Financial Management: Coordinated Approach Needed to Address the Government's Improper Payments Problems
Published: 2002-08-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report discusses (1) the amount of improper payments reported in agencies' fiscal year 2000 financial statements, (2) the extent to which agencies' fiscal year 2002 performance plans address improper payments, (3) the extent to which the Office of Management and Budget (OMB) has implemented previous GAO recommendations in this area, and (4) other actions that might encourage agencies to better report improper payments. Of the 15 agency performance plans GAO reviewed, only 4 comprehensively addressed any of the Government Performance and Results Act requirements for evaluating the effectiveness of federal programs and the resources spent on them.
section_title: What GAO Found
paragraphs: GAO found that improper payments often result from a lack of, or breakdown in, internal controls. This report also contains recommendations for agencies to assign responsibilities to minimize improper payments and for OMB to assist agencies in identifying and implementing corrective actions.

section_title: Letter
paragraphs: The federal government of the United States spends approximately $1.8 trillion dollars annually for a variety of grants, transfer and other  payments, and procurement of goods and services.  As the steward of  taxpayer dollars, the federal government is accountable for how its  agencies and grantees spend those funds and is responsible for  safeguarding those funds against improper payments.  As noted in the  reports we have issued on this matter over the past 3 years, the federal  government’s record in identifying and reporting the magnitude of program  funds associated with improper payments and actions to better manage  these payments needs improvement.
In our view, improper payments include payments 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.  They occur in a variety of programs and  activities, including those related to contractors and contract management;  health care programs, such as Medicare and Medicaid; financial assistance  benefits, such as food stamps and housing subsidies; and tax refunds.   Improper payments result in spending taxpayer dollars for other than their  intended purposes, services to those not entitled to program benefits at the  expense of legitimate beneficiaries, or both.
As we noted in our report on strategies to manage improper payments,  these payments occur for many reasons including insufficient oversight or  monitoring, inadequate eligibility controls, and automated system  deficiencies.  However, one point is clear—the basic or root cause of  improper payments can typically be traced to a lack of or breakdown in  internal controls.  A lack of internal controls can result from factors  beyond an agency’s control, such as statutory barriers and program design  issues, as well as factors within its control, such as ineffective program  procedures.  Collectively, internal controls are an integral component of an  organization’s management that are intended to provide reasonable  assurance that the organization achieves its objectives of (1) effective and  efficient operations, (2) reliable financial reporting, and (3) compliance  with laws and regulations.  Internal controls are not one event, but a series  of actions and activities that occur throughout an entity’s operations on an  ongoing basis.
Because of your continued interest and concerns regarding financial  management in the federal government, you asked us to update certain  aspects of our 2000 report on improper payments.  Specifically, you  requested that we (1) quantify, where possible, the amount of improper  payments reported in agencies’ fiscal year 2000 financial statements, (2)  assess the extent to which agencies’ fiscal year 2002 performance plans  address improper payments, (3) determine the extent to which the Office  of Management and Budget (OMB) has implemented the recommendations  made in our prior reports, and (4) identify other actions that might  encourage agencies to better report the extent of their improper payments.   On November 2, 2001, we reported that agency fiscal year 2000 financial  statements identified about $19.6 billion in improper payments, the first  item in your request.  This report addresses the remaining areas and  identifies the amount of improper payments reported in agencies’ fiscal  year 2001 financial statements.
subsections: section_title: Background
paragraphs: 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 and The President’s Management Agenda,  Fiscal Year 2002, 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 Inspector General (OIG) continue to identify serious  improper payment problems and related internal control issues.  Federal  agency financial statements for fiscal years 1999 and 2000 show improper  payments of about $20.7 billion and $19.6 billion, respectively.  Along with  this decrease in the total amount of improper payments reported, changes  have occurred in the agencies reporting improper payments and in the  programs identified with improper payments.
During this same period, agency-specific audits and studies continued to  indicate that the extent of the improper payment problem was much more  widespread than had been disclosed in agency financial statements.  For  example, in March 2001 we reported that, during fiscal year 2000, the  Internal Revenue Service (IRS), relying on past experience, screened tax  returns claiming Earned Income Tax Credits (EITC) to identify (for  detailed examination) those considered most likely to be invalid.  IRS  examiners performed detailed reviews of about 257,000 tax returns  claiming approximately $587 million in EITC and found that about 173,000  of those tax returns claiming $395 million in credits (67 percent) were  invalid.  At the Department of Defense (DOD) the OIG noted that, during  fiscal years 1999 and 2000, the Defense Finance and Accounting Service  (DFAS) overpaid contractors about $183 million and $148 million,  respectively, as a result of inadvertent errors, such as paying the same  invoice twice and data input errors.  None of these amounts show up in our  improper payment totals because neither the IRS nor DOD financial  statements reported improper payments for those programs for those  years.
The basic or root causes of improper payments can typically be traced to a  lack of or breakdown in internal controls.  Internal controls are an integral  component of an organization’s management that are intended to provide  reasonable assurance that the organization achieves its objectives of  (1) effective and efficient operations, (2) reliable financial reporting, and  (3) compliance with laws and regulations.
