Improper Payments: Moving Forward with Governmentwide Reduction Strategies
Published: 2012-02-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the past decade, GAO has issued numerous reports and testimonies highlighting improper payment issues across the federal government as well as at specific agencies. Fiscal year 2011 marked the eighth year of implementation of the Improper Payments Information Act of 2002 (IPIA), as well as the first year of implementation for the Improper Payments Elimination and Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA, enacted July 22, 2010, amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.
This testimony addresses (1) federal agencies reported progress in estimating and reducing improper payments, (2) remaining challenges in meeting current requirements to estimate and report improper payments and (3) actions that can be taken to move forward with improper payment reduction strategies. This testimony is primarily based on prior GAO reports, including GAOs fiscal year 2011 audit of the Financial Report of the United States Government. The testimony also includes improper payment information recently presented in federal entities fiscal year 2011 financial reports.
section_title: What GAO Found
paragraphs: Federal agencies reported an estimated $115.3 billion in improper payments in fiscal year 2011, a decrease of $5.3 billion from the prior year reported estimate of $120.6 billion. The $115.3 billion estimate was attributable to 79 programs spread among 17 agencies. Ten programs accounted for about $107 billion or 93 percent of the total estimated improper payments agencies reported for fiscal year 2011. The reported decrease in fiscal year 2011 was primarily related to three programsdecreases in program outlays for the Department of Labors Unemployment Insurance program, and decreases in reported error rates for the Earned Income Tax Credit program and the Medicare Advantage program. Further, the Office of Management and Budget reported that agencies recaptured $1.25 billion in improper payments to contractors, vendors, and healthcare providers in fiscal year 2011. Over half of this amount, $797 million, can be attributed to the Medicare Recovery Audit Contractor program which identifies Medicare overpayments and underpayments.
The federal government continues to face challenges in determining the full extent of improper payments. Some agencies have not yet reported estimates for all risk-susceptible programs, such as the Department of Health and Human Services Temporary Assistance for Needy Families program. Internal control weaknesses continue to exist, heightening the risk of improper payments. Some agencies estimating methodologies need to be refined. For example, two Department of Defense commercial payment programs were not included in the total governmentwide error rate because the estimation methodologies for these programs were still under development.
A number of actions are under way across government to help advance improper payment reduction goals. These actions and future initiatives will be needed to enhance federal government efforts to reduce improper payments. For example,
Additional information and analysis on the root causes of improper payment estimates would help agencies target effective corrective actions and implement preventive measures. Although agencies were required to report the root causes of improper payments in three categories beginning in fiscal year 2011, of the 79 programs with improper payment estimates for fiscal year 2011, 42 programs reported the root cause information using the required categories. In addition, because the three categories are general, additional analysis is critical to understanding the root causes.
Implementing strong preventive controls can help defend against improper payments, increasing public confidence and avoiding the difficult pay and chase aspects of recovering improper payments. Preventive controls involve activities such as upfront validation of eligibility using electronic data matching, predictive analytic tests, and training programs. Further, addressing program design issues, such as complex eligibility requirements, may also warrant further consideration.
Effective detection techniques to quickly identify and recover improper payments are also important to a successful reduction strategy. Detection activities include data mining and recovery audits. Another area for further exploration is the broader use of incentives to encourage and support states in efforts to implement effective preventive and detective controls.

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 reduce improper payments. 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, and establishing mechanisms to recover those funds  when overpayments occur. It is important to note that not all of the  reported improper payment estimates represent a loss to the government.  For example, errors consisting of insufficient or lack of documentation are  included in the improper payment estimates. Over the past decade, we  have issued numerous reports and testimonies highlighting improper  payment issues across the federal government as well as at specific  agencies.
Today, my testimony will focus on:  federal agencies’ reported progress in estimating and reducing  improper payments, and  remaining challenges in meeting current requirements to estimate and  report improper payments.
I will also provide observations on actions that can be taken to move  forward with improper payment reduction strategies.
