documented. Agencies cited a number of causes for the estimated $125.4  billion in reported improper payments, including insufficient  documentation, incorrect computations, changes in program  requirements, and in some cases fraud.
Increases in the estimated amounts of improper payments reported for  fiscal year 2010 were primarily attributable to increases in estimated  improper payments related to four major programs: (1) Department of  Labor’s Unemployment Insurance program, (2) Department of the  Treasury’s Earned Income Tax Credit program, (3) Department of Health  and Human Services’ (HHS) Medicaid program, and (4) HHS’ Medicare  Advantage program. Agencies reported that the increases in the estimates  for these programs were primarily attributable to an increase in program  outlays. That was the case for the Medicaid and Medicare Advantage  programs even though these two programs reported lower error rates.  Both Unemployment Insurance and Earned Income Tax Credit programs  reported higher program outlays and higher error rates for fiscal year 2010  when compared to fiscal year 2009.
Since the implementation of IPIA in 2004, federal agencies have  consistently identified new programs or activities as risk-susceptible and  reported estimated improper payment amounts.  fiscal year 2005—17 new programs or activities,  fiscal year 2006—15 new programs or activities,  fiscal year 2007—19 new programs or activities,  fiscal year 2008—10 new programs or activities, fiscal year 2009—5 new programs or activities, and fiscal year 2010—2 new programs or activities.
In addition, federal agencies have reported progress since 2004 in reducing  improper payment amounts and payment error rates in some programs  and activities. From the initial implementation of IPIA in 2004 through  2010, 28 programs have consistently reported estimated improper payment  error rates for each year. Of these 28, 17 agency programs reported  reduced error rates in comparison with their initial or baseline error rates  reported in fiscal year 2004. Following are examples of agencies reporting  reductions in program error rates and estimated improper payment  amounts (along with corrective actions to reduce improper payments) in  their fiscal year 2010 PARs, AFRs, or annual reports.
HHS reported that the fiscal year 2010 Head Start program’s estimated  improper payment amount decreased from the fiscal year 2009 amount  of $213 million to $123 million, which represented a decrease in the  error rate of 1.3 percentage points to a 1.7 percent error rate. HHS  reported that it reduced payment errors by issuing additional guidance  for employees on verifying income eligibility and a standard template  form to help guide grantees in the enrollment process.
The U.S. Department of Agriculture (USDA) reported that the fiscal  year 2010 estimated improper payment amount for the Marketing  Assistance Loan program decreased from the fiscal year 2009 reported  amount of $85 million to $35 million, which represented a decrease in  the error rate of 1.75 percentage points to a 0.81 percent error rate.  USDA reported that corrective actions taken to reduce improper  payments included providing additional training and instruction on  improper payment control procedures, and integrating employees’  individual performance results related to reducing improper payments  into annual performance ratings.
section_title: Challenges Remain in Meeting Legislative Requirements to Fully Report Improper Payment Information
paragraphs: Despite reported progress in reducing estimated improper payment  amounts and error rates for some programs and activities during fiscal  year 2010, federal agencies’ reporting indicates the federal government still  faces challenges in this area. Agency reporting highlighted challenges that  remain in meeting the requirements of IPIA, including determining the full  extent of improper payments across the federal government and in  reasonably assuring that effective actions are taken to reduce improper  payments. Specifically, some federal agencies’ fiscal year 2010 reporting  did not include information demonstrating that (1) risk assessments were  conducted on all of their programs and activities, and (2) improper  payment estimates were developed and reported for all risk-susceptible  programs.
IPIA required agencies to annually review all of their programs and  activities to identify their risk of susceptibility to significant improper  payments. However, two agencies—the United States Postal Service and  the Department of Transportation—did not report on risk assessments of  their programs and activities. The agencies either did not report any  information on risk assessments in their PARs, AFRs, or annual reports, or  included some risk assessment-related information (such as listing risk  factors), but not on the results of any assessments of risk for all of their  programs and activities.
Further, IPIA required agencies to estimate improper payments for each  program identified as susceptible to significant improper payments during  the risk assessment process. However, three agencies did not report  estimated improper payment amounts for fiscal year 2010 for seven risk- susceptible programs with significant amounts of outlays. Most notably,  HHS has yet to report a comprehensive improper payment estimate  amount for the Medicare Prescription Drug Benefit program, which had  about $59 billion in outlays in fiscal year 2010. However, HHS expects to  report a comprehensive estimate for this program in fiscal year 2011.  While none of the seven risk-susceptible programs reported an improper  payment estimated amount in fiscal year 2010 or 2009, all but one— Medicare Prescription Drug Benefit program—reported an improper  payment estimated amount for fiscal year 2008.