The President’s Management Agenda, Fiscal Year 2002, 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 agenda also notes  that, using this information, OMB will work with agencies to establish goals  to reduce improper payments identified in the programs.  In addition, the  agenda included specific program initiatives for HUD and the Department  of Education that addressed improper payments.  In July 2001, OMB issued  revisions to OMB Circular A-11, Preparation and Submission of Budget  Estimates, requiring 16 federal agencies to include certain improper  payment information for about 50 programs in their initial budget  submissions to OMB. (Appendix I lists these programs.)
section_title: Objectives, Scope, and Methodology
paragraphs: We reviewed fiscal year 2001 financial statement reports prepared under  the CFO Act, as expanded by the Government Management Reform Act,  and OMB guidance to identify improper payments reported.  (Appendix II  lists the agencies covered by the CFO Act and the OMB guidance.)  We also  identified and reviewed recent reports by us and by agency OIGs to identify  additional agencies and/or programs that experienced improper payments.
We reviewed the performance plans of the 15 CFO Act agencies required by  OMB Circular A-11 to submit improper payment data, assessments, and  action plans with their initial budget submissions to OMB.  We reviewed  these plans to identify improper payment information addressing the four  reporting content elements required by GPRA (goals, measures, strategies,  and procedures to validate performance data).  Further, we reviewed GAO  reports that focused on the status of federal agency actions in achieving  key outcomes and addressing major management challenges at each of the  15 CFO Act agencies covered by OMB Circular A-11.  (See app. III for a list  of these reports.)  Among other things, some of these reports often  included sections on agency efforts to reduce fraud, waste, and errors in  programs that reported improper payments.  They also compared fiscal  years 2001 and 2002 performance plans for consistency and assessed the  progress reported in achieving these outcomes as well as the strategies  agencies have in place to achieve them.
Recent revisions to OMB Circular A-11 require selected agencies to report  improper payment information in their initial budget submissions to OMB.   In addition, one of the initiatives in the President’s Management Agenda,  Fiscal Year 2002, called for agencies to establish a baseline on the extent  of erroneous payments.  We reviewed the Budget of the United States  Government, Fiscal Year 2003, to assess the extent to which it contained  the improper payment information agencies were to submit with their  initial budget submissions to OMB and/or the baseline information  requested in the agenda.
Since little information was publicly available on agency actions to reduce  improper payments, we reviewed agency responses you provided us to the  June 2001 letters that you and the Chairman of the Senate Committee on  Governmental Affairs sent to the heads and OIGs of the 24 CFO Act  agencies.  These letters asked the agency heads and OIGs to assess their  improper payment efforts in the five areas outlined in our October 2001  report, Strategies to Manage Improper Payments: Learning From Public  and Private Sector Organizations.  These areas are (1) the control  environment, (2) risk assessments, (3) control activities, (4) information  and communications, and (5) monitoring.
We also selected four CFO Act agencies (USDA, HHS, HUD, and SSA) for  more detailed review of their efforts to reduce improper payments.   These  agencies accounted for over 97 percent of the improper payments reported  in fiscal years 1999 and 2000 financial statements.  At these agencies, we  spoke to officials in the inspector general, chief financial officer, and  program offices and obtained reports and other documentation evidencing  actions that they have taken or are planning to take to reduce improper  payments.  We focused on obtaining information on the agency actions to  reduce the improper payments reported in their financial statements and/or  performance plans.  We also obtained information on barriers that they  encountered when attempting to develop and/or implement methodologies  to reduce improper payments.
Finally, we met with OMB officials and reviewed documents regarding  OMB’s progress in implementing recommendations made in our prior  report.  This included a review of revisions to OMB Circular A-11 and  correspondence and other guidance to agencies on improper payment- related issues.
We performed our work from May 2001 through April 2002.  Our work was  conducted in accordance with generally accepted government auditing  standards.  We provided a draft of this report for comment to the  Secretaries of HHS, HUD, and USDA, the Commissioner of SSA, and the  Director of OMB.  We received written comments from HHS, HUD, and SSA  and have reprinted those comments in appendixes IV, V, and VI,  respectively.  USDA responded by e-mail and OMB provided oral  comments.
section_title: Agency Financial Statements Provide Limited Information on Federal Improper Payments
paragraphs: Improper payments are acknowledged to be a widespread and significant  problem in the federal government with billions of dollars in such  payments reported annually in agency financial statements and billions  more identified in audit and other reports.  For example, federal agency  financial statements for fiscal years 1999 through 2001 show improper  payments of about $20.7 billion, $19.6 billion, and $19.1 billion, respectively.   Although significant, these amounts are not indicative of the magnitude of  improper payments governmentwide.  Currently, relatively few agencies  report improper payments in their financial statements, even though our  audits and those of agency OIGs continue to identify serious improper  payment problems and related internal control issues.  The following table  summarizes improper payments reported in agencies’ fiscal years 1999,  2000, and 2001 financial statements.
The dollar amount of improper payments reported annually for fiscal years  1999 through 2001 decreased by about $1.7 billion and the number of  agencies reporting a specific amount of improper payments in their  financial statements declined from 8 to 6.  A review of the table above  shows that, for fiscal years 1999 and 2000, 8 agencies collectively reported  $20.7 billion and $19.6 billion, respectively, whereas for fiscal year 2001, 6  agencies collectively reported improper payments of about $19.1 billion.   About $18.8 billion (99 percent) of the improper payments reported in the  fiscal year 2001 financial statements occurred in the programs  administered by HHS, HUD, and SSA.  In total, 13 agencies acknowledged  making improper payments or reported a specific amount in their financial  statements within the 3-year time frame.  Ten of the 13 agencies reported or  acknowledged making improper payments for fiscal year 2001.