In preparing this statement, we drew upon our previously issued work  related to the fiscal year 2011 audit of the Financial Report of the United  States Government, as well as our other previously issued products  dealing with improper payments. Our previous products are listed at the  end of this statement. That work was conducted in accordance with  generally accepted government auditing standards. We are also including  improper payment information recently presented in federal entities’ fiscal  year 2011 performance and accountability reports (PAR) and agency  financial reports (AFR).
subsections: section_title: Background
paragraphs: Fiscal year 2011 marked the eighth year of implementation of the  Improper Payments Information Act of 2002 (IPIA), as well as the first  year of implementation for the Improper Payments Elimination and  Recovery Act of 2010 (IPERA). 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. 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 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 lowers the threshold for required recovery audits from $500  millionprograms and activities. 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. Under Office of Management and  Budget (OMB) implementing guidance, these reports are required to be  completed within 120 days of the publication of the federal agencies’  annual PAR or AFR, with the fiscal year 2011 reports for most agencies  due on March 15, 2012.   to $1 million and expands the scope for recovery audits to all  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 has established various work groups responsible for developing  recommendations aimed at improving federal financial management  activities related to reducing improper payments.
OMB, Circular No. A-136 Revised, Financial Reporting Requirements (Oct. 27, 2011);  OMB Memorandum M-11-16, Issuance of Revised Parts I and II to Appendix C of OMB  Circular A-123 (Apr. 14, 2011); OMB Memorandum M-11-04, Increasing Efforts to  Recapture Improper Payments by Intensifying and Expanding Payment Recapture Audits  (Nov. 16, 2010); and OMB Memorandum M-10-13, Issuance of Part III to OMB Circular A- 123, Appendix. C (Mar. 22, 2010).
section_title: OMB and Agencies Reported Progress in Estimating and Reducing Improper Payments
paragraphs: Federal agencies reported improper payment estimates totaling $115.3  billion in fiscal year 2011, a decrease of $5.3 billion from the revised prior  year reported estimate of $120.6 billion. Based on the agencies’  estimates, OMB estimated that fiscal year 2011 improper payments  comprised about 4.7 percent of the $2.5 trillion in total spending during  that year for the agencies’ related programs (i.e., a 4.7 percent error rate).  The decrease in the fiscal year 2011 estimate is attributed primarily to  decreases in program outlays for the Department of Labor’s  Unemployment Insurance program, and decreases in reported error rates  for fiscal year 2011 (compared to fiscal year 2010) for the Department of  the Treasury’s (Treasury) Earned Income Tax Credit program and the  Department of Health and Human Services’ (HHS) Medicare Advantage  program.
The $115.3 billion in estimated federal improper payments reported for  fiscal year 2011 was attributable to 79 programs spread among 17  agencies. Ten of these 79 programs account for most of the $115.3 billion  of reported improper payments. Specifically, as shown in table 1, these  10 programs accounted for about $107 billion or 93 percent of the total  estimated improper payments agencies reported for fiscal year 2011.
The 10 programs with the highest error rates had rates ranging from 11.0  percent to 28.4 percent. Specifically, as shown in table 2, those 10  programs accounted for $45 billion, or 39 percent of the total estimated  improper payments for fiscal year 2011.
Since the implementation of IPIA in 2004, federal agencies have  continued to identify new programs or activities as risk-susceptible and  report estimated improper payment amounts. The fiscal year 2011  governmentwide estimate of $115.3 billion included improper payment  estimates for nine additional programs that did not report an estimate in  fiscal year 2010, with the HHS Medicare Prescription Drug Benefit (Part  D) program having the highest estimate of the newly included programs.  We view these agencies’ efforts as a positive step towards increasing the  transparency of the magnitude of improper payments. However, three  additional programs providing estimates in fiscal year 2011 were not  included in the governmentwide totals because their estimation  methodologies were still under development. The three excluded  programs were the: Department of Education’s Direct Loan, Department  of Defense’s (DOD) Defense Finance and Accounting Service  Commercial Pay, and DOD’s Army Corps of Engineers Commercial Pay.