section_title: Recent Efforts to Address Improper Payments
paragraphs: During fiscal year 2010, a number of actions were taken intended to  strengthen the framework for reducing and reporting improper payments.  First, in November 2009, the President issued Executive Order 13520,  Reducing Improper Payments. This order was intended to focus on  increasing transparency and accountability for reducing improper  payments and creating incentives for reducing improper payments. Under  the Executive Order, OMB established a Web site  (www.PaymentAccuracy.gov) and designated 14 high-error programs to  focus attention on the programs that significantly contribute to the federal  government’s improper payments. The Web site provides information on  (1) the programs’ senior accountable officials responsible for efforts to  reduce improper payments; (2) current, targeted, and historical estimated  rates of improper payments; (3) why improper payments occur in the  programs; and (4) what federal agencies are doing to reduce improper  payments and recover overpayments. The President also issued two  memoranda in March and June 2010, intended to expand agency efforts to  recapture improper overpayments using recapture audits, and directing  the establishment of a Do Not Pay List to help prevent improper payments  to ineligible recipients, respectively. In addition, in 2010, the President set  goals, as part of the Accountable Government Initiative, for federal  agencies to reduce overall improper payments by $50 billion, and  recapture at least $2 billion in improper contract payments and  overpayments to health providers, by the end of fiscal year 2012.
In July 2010, Congress passed and the President signed IPERA. This  legislation was intended to enhance reporting and the reduction of  improper payments. In addition to amending the IPIA improper payment  estimation requirements, IPERA established additional requirements  related to (1) federal agency management accountability; (2) recovery  auditing aimed at identifying and reclaiming payments made in error; (3)  compliance and noncompliance determinations based on an inspector  general’s assessment of an agency’s adherence to IPERA requirements and  reporting that determination; and (4) an opinion on internal controls over  improper payments. For example, regarding management accountability,  IPERA requires agency managers, programs, and, where appropriate,  states and localities, to be held accountable for achieving the law’s goals.  This includes management’s use of the annual performance appraisal  process to assess whether improper payment reduction targets were met  and whether sufficient internal controls were established and maintained.  In addition, IPERA included a new, broader requirement for agencies to  conduct recovery audits, where cost-effective, for each program and  activity with at least $1 million in annual program outlays. This IPERA  provision significantly reduces the threshold requirement for conducting  recovery audits from $500 million to $1 million and expands the scope for  required recovery audits to all programs and activities. Previously,  recovery audits were only required for agencies whose annual contract  obligations exceeded the threshold. Another new IPERA provision calls  for federal agencies’ inspectors general to annually determine whether  their respective agencies are in compliance with key IPERA requirements  and to report on their determinations.
section_title: Concluding Observations
paragraphs: In closing, given the pressures resulting from today’s fiscal environment,  the need to ensure that federal dollars are spent as intended is critical.  While the increase in governmentwide improper payment estimates is  alarming, federal agencies’ efforts to more comprehensively report on  estimated improper payments represent a positive step to improve  transparency over the full magnitude of federal improper payments for  which corrective actions are necessary. With more federal dollars flowing  into risk-susceptible programs, establishing effective accountability  measures to prevent and reduce improper payments, and to recover  overpayments, becomes an even higher priority. However, measuring  improper payments and designing and implementing actions to reduce and  prevent them are not simple tasks. Nonetheless, the ultimate success of  the governmentwide effort to prevent and reduce improper payments  hinges on the level of sustained commitment the agencies and the  administration places on implementing the requirements established by  IPERA, the Executive Order, and other guidance. We view the recent  actions taken by Congress and the administration as positive steps toward  improving transparency over and reducing improper payments. However,  it is too soon to determine whether the activities called for in the  Executive Order, Presidential memoranda, and IPERA will achieve their  goal of reducing improper payments while continuing to ensure that  federal programs serve and provide access to intended beneficiaries.  Moreover, congressional efforts to oversee agencies will be essential to  ensure that agencies are taking the appropriate action to fully implement  these administrative and legislative requirements to improve  accountability, achieve targeted goals, and reduce overall improper  payments.
Chairman Platts, Ranking Member Towns, this completes my prepared  statement. I would be happy to respond to any questions you or other  members of the subcommittee may have at this time.
section_title: Contact and Acknowledgments
paragraphs: For more information regarding this testimony, please contact, Kay L.  Daly, Director, Financial Management and Assurance, at (202) 512-9312 or  by e-mail at dalykl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this testimony. Individuals making key contributions to this testimony  included Shirley Abel, Assistant Director; Sabrina Springfield, Assistant  Director; Liliam Coronado; Nicole Dow; Vanessa Estevez; Crystal Lazcano;  Chelsea Lounsbury; Kerry Porter; Debra Rucker; and Danietta Williams.
section_title: Related GAO Products
paragraphs: Medicare and Medicaid Fraud, Waste, and Abuse: Effective  Implementation of Recent Laws and Agency Actions Could Help Reduce  Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011.
Opportunities to Reduce Potential Duplication in Government  Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP.  Washington, D.C.: March 1, 2011.
For our report on the U.S. government’s consolidated financial statements  for fiscal year 2010, see U.S. Department of the Treasury. 2010 Financial  Report of the United States Government. Washington, D.C.: December 21,  2010, pp. 221-249.
Improper Payments: Progress Made but Challenges Remain in  Estimating and Reducing Improper Payments. GAO-09-628T.  Washington, D.C.: April 22, 2009.
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