A comparison of the fiscal years 2001 and 2000 improper payment  information reported in agency financial statements revealed several  significant differences in the programs reporting improper payments and  the amounts reported.
In fiscal year 2000, USDA’s Food and Nutrition Service’s (FNS) financial  statements identified improper food stamp payments of $1.1 billion.  For  fiscal year 2001, FNS did not publicly issue separate financial  statements.  While USDA’s financial statements contained FNS’s  financial information and recognized that improper payments occurred  in the food stamp program, the statements did not identify a specific  improper payment amount.
HUD reported improper payments of $1.25 billion in fiscal year 2000 and  $2 billion in fiscal year 2001.  Specifically, in fiscal year 2000 it estimated  $1.94 billion in annual housing subsidy overpayments and $.69 billion in  underpayments.  In fiscal year 2001, it reported overpayments of $2.65  billion and underpayments of about $.65 billion.  In commenting on this  report, HUD noted that, in fiscal year 2000, it also identified $617 million  in improper payments due to underreporting of tenant income.  We do  not include this amount in the HUD total in table 1 because HUD’s fiscal  year 2000 financial statement notes that the $1.25 billion and $617  million “should not be considered totally additive.”  An unknown  amount of overlap exists in these amounts.  Regarding the increase in  improper payments reported since fiscal year 1999, HUD revised its  methodology for measuring the types of errors that make up its  improper payments estimate.  In fiscal year 2000, it expanded the scope  of its error estimation to include subsidy determination errors by its  administrative intermediaries in addition to the impacts of tenant  underreporting of income.  In fiscal year 2001, it refined its methodology  to obtain a combined estimate of both types of errors.  More specifically,  HUD’s error measurement methodology covers errors made by public  housing authorities, owners, and agents (POAs) in determining tenant  income and rent as well as errors made by the tenants in reporting their  income.  Past estimates only considered the impact of tenants  underreporting income for amounts over $3,000 and used a sample of  tenants from HUD’s data systems.  However, the fiscal year 2001  estimate was based on more stringent criteria.  It considered tenant  underreported income for amounts over $1,000 and was based on a  random selection of all tenants, including those who were not covered  in the past.
At the Office of Personnel Management (OPM), the fiscal years 1999 and  2000 financial statements identified improper payment amounts for the  retirement, federal employees’ health benefits, and federal employees’  group life programs.  The fiscal year 2001 statements did not identify  improper payment amounts, but recognized that an unidentified amount  of improper payments occurred in the retirement program and federal  employees’ health benefits.
At the Department of Labor, the fiscal year 2001 financial statements  identified the total amount of improper payments for three of its  programs but did not separately identify the improper payments relating  to each program—as it had done in the past.
Recent audits as well as information provided by agency OIGs continue to  demonstrate that improper payments are much greater than has been  disclosed thus far in financial statements.  For example, historically, the  IRS’s EITC program has been vulnerable to high rates of invalid claims.   IRS follows up on only a portion of the suspicious EITC claims it identifies.   The amount of improper payments included in the almost $26 billion IRS  disbursed for EITC in fiscal year 2001 is unknown.  However, based on an  IRS report of the estimated $31.3 billion in EITC claims made by taxpayers  for tax year 1999, an estimated $8.5 billion to $9.9 billion (27 percent to  about 32 percent) should not have been paid.  Weaknesses in IRS’s  controls over refund disbursements, particularly those related to EITC,  continue to expose the federal government to material losses due to  disbursing improper refunds.
Similarly, while DOD reported improper payments related to the Military  Retirement Fund for fiscal years 1999, 2000, and 2001, departmentwide  estimates of improper payments remain unreported in the financial  statements.  For example, over the last several years DOD has overpaid its  contractors by hundreds of millions of dollars.  Specifically, according to  DFAS Columbus (the largest centralized DFAS disbursing activity) records,  in fiscal year 2001 DOD contractors refunded about $128 million primarily  attributed to DFAS payment errors and duplicate invoices.  This amount  might not reflect total improper payments DOD made to contractors  because contract reconciliation is likely to identify additional  overpayments.  Further, although small in relation to the approximately $78  billion that DFAS Columbus disbursed in fiscal year 2001 to DOD  contractors, this amount represents a sizable amount of cash in the hands  of contractors beyond what is intended to finance and pay for the goods  and services DOD purchases, and is indicative of the need for stronger  internal controls within the payment system.
section_title: Limited Information on Improper Payments or on Progress in Reducing Them Is Publicly Available
paragraphs: Periodically and consistently estimating the rate and/or amount of  improper payments and publicly reporting progress enables agencies and  others with oversight and monitoring responsibilities to measure progress  over time and determine whether further action is needed to minimize  future improper payments.  It enhances accountability by identifying  performance measures and progress against those measures and by helping  to establish performance and results expectations.  Improper payment  information is currently reported in a variety of places, including annual  financial statements, performance plans, and the budget.  However, neither  the financial statements, as previously discussed; the performance plans;  nor the budget provide a comprehensive view of either the scope of the  improper payment problem or of individual agency or governmentwide  efforts to reduce it.  As such, they provide limited information for use in  establishing (1) appropriate response levels to correct the problems or  (2) responsibility—holding organizations and/or individuals accountable  for performance and results.