A number of federal agencies have reported progress in reducing  improper payment error rates in some programs and activities. For  example, we identified 40 federal agency programs, or about 50 percent  of the total programs reporting improper payment estimates in fiscal year  2011, that reported a reduction in the error rate of estimated improper  payments in fiscal year 2011 when compared to fiscal year 2010 error  rates. We caution, however, that these rates have not been independently  verified or audited. The following are examples of agencies that reported  reductions in program error rates and estimated improper payment  amounts (along with corrective actions to reduce improper payments) in  their fiscal year 2011 PARs, AFRs, or annual reports.
Treasury reported that the fiscal year 2011 Earned Income Tax Credit  (EITC) program’s estimated improper payment amount decreased  from the fiscal year 2010 amount of $16.9 billion to $15.2 billion,  which represented a decrease in the error rate from 26.3 percent to  23.5 percent. Treasury reported that corrective actions taken to  reduce improper payments primarily focused on completing  examinations on tax returns that claimed the EITC before issuing the  EITC portion of the refund, identifying math or other statistical  irregularities in taxpayer returns, and comparing income information  provided by the taxpayer with matching information from employers to  identify discrepancies.
HHS reported that the fiscal year 2011 estimated improper payment  amount for the Medicare Advantage (Part C) program decreased from  the fiscal year 2010 reported amount of $13.6 billion to $12.4 billion,  which represented a decrease in the error rate from 14.1 percent to  11.0 percent. HHS reported that it reduced payment errors by  continuing to routinely implement controls in its payment system to  ensure accurate and timely payments, and implementing three key  initiatives, including contract level audits, physician outreach, and  Medicare Advantage organization guidance and training.
In addition, agencies have further developed the use of recovery audits to  recapture improper payments. 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 healthcare providers,  by the end of fiscal year 2012. For fiscal year 2011, OMB reported that  governmentwide agencies recaptured $1.25 billion in overpayments to  contractors and vendors. Over half of this amount, $797 million, can be  attributed to the Medicare recovery audit contractor program which  identifies improper Medicare payments—both overpayments and  underpayments—in all 50 states. Cumulatively, OMB reported $1.9 billion  recaptured from overpayments to contractors, vendors, and healthcare  providers for fiscal years 2010 and 2011 towards the President’s goal of  recapturing at least $2 billion by the end of fiscal year 2012.
section_title: Remaining Challenges in Complete and Accurate Reporting of Improper Payments
paragraphs: Despite reported progress in reducing estimated improper payment  amounts and error rates for some programs and activities during fiscal  year 2011, the federal government continues to face challenges in  determining the full extent of improper payments. Specifically, some  agencies have not yet reported estimates for all risk-susceptible programs  and some agencies’ estimating methodologies need to be refined. We  have also found that internal control weaknesses exist, heightening the  risk of improper payments occurring. Until federal agencies are able to  implement effective processes to completely and accurately identify the  full extent of improper payments and implement appropriate corrective  actions to effectively reduce improper payments, the federal government  will not have reasonable assurance that the use of taxpayer funds is  adequately safeguarded. We are currently working on engagements  related to improper payment reporting at both DOD and HHS.  Furthermore, as I will discuss later in this statement, additional analysis is  needed to assess the root causes of improper payments, a key factor in  identifying and implementing effective corrective actions.
We found that not all agencies have developed improper payment  estimates for all of the programs and activities they identified as  susceptible to significant improper payments. Specifically, three federal  entities did not report fiscal year 2011 estimated improper payment  amounts for four risk-susceptible programs. In one example, HHS’s  fiscal year 2011 reporting cited various statutory barriers that hindered it  from reporting improper payment estimated amounts. HHS cited statutory  limitations for its state-administered Temporary Assistance for Needy  Families (TANF) program, which prohibited it from requiring states to  participate in developing an improper payment estimate for the TANF  program. Despite these limitations, HHS officials stated that they will  continue to work with states and explore options to allow for future  estimates for the program. For fiscal year 2011, the TANF program  reported outlays of about $17 billion. For another program, HHS cited the  Children’s Health Insurance Program Reauthorization Act of 2009 as  prohibiting HHS from calculating or publishing any national or state- specific payment error rates for the Children’s Health Insurance Program  (CHIP) until 6 months after the new payment error rate measurement rule  became effective on September 10, 2010. According to its fiscal year  2011 agency financial report, HHS plans to report estimated improper  payment amounts for CHIP in fiscal year 2012. For fiscal year 2011, the  CHIP program reported federal outlays of about $9 billion.
As previously discussed, OMB excluded estimated improper payment  amounts for two DOD programs from the governmentwide total because  those programs were still developing their estimating methodologies— Defense Finance and Accounting Service (DFAS) Commercial Payfiscal year 2011 outlays of $368.5 billion and U.S. Army Corps of  Engineers Commercial Pay with fiscal year 2011 outlays of $30.5 billion.   with  In DOD’s fiscal year 2011 agency financial report, DOD reported that  improper payment estimates for these programs were based on improper  payments detected through various pre-payment and post-payment  review processes rather than using methodologies similar to those used  for DOD’s other programs, including statistically valid random sampling or  reviewing 100 percent of payments. In its fiscal year 2011 agency  financial report, DOD stated that it plans to begin statistical sampling of  the Commercial Pay program in fiscal year 2012.
Both GAO and the DOD Inspector General (IG) have previously  reported on weaknesses in DOD’s payment controls, including  weaknesses in its process for assessing the risk of improper payments  and reporting estimated amounts. DOD’s payment controls are hindered  by problems related to inadequate payment processing, poor financial  systems, and inadequate supporting documentation. Nonetheless, the  DOD Comptroller testified in May 2011 that DOD assessed its  commercial payment program as low risk because DOD management  has concluded that it had a highly effective pre-payment examination  process. That process includes a software tool that tests for potential  improper payments before disbursement. However, the DOD IG has  reported that the tool had a false positive rate of more than 95 percent  and that its use was not standardized across payment systems.  Additionally, the DOD IG reported that DOD’s risk of making improper  payments was high and identified deficiencies in DOD’s estimate of high- dollar overpayments that caused it to underreport the amount of improper  payments made.statistically valid estimating process for its commercial payments and  addresses the known control deficiencies in its commercial payment  processes, the governmentwide improper payment estimates are not  complete.
Until DOD fully and effectively implements a  For fiscal year 2011, two agency auditors reported on compliance issues  with IPIA and IPERA as part of their 2011 financial statement audits.  Specifically, the Department of Agriculture (USDA) auditors identified  noncompliance with the requirements of IPERA regarding the design of  program internal controls related to improper payments. In the other  noncompliance issue, while HHS estimated an annual amount of  improper payments for some of its risk-susceptible programs, a key  requirement of IPIA, it did not report an improper payment estimate for its  TANF and CHIP programs for fiscal year 2011. Fiscal year 2011 marked  the eighth consecutive year that auditors for HHS reported  noncompliance issues with IPIA.
section_title: Current and Future Actions to Move Forward with Improper Payment Reduction Strategies
paragraphs: A number of actions are under way across the federal government to help  advance improper payment reduction goals. These initiatives, as well as  additional actions in the future, will be needed to advance the federal  government efforts to reduce improper payments. Identifying and  analyzing the root causes of improper payments is key to developing  effective corrective actions and implementing the controls needed to  advance the federal government’s efforts to reduce and prevent improper  payments. In this regard, implementing strong preventive controls can  serve as the front-line defense against improper payments. Proactively  preventing improper payments increases public confidence in the  administration of benefit programs and avoids the difficulties associated  with the “pay and chase”example, addressing program design issues that are a factor in causing  improper payments may be an effective preventive strategy to be   aspects of recovering overpayments. For  considered. Effective monitoring and reporting can also help detect  emerging issues. In addition, agencies can also enhance detective  controls to identify and recover overpayments. For instance, enhancing  incentives for grantees, such as state and local governments, could help  increase attention to preventing, identifying, and recovering improper  payments.
subsections: section_title: Identifying and Analyzing Root Causes of Improper Payments
paragraphs: Agencies cited a number of causes for the estimated $115.3 billion in  reported improper payments, including insufficient documentation;  incorrect computations; changes in program requirements; and, in some  cases, fraud. Beginning in fiscal year 2011, according to OMB’s  guidance, agencies were required to classify the root causes of  estimated improper payments into three general categories for reporting  purposes: (1) documentation and administrative errors, (2) authentication  and medical necessity errors, and (3) verification errors. Information on  the root causes of the current improper payment estimates is necessary  for agencies to target effective corrective actions and implement  preventive measures.