GPRA requires agencies to prepare annual performance plans that inform  the Congress and the public of  (1) the annual performance goals for  agencies’ major programs and activities, (2) the measures that will be used  to gauge performance against these goals, (3) the strategies and resources  required to achieve the performance goals, and (4) the procedures that will  be used to verify and validate performance information.  Agencies develop  plans for use by agency officials, the administration, the Congress, and the  public.  They provide information on the purpose and effectiveness of  federal programs and on the resources spent in conducting them.  On  February 14, 2001, the Director of OMB issued a memorandum to agency  heads requiring agencies to update their fiscal year 2002 performance plans  to include performance goals for the President’s governmentwide reforms  for every reform that would significantly enhance the administration and  operation of the agency.  One of these reforms is reducing improper  payments to beneficiaries and other recipients of government funds.  We  did not determine the level of significance of improper payments at any  agency.  However, as a result of the memorandum, we expected improper  payment-related actions to have been discussed in agencies’ fiscal year  2002 performance plans, at least for those agencies required to report  improper payment information in their initial budget submissions to OMB.   We reviewed the plans for improper payment-related issues.  In general, our  review revealed that none of the 15 performance plans examined contained  detailed information for all of the areas that GPRA requires agencies to  address—goals, measures, strategies, or procedures to validate  performance data—for each reform discussed in the performance plan.   Only 4 of the plans comprehensively addressed any of the four areas in  their improper payments discussion.
Table 2 summarizes our evaluation of the extent to which the annual  performance plans contained improper payment-related discussions for the  four areas GPRA requires to be addressed—goals, measures, strategies,  and procedures to validate performance data—for the 15 CFO Act agencies  required by OMB Circular A-11 to report improper payment information in  their initial budget submissions.  This evaluation was based on the  performance plan assessments contained in the separate agency reports  that we issued last year.  (Appendix III lists these reports.)  We considered  an agency to have comprehensively addressed goals, measures, strategies,  and procedures to validate performance data if our report did not reveal  any weaknesses for how the performance plan addressed each of those  elements for improper payment-related issues.
We found that, although 10 of the 15 agencies discussed improper  payments in their fiscal year 2002 performance plans, none  comprehensively addressed improper payments for all four of the plan  elements required by GPRA.  Furthermore, only 4 of the 15 agencies  comprehensively addressed improper payments for any of the GPRA- required elements.  In addition, six performance plans discussed at least  one of the elements but not comprehensively.  That is, the reports  acknowledged improper payments and cited some information regarding  one or more of the elements, but that information was not adequate to use  as a basis for evaluating agency actions or progress in addressing improper  payment problems.  Further, four plans made no reference to improper  payments.
Our key outcomes reports noted the following examples of weaknesses in  agency performance plans.
Within HHS, the Centers for Medicare and Medicaid Services (CMS)  had adequate procedures to validate performance data, but the  strategies needed to achieve its improper payment goals were not  adequately addressed and these goals were not consistently measurable.   In some instances, the plan stated generally that the accomplishment of  a goal was the target and did not explain, in sufficient detail, CMS’s  strategies to ensure that the goal is accomplished.  In others, progress  was difficult to measure because of continual goal changes that were  sometimes hard to track or that were made without sufficient  explanation.  Specifically, in both the fiscal years 2001 and 2002  performance plans, goals were dropped, revised or subsumed into other  goals, or goals were added for the Medicare program integrity outcome.   While refinements may be desirable as efforts become more mature, the  inability to track individual initiatives makes it difficult to measure  progress in achieving outcomes.  Furthermore, because many of the  baselines and measures for the new and revised goals were under  development, CMS’s intended performance regarding them was unclear.
IRS’s EITC program under Treasury has historically been vulnerable to  high rates of improper refunds—paying billions of dollars for improper  EITC claims.  Treasury’s performance plan did not report on  performance measures for any aspect of IRS’s administration of the  EITC, and IRS lacked performance measures for the program.   Therefore, we are unable to assess progress toward achieving less  waste, fraud, and error in the program.  The performance plan noted  that, in 1998, IRS began implementing a 5-year EITC compliance  initiative that involved several components directed at the major  sources of EITC noncompliance.  While IRS is collecting data on the  initiative’s results, the data are not yet sufficient to determine whether  the initiative has reduced the overall noncompliance rate.
SSA’s annual performance plan includes several goals and performance  measures targeted specifically at increasing program integrity and  reducing fraud and abuse.  Yet the performance plan was not clear about  SSA’s progress in meeting these goals because of continued revisions to  prior indicators and goals as well as SSA’s inability to provide timely  performance data.
Since the conclusion of our fieldwork, some agencies have issued their  annual performance plans for fiscal year 2003.  Some of those plans may  have addressed improper payments more thoroughly.  In future work, we  plan to review these plans for information on improper payments and  compare fiscal years 2002 and 2003 performance plans for consistency and  to assess the progress reported in achieving improper payment-related  outcomes and strategies.
Although no specific requirement exists for public reporting on improper  payment-related activities at the agency level, the administration has  recognized the importance of reducing governmentwide improper  payments.  The President’s Management Agenda, Fiscal Year 2002,  discusses the reduction of improper payments as a key element under its  initiative to improve financial performance within the government.  As a  result of this initiative, OMB revised its Circular A-11 to incorporate needed  efforts to address improper payments within 16 selected federal agencies  and about 50 programs within those agencies.  Section 57.3 requires the  selected agencies to include specific improper payment-related  information in their fiscal year 2003 initial budget submissions to OMB.   More specifically, the circular states that agencies that currently estimate  improper payment rates for the programs identified are required to submit  the following data:  estimated improper payment rates projected for fiscal year 2001;   actual improper payment rates for fiscal years 1999 and 2000, if   target rates (goals) for improper payments for fiscal years 2002 and   causes of improper payments;  variances from targets or goals that were established; and   descriptions and assessments of the current methods for measuring the  rate of improper payments, and of the quality of data resulting from  these methods.