While agencies generally reported some description of the causes of  improper payments for their respective programs in their fiscal year 2011  reports, many agencies did not use the three categories to classify the  types of errors and quantify how many errors can be attributed to that  category. Of the 79 programs with improper payment estimates in fiscal  year 2011, we found that agencies reported the root causes information  using the required categories for 42 programs in their fiscal year 2011  PARs and AFRs. Together, these programs represented about $46  billion, or 40 percent of the total reported $115 billion in improper payment  estimates for fiscal year 2011. Of the $46 billion, the estimated improper  payment amounts were spread across the three categories, with  documentation and administrative errors being cited most often. We did  not calculate the dollar amounts in each category due to the imprecise  narratives included in some of the agencies’ reporting of identified  causes, which would have required more detailed information and/or  detailed examination of the underlying data. Nonetheless, additional  analysis regarding the root causes is needed in order to identify and  implement effective corrective and preventive actions in the various  programs.
section_title: Implementing Effective Preventive Controls to Avoid Improper Payments
paragraphs: Many agencies and programs are in the process of implementing  preventive controls to avoid improper payments, including overpayments  and underpayments. Preventive controls may involve a variety of  activities such as upfront validation of eligibility, predictive analytic tests,  training programs, and timely resolution of audit findings. Further,  addressing program design issues that are a factor in causing improper  payments may be an effective preventive strategy to be considered.
Upfront eligibility validation through data sharing. Data sharing allows  entities that make payments—to contractors, vendors, participants in  benefit programs, and others—to compare information from different  sources to help ensure that payments are appropriate. When effectively  implemented, data sharing can be particularly useful in confirming initial  or continuing eligibility of participants in benefit programs and in  identifying improper payments that have already been made. Analyses  and reporting on the extent to which agencies are participating in data  sharing activities, and additional data sharing efforts that agencies are  currently pursuing or would like to pursue is another important element  needed to advance the federal government’s efforts to reduce improper  payments.
For example, the Department of Labor (Labor) reported that its  Unemployment Insurance Program utilizes HHS’s National Directory of  New Hires Databaseto individuals who claim benefits after returning to work—the largest  single cause of overpayments reported in the program. In June 2011,  Labor established the mandatory use of the database for state benefit  payment control no later than December 2011. Labor also issued a  program letter that included recommended operating procedures for  cross-matching activity for National and State Directories of New Hires.   to improve the ability to detect overpayments due  In another case, to address the issue of inaccuracy of self-reported  financial income on applications for student aid, the Department of  Education (Education), in conjunction with the Internal Revenue Service  (IRS), implemented a 6-month pilot version of an IRS data retrieval tool in  January 2010 for its Pell Grant Program. The tool allows student aid  applicants and, as needed, parents of applicants, to transfer certain tax  return information from the IRS directly to Education’s online application.  Education reported that nearly 3.5 million students used the data  exchange tool, representing approximately 21 percent of the applications  submitted for the 2011 - 2012 academic year.
Predictive analytic technologies. The analytic technologies used by  HHS’s Centers for Medicare and Medicaid Services (CMS) are examples  of preventive techniques that may be useful for other programs to  consider. The Small Business Jobs Act of 2010 requires CMS to use  predictive modeling and other analytic techniques—known as predictive  analytic technologies—both to identify and to prevent improper payments  under the Medicare fee-for-service program.technologies will be used to analyze and identify Medicare provider  networks, billing patterns, and beneficiary utilization patterns and detect  those that represent a high risk of fraudulent activity. Through such  analysis, unusual or suspicious patterns or abnormalities can be identified  and used to prioritize additional review of suspicious transactions before  payment is made. The legislation required that contractors selected begin  using these technologies on July 1, 2011, in the 10 states identified by  CMS as having the highest risk of fraud, waste, or abuse in Medicare fee- for-service payments. Rather than focusing on the 10 states, CMS   These predictive analytic  contractors began using these technologies to screen all fee-for-service  claims nationwide prior to payment as of June 30, 2011, through CMS’s  new Fraud Prevention System.