The circular also requires each of these agencies to submit an assessment  of the effectiveness of current agency efforts to minimize improper  payments as well as an action plan that includes  additional actions the agency could take to prevent and correct   an evaluation of the costs and benefits of implementing these corrective   a description of programmatic and legal considerations, and   an assessment of the extent to which undertaking these actions would  hinder the achievement of major program objectives.
For programs administered by states or other organizations for which  agencies are not currently estimating improper payment rates, the circular  requires each agency to submit an analysis of whether and how improper  payments could be estimated and of the costs and benefits of collecting  new or additional data.  In preparing their responses, agencies were told to  consider programmatic and legal obstacles to collecting additional data or  establishing estimation procedures.  Both the circular and the President’s  Management Agenda, Fiscal Year 2002, note that OMB plans to review the  information provided and coordinate with each agency to develop detailed  action plans on a program-by-program basis.
Furthermore, in August 2001, OMB distributed a memorandum to agency  CFOs and budget officers containing supplemental guidance on submitting  the improper payment information required by OMB Circular A-11.  Among  other things, it identified eight basic principles all federal agencies should  recognize to minimize improper payments.  The principles are   prevention is more effective than after-the-fact efforts,   program payment integrity is a joint management responsibility,   improper payments should be kept to the lowest practical level,    payments should be balanced with program goals and other competing   controls should take into account both the benefits and costs,   performance measurement and reporting provide better accountability,   data verification strengthens program payment integrity, and   impediments to effective controls may exist and should be considered.
The discussion of one of these principles—performance measurement and  reporting provides better accountability—further notes that “Public  reporting of progress enhances accountability.  Agency performance can be  reported in a variety of places, including reporting under the Government  Performance and Results Act, annual financial reports, or regularly-issued  stand-alone program reports.”   The memorandum also requires  documentation to support any conclusion that estimating improper  payments is unnecessary or would not be cost-beneficial because the  program is not susceptible to significant improper payments, has strong  internal controls to prevent improper payments, or has not experienced an  improper payment problem, or that the burden outweighs the benefit to be  gained by developing estimates.  OMB is currently analyzing the  submissions and revising the requirements based on feedback from  agencies.
In addition, other OMB initiatives include (1) working with the Congress on  legislation to improve agency access to data for data sharing and drafting  related agency guidance, (2) refining the OMB Circular A-11 guidance on  reporting improper payment activity, (3) funding improper payment  activities in the budget, (4) establishing electronic government Web sites  including GovBenefits—which should improve the up-front accuracy of  benefit determinations, and (5) assessing quarterly executive branch  management scorecards to track how well agencies are executing the  President’s management initiatives.
These actions are appropriate for tracking and managing progress in this  area.  Unfortunately, the vehicle being used to assemble these data inhibits  public disclosure of the information.  OMB Circular A-11 requires selected  programs and agencies to submit improper payment data with their initial  fiscal year 2003 budget submissions but Section 36 of the circular prohibits  the submissions from being publicly disclosed.  Therefore, we reviewed the  Budget of the United States Government, Fiscal Year 2003, to determine  the improper payment information it contained.  Since OMB incorporates  the individual agencies’ budget requests into the budget and since the  administration has made the reduction of improper payments a priority, we  expected to find some improper payment information in the budget.  Our  review showed minimal discussion of improper payments as compared to  the detailed information OMB Circular A-11 requires agencies to provide in  their initial budget submissions.  For example, even though OMB Circular  A-11 requires 15 CFO Act agencies to provide improper payment  information on about 50 programs, the budget shows  actual improper payment rates for fiscal year 2000 for 2 programs—food   target error rates for food stamps and Supplemental Security Income,  types and causes of improper payments for the Department of  Education’s Student Financial Aid Program and HHS’s Medicare and  Medicaid programs, and   a description of additional actions 6 agencies could take to prevent or  correct improper payments for 8 programs.
Furthermore, the Budget did not contain information for any agency for  several areas cited in OMB Circular A-11, including an analysis and  description of whether and how improper payments could be estimated, an  analysis of the costs and benefits of collecting new or additional data, and  obstacles to collecting additional data or establishing estimation  procedures.
Given the fact that the agency financial statements, fiscal year 2002  performance plans, and the budget contained little substantive information  on improper payments, we attempted to locate other data that might offer  added insights into agency efforts.  One source was agency responses to  June 2001 congressional requests to agency heads and OIGs for  information on agency efforts to control improper payments.  The requests,  from the Chairman and Ranking Minority Member of the Senate Committee  on Governmental Affairs, asked for specific information about the five  components of internal control—control environment, risk assessment,  control activities, information and communication, and monitoring— outlined in our report that addressed strategies to manage improper  payments.
The congressional requesters received responses from either the agency  head, the IG, or both for 9 agencies.  Specifically, we found that, for the 15  CFO Act agencies required to report improper payment information under  OMB Circular A-11, 9 agency heads and 8 OIGs responded to the  congressional request.   For 6 of the agencies, neither the agency head nor  the OIG responded.  Of those that did respond, 5 agency heads and 2 OIGs  addressed all of the internal control components, as requested, as  demonstrated in the following examples.
The responses of the Secretary and OIG of HUD show, among other  things, how HUD (1) promoted an environment of accountability to  reduce improper payments by establishing the Rental Housing Integrity  Improvement Project (RHIIP) to help ensure that the “right benefits go  to the right person,” (2) estimated its improper payments in the past and  is now implementing plans for a more comprehensive error  measurement process, and (3) reduced the risk of improper payments  by implementing new rent calculation systems and performing data  matches with IRS and SSA data.
The Secretary of HHS’s response showed how the agency (1) addressed  the control environment through numerous oversight and program  integrity activities, (2) computed an error rate for Medicare fee-for- service claims and determined the cause of these improper payments,  (3) established a GPRA goal to reduce the percentage of improper  payments made under the Medicare fee-for-service program, (4) worked  on a methodology to measure improper payments for the Medicare  Managed Care and Medicaid programs, (5) assisted medical providers in  submitting claims correctly,  and (6) developed statistical analyses to  stem fraud, waste, and abuse.
The Acting Commissioner of SSA explained how SSA (1) created a  culture of accountability through the day-to-day operation of its  compliance program, (2) estimated payment errors through stewardship  reviews, (3) detected and deterred improper payments through a series  of system enhancements, (4) collected improper payments by using  various methods such as credit bureaus and the Treasury offset  program, and (5) established payment accuracy goals and methods to  track progress as part of its annual performance plan.
We expected agencies to have accurate and timely information available to  respond to the congressional request since, in February 2001, OMB had  asked these agencies to address their improper payment issues in their  fiscal year 2002 performance plans.  However, for the most part, the  responses provide only partial answers showing that, while the agencies  agreed that managing improper payments is important, they lacked  comprehensive strategies to do so.  For example, one agency answered all  of the questions, yet indicated that it did not know the aggregate amount of  improper payments made on a departmentwide level and that the most  recent estimate of improper payments for one of its high-risk programs was  from 1997.  Another agency stated that it has not performed a risk  assessment and has no formal process to estimate or track improper  payments because it has an inherent culture of high standards, operating  efficiency, sophisticated systems, and personal attention to detail, which  results in few improper payments.  A third agency could not provide  substantive answers to the request.  Rather, it stated that while audits have  recommended improving internal controls, it does not believe they  disclosed an unacceptable level of risk.  This agency did not estimate the  amount of its improper payments or provide details of any related risk  assessments.
The Congress and the administration have clearly indicated that agencies  should consider the reduction of improper payments a top priority.  Despite  this focus, little improper payment information is publicly available.  Public  disclosure provides information against which agency efforts to reduce  improper payments can be measured and evaluated.  It can also help form a  basis for holding agency officials, the administration, and the Congress  accountable for actions that reduce improper payments and improve  program performance.
section_title: Efforts by Four Agencies to Address Improper Payments Have Met with Some Success
paragraphs: The USDA, HHS, HUD, and SSA collectively reported about $19.1 billion of  improper payments in their fiscal year 2000 financial statements.   Individual amounts of improper payments reported ranged from  $1.1 billion for the food stamp program at USDA to $12.5 billion for  Medicare-related payments at HHS.  Because of the magnitude of the  amounts reported, we contacted representatives at each agency to  determine their efforts to reduce and manage improper payments.  Each  agency has been actively working to address its improper payment  problems.  These efforts typically involved activities related to the five  components of internal control—control environment, risk assessments,  control activities, information and communications, and monitoring.  The  following sections highlight some of the efforts undertaken by these  agencies.
subsections: section_title: Control Environment
paragraphs: The control environment is perhaps the most critical element in reducing  improper payments because it establishes a culture of accountability and  assigns responsibility for actions.  A sound control environment stresses  the importance of prevention of improper payments and efficient and  effective program operations while maintaining a balance with privacy and  information security in a world where most payments are made  electronically.  In establishing a sound control environment, agency  management recognizes that personnel throughout the organization make  internal controls work and, therefore, human capital issues must be  seriously considered in all changes to the system of internal control.
As noted in our report on strategies to manage improper payments,  changes in the control environment may require actions by both the  Congress and agency officials.  These actions can include enacting  legislation, setting and maintaining the ethical tone, delegating roles and  responsibilities, and implementing human capital initiatives.
Legislative and management actions that affected the control environment  over improper payments occurred at each of the agencies.  Legislative  actions involved passing laws that revised program operations and called  for various prevention and detection methodologies and periodic reporting  on the status of agency improvement efforts.
For example, the Agriculture Risk Protection Act of 2000   authorizes additional resources to assist the Risk Management Agency’s  (RMA) Federal Crop Insurance Corporation (FCIC) in identifying  fraud, waste, abuse, and mismanagement in its programs;   helps FCIC collect bad debts by imposing severe penalties and interest  and offsetting future benefit payments for those who willfully and  intentionally provide false or inaccurate information with respect to a  policy or plan of insurance; and   requires RMA’s Office of Risk Compliance to use data mining, data  warehousing, and data reconciliation to identify potential improper  payments and provides up to $23 million in funding for these efforts  through fiscal year 2005.
Two legislative reforms have helped the HHS’s CMS enhance Medicare’s  anti-fraud and abuse activities.  First, the Health Insurance Portability and  Accountability Act of 1996 established the Medicare Integrity Program,  which provides CMS with levels of funding for Medicare program safeguard  activities such as audits of cost reports and medical prepayment claim  reviews.  In the cost report area alone, CMS reported $570 million and $493  million in improper payments for fiscal years 2000 and 2001, respectively.   In addition, the Balanced Budget Act of 1997 provided CMS with increased  authority to keep health care providers who have been convicted of health  care related crimes out of the Medicare program, exclude providers who  abuse the program, and impose monetary penalties on such providers.