Training programs for providers, staff, and beneficiaries. Training  can be a key element in any effort to prevent improper payments from  occurring. This can include both training staff on how to prevent and  detect improper payments and training providers or beneficiaries on  program requirements. For example, the Medicaid Integrity Institute, an  initiative of CMS’s Medicaid Integrity Group (MIG), trains state-level staff  and facilitates networking by sponsoring free workshops for states. In  addition, the MIG sponsors education programs for providers and  beneficiaries, such as for pharmacy providers, to promote best  prescribing practices and appropriate prescribing guidelines based on  Food and Drug Administration labeling, potentially reducing improper  payments.
GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1  (Washington, D.C: Nov. 1999). inconsistent program requirements, such as eligibility criteria and  requirements for provider enrollment, contribute to improper payments  would lend insight to developing effective strategies for enhancing  compliance and may identify opportunities for streamlining or changing  eligibility or other program requirements.
section_title: Implement Effective Detective Controls to Identify and Recover Overpayments
paragraphs: Although strong preventive controls remain the frontline defense against  improper payments, agencies also need effective detection techniques to  quickly identify and recover those overpayments that do occur. Detection  activities play a significant role not only in identifying improper payments,  but also in providing data on why these payments were made and, in turn,  highlighting areas that need strengthened prevention controls. The  following are examples of key detection techniques to be considered.
Data mining. Data mining is a computer-based control activity that  analyzes diverse data for relationships that have not previously been  discovered. The central repository of data commonly used to perform  data mining is called a data warehouse. Data warehouses store tables  of historical and current information that are logically grouped. As a  tool in managing improper payments, applying data mining to a data  warehouse allows an organization to efficiently query the system to  identify potential improper payments, such as multiple payments for  an individual invoice to an individual recipient on a certain date, or to  the same address. For example, in the Medicare and Medicaid  program, data on claims are stored in geographically disbursed  systems and databases and are not readily available to CMS’s  program integrity analysts. CMS has been working for most of the  past decade to consolidate program integrity data and analytical tools  for detecting fraud, waste, and abuse. The agency’s efforts led to the  initiation of the Integrated Data Repository (IDR) program, which is  intended to provide CMS and its program integrity contractors with a  centralized source that contains Medicaid and Medicare data from the  many disparate and dispersed legacy systems and databases. CMS  subsequently developed the One Program Integrity (One PI)  program, a web-based portal and set of analytical tools by which  these data can be accessed and analyzed to help identify cases of  fraud, waste, and abuse based on patterns of paid claims.
Recovery auditing. While internal control should be maintained to help  prevent improper payments, recovery auditing is used to identify and  recover overpayments. The Tax Relief and Health Care Act of 2006  required CMS to implement a national Medicare recovery audit  contractor (RAC) program by January 1, 2010. In fiscal year 2011,  HHS reported that the Medicare Fee-for-Service recovery audit  program identified $961 million in overpayments and recovered $797  million nationwide. Further, the Medicaid RAC program was  established by the Patient Protection and Affordable Care Act. Each  state must contract with a RAC, which is tasked with identifying and  recovering Medicaid overpayments and identifying underpayments.  The final regulations indicated that state Medicaid RACs were to be  implemented by January 1, 2012. Similar to the Medicare RACs,  Medicaid RACs will be paid on a contingency fee basis—a percentage  of any recovered overpayments plus incentive payments for the  detection of underpayments.