At SSA, the Foster Care Independence Act of 1999 helped strengthen  program integrity by  authorizing SSA to conduct matches with Medicare data and simplify  procedures to gain access to recipient records from financial  institutions to help verify Supplemental Security Income (SSI)  recipients’ financial eligibility;   authorizing SSA to prohibit individuals who provide false or misleading  eligibility information from collecting Old Age and Survivors Insurance  (OASI) and Disability Insurance (DI) and SSI cash benefits;  making a representative payee—a person authorized to receive benefit  payments for a qualified individual—liable for OASI and DI or SSI  overpayments caused by payments made to deceased beneficiaries; and   authorizing SSA to use all available debt collection authorities to  recover SSI debt.
Equally, if not more important, an effective control environment requires  management’s commitment to reduce improper payments.  Agency  management can affect the control environment by, among other things,  setting expectations and goals for reducing improper payments,  implementing program-specific measures to reduce fraud and errors,  calling for periodic performance reporting, and requiring follow-up actions  based on performance results.
For example, USDA’s FNS administers the food stamp program under  which state welfare agencies certify eligibility and provide benefits to  households.  Although not reported in USDA’s financial statements, FNS  identified about $976 million in food stamp program overpayments for  fiscal year 2001.  FNS strives to increase the accuracy of eligibility  determinations and benefit computations and also oversees the level of  benefits issued.  Its food stamp Quality Control System (QC) measures the  accuracy of eligibility determinations and benefit computations and then  publicly reports each state’s overissuance rate.  FNS reviews these data to  identify areas needing corrective action and practices that are effective in  improving payment accuracy.
USDA management also encourages state agencies to minimize improper  payments by offering financial incentives for those with high payment  accuracy and imposing sanctions on those with payment overissuance  rates above the national average.  In fiscal year 2000, FNS imposed $46  million in financial sanctions on 18 states with overissuance rates above  the national average.  At the same time, it provided $55 million in  supplementary funding to 11 states with payment overissuance rates equal  to or below 5.9 percent—a rate well below the national average of about 8.9  percent.  These actions have resulted in a decline in state payment error  rates from 10.7 percent in fiscal year 1998 to 9.9 percent in fiscal year 1999,  to 8.9 percent for fiscal year 2000.  However, FNS and OMB officials believe  that the Farm Security and Rural Investment Act of 2002 will likely reduce  the number of states sanctioned in future years, as only those with  persistently high rates of improper benefit and eligibility determinations  (those exceeding 105 percent of the national performance measure for 2 or  more consecutive fiscal years) would be penalized.
SSA management demonstrated its commitment to reduce improper  payments in its 1997 strategic plan, Keeping the Promise.  One of the  strategic goals cited in the plan is to make SSA program management the  best in business with zero tolerance for fraud and abuse.  To achieve this  goal, SSA initiated a program of anti-fraud efforts to  eliminate wasteful practices that erode public confidence in the Social   vigorously prosecute individuals or groups who damage the integrity of   change programs, systems, and operations to reduce instances of fraud.
Senior SSA management oversees the implementation and coordination of  these fraud elimination strategies.  At the local level, each SSA region has a  Regional Anti-Fraud Committee that acts as the focal point for the agency’s  effort to combat fraud.
At HUD, management took steps to reduce errors in the rental housing  assistance programs by establishing the Rental Housing Integrity  Improvement Project.  A RHIIP advisory group develops and implements  plans to reduce program errors and correct related material management  control deficiencies in HUD’s high-risk subsidized rental housing programs.   According to a HUD official, the advisory group has taken steps to increase  HUD’s income data matching authority and utilization to enable upfront  income data sharing to avoid subsidy errors attributed to unreported and  underreported income sources.  In addition, a RHIIP subgroup develops  rent calculation software and proposals for program simplification.
section_title: Risk Assessment
paragraphs: Risk assessment is a key step in gaining assurance that programs are  operating as intended and that they are achieving their expected outcomes.   It entails a comprehensive review and 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 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.  In performing a risk assessment,  management should consider all significant interactions between the entity  and other parties as well as internal factors at both the entitywide and  activity levels.
The specific risk assessment methodology used can vary by organization  because of differences in missions and the methods used in assigning risk  levels.  As we noted in the improper payment strategies report cited earlier,  risk identification methods often include qualitative and quantitative  ranking activities, management conferences, forecasting and strategic  planning, and consideration of findings from audits and other assessments.   The information obtained from the four agencies we visited revealed  frequent use of similar risk assessment activities.
USDA’s FNS conducts annual quality control reviews to identify the extent  and causes of improper payments in several of its programs, including the  food stamp program.  The two most recent reviews estimated  overpayments of $1.1 billion and $976 million in fiscal years 2000 and 2001,  respectively.  These reviews provided more detailed information about the  causes of the improper payments.  For example, the report of fiscal year  2000 payments found that about 56 percent of the overpayments and  underpayments in the food stamp program occurred when state food stamp  workers made mistakes such as misapplying complex food stamp rules in  calculating benefits.  The remaining 44 percent of the errors occurred  because participants, either inadvertently or deliberately, did not provide  accurate information to state food stamp offices.
HHS measures improper payments within the Medicare fee-for-service  program and estimated improper payments in this program of $11.9 billion  and $12.1 billion for fiscal years 2000 and 2001, respectively.  Further, the  agency reports that the Medicare fee-for-service claims error rate was  reduced to 6.3 percent in fiscal year 2001 from 6.8 percent in fiscal year  2000 and 7.97 percent in fiscal year 1999.  However, we cannot conclude  that these error rate differences are statistically significant.  As reported in  the OIG fiscal year 2001 Medicare fee-for-service payments review, “The  decrease this year may be due to sampling variability; that is, selecting  different claims with different dollar values and errors will inevitably  produce a different estimate of improper payments.”
CMS has initiated projects to improve the precision of Medicare fee-for- service improper payment estimates and aid in the development of  corrective actions to reduce improper payment losses.  In fiscal year 2001,  CMS implemented a provider compliance rate to measure the  appropriateness of claims submitted prior to payments.  In addition, CMS  developed a comprehensive error testing program that will produce  contractor-, provider-, and benefit-specific error rates.  These error rates  can be aggregated to add greater precision to the national level estimates  similar to the Medicare fee-for-service error rate.
GAO has designated HUD’s rental housing assistance programs as high risk  since 1994.  HUD has taken several actions to identify the risks associated  with these programs and is working to further refine the procedures  currently used to obtain more useful assessment information.  In one  example, HUD analyzed risk designed to measure postpayment accuracy.   An annual study of rent calculation errors estimated the extent, severity,  costs, and sources of rent errors for the Public Housing and Section 8  programs.  The study, which relied on the integrity of the data supplied by  the tenants and third-party income verification sources, matched  independent determinations of tenants’ incomes, rents, and subsidies to  those made by local public housing agencies (PHAs) and Section 8 staff to  identify incorrect rental calculations due to administrative and  mathematical errors.  The study results, issued in June 2001, reported  tenant rental underpayments of approximately $1.7 billion annually (an  average of $95 per household) in 34 percent of households and tenant  rental overpayments of over $600 million annually (an average of $56 per  household) in 22 percent of households.  HUD used the study results to  strengthen its procedures for ensuring administrative compliance with  regulations.
In another study, HUD developed an approach to identify differences  between tenant federal income tax data and the income tenants reported to  HUD by using a large-scale computer matching income verification  process.  While initial results were effective in identifying certain errors in  tenant reporting, HUD is currently developing different methodologies to  improve the accuracy of this type of risk assessment.
HUD recently began to expand the scope of its error measurement  methodology to cover the three primary types of rental assistance program  errors—public housing authorities, owners and agents income and rent  determinations; tenant reporting of income; and POA billings to HUD for  subsidy payments.  The current error measurement methodology addresses  the first two of these three components and, starting in 2003, HUD intends  to annually measure and report on all three error components.  HUD’s goal  is to reduce processing errors and resulting improper payments by 50  percent by 2005.
section_title: Control Activities
paragraphs: Once an organization has committed to reducing the risk of improper  payments, identified program areas that are at risk, quantified the possible  extent of the risk, and has set a goal for reducing the risk, it must act to  achieve that goal.  Control activities are the policies, procedures,  techniques, and other mechanisms designed to help ensure that  management’s decisions and plans are carried out.  Control activities used  by organizations to address improper payments vary according to the  specific threats faced and risks incurred.  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 actions  pursued by individual entities.  Additionally, the actions must comply with  all relevant laws and strike a balance between the sometimes competing  goals of privacy and program integrity.
Given the large volume and complexity of federal payments and historically  low recovery rates for certain programs, it is generally most efficient to pay  bills and provide benefits properly in the first place.  Aside from minimizing  overpayments, preventing improper payments increases public confidence  in the administration of benefit programs and avoids the difficulties  associated with the “pay and chase” aspects of recovering improper  payments.  However, since some overpayments are inevitable, agencies  also need to adopt effective detection techniques to quickly identify and  recover them.  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 agencies in our study used many  different prevention and detection control activities to manage improper  payments.  The nature of these activities ranged from sophisticated  computer analyses of beneficiary and program participant data using data  sharing and computer-editing techniques to on-site verification of claim  information.
Data sharing allows entities to compare information from different sources  to identify inconsistencies and thus help ensure that payments are  appropriate.  For example, data matches of social security numbers and  other data can help determine whether beneficiaries are inappropriately  receiving payments at more than one address.  For government agencies,  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.
Of the four agencies included in our review, SSA is the most active in the  data sharing arena.  It performs over 20 data matches with over 10 federal  agencies and more than 3,500 state and local entities.  For instance, SSA  shares data with HUD so that HUD can perform a match to verify the  identity of recipients of housing benefits and identify potentially fraudulent  claims.
In addition to sharing data with other entities, SSA also uses data from  other sources to perform matches to help prevent and detect improper  payments in its programs.  For example, it obtains death records from  states to determine if deceased individuals are still receiving benefit  checks.  SSA estimates that it saves $350 million annually for OASI and DI,  and $325 million annually for SSI through its use of data matching.  Further,  the savings are not limited to those realized by SSA.  According to SSA, its  matches save other agencies approximately $1.5 billion each year.
According to SSA’s Performance and Accountability Report, Fiscal Year  2001, it uses computer matching and other payment-safeguard activities to  assist it in finding and correcting improper payments and in identifying and  deterring fraud in its entitlement programs.  In commenting on our report,  SSA noted that the OASI accuracy rate for fiscal year 2000 was 99.9 percent  and the SSI accuracy rate was 94.7 percent.