It is important to note that some agencies have reported statutory or  regulatory barriers that affect their ability to pursue recovery auditing.  For example, in fiscal year 2011, the Office of Personnel Management  (OPM) reported that it faces regulatory barriers that restrict its ability to  recover overpayments for its Retirement Program. OPM reported that  based on current law and Treasury’s regulations, financial institutions  are barred from providing OPM with the information necessary to  recover various overpayments. Only the Social Security  Administration, Railroad Retirement Board, and the Department of  Veterans’ Affairs may receive the information necessary to identify the  withdrawer to attempt to recover the overpayments because those  agencies are the only ones named in the law to receive that type of  information from financial institutions. According to OPM, Treasury  has drafted language to address the issue and is working to publish a  notice of proposed rulemaking to amend its regulation.
In another instance, USDA reported that Section 281 of the  Department of Agriculture Reorganization Act of 1994 precluded the  use of recovery auditing techniques because Section 281 provides  that 90 days after the decision of a state, county, or an area  committee is final, no action may be taken to recover the amounts  found to have been erroneously disbursed as a result of the decision  unless the participant had reason to believe that the decision was  erroneous. This statute is commonly referred to as the Finality Rule.
Federal-state incentives. Another area for further exploration is the  broader use of incentives for states to implement effective preventive  and detective controls. Agencies have applied limited incentives and  penalties for encouraging improved state administration to reduce  improper payments. Incentives and penalties can be helpful to create  management reform and to ensure adherence to performance  standards.
Chairman Platts and Ranking Member Towns, this completes my  prepared statement. I would be happy to respond to any questions that  you or other members of the subcommittee may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For more information regarding this testimony, please contact Beryl H.  Davis, Director, Financial Management and Assurance, at (202) 512-2623  or by e-mail at DavisBH@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 Jack Warner, Assistant Director; W. Tyler Benson; Francine  Delvecchio; Crystal Lazcano; Kerry Porter; and Carrie Wehrly.
section_title: Related GAO Products
paragraphs: For our report on the U.S. government’s consolidated financial statements  for fiscal year 2011, see U.S. Department of the Treasury. 2011 Financial  Report of the United States Government. Washington, D.C.: December  23, 2011, pp. 211-231.
Medicaid Program Integrity: Expanded Federal Role Presents Challenges  to and Opportunities for Assisting States. GAO-12-288T. Washington,  D.C.: December 7, 2011  DOD Financial Management: Weaknesses in Controls over the Use of  Public Funds and Related Improper Payments. GAO-11-950T.  Washington, D.C.: September 22, 2011.
Improper Payments: Reported Medicare Estimates and Key Remediation  Strategies. GAO-11-842T. Washington, D.C.: July 28, 2011.
Fraud Detection Systems: Centers for Medicare and Medicaid Needs to  Ensure More Widespread Use. GAO-11-475. Washington, D.C.: July 12,  2011  Improper Payments: Recent Efforts to Address Improper Payments and  Remaining Challenges. GAO-11-575T. Washington, D.C.: April 15, 2011.
Improper Payments: Status of Fiscal Year 2010 Federal Improper  Payments Reporting. GAO-11-443R. Washington, D.C.: March 25, 2011.
Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,  D.C.: March 1, 2011.
High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.
Improper Payments: Significant Improvements Needed in DOD’s Efforts  to Address Improper Payment and Recovery Auditing Requirements.  GAO-09-442. Washington, D.C.: July 29, 2009.
Improper Payments: Progress Made but Challenges Remain in  Estimating and Reducing Improper Payments. GAO-09-628T.  Washington, D.C.: April 22, 2009.
Improper Payments: Status of Agencies’ Efforts to Address Improper  Payment and Recovery Auditing Requirements. GAO-08-438T.  Washington, D.C.: January 31, 2008.
Improper Payments: Federal Executive Branch Agencies’ Fiscal Year  2007 Improper Payment Estimate Reporting. GAO-08-377R. Washington,  D.C.: January 23, 2008.
Improper Payments: Weaknesses in USAID’s and NASA’s  Implementation of the Improper Payments Information Act and Recovery  Auditing. GAO-08-77. Washington, D.C.: November 9, 2007.
Improper Payments: Federal and State Coordination Needed to Report  National Improper Payment Estimates on Federal Programs.  GAO-06-347. Washington, D.C.: April 14, 2006.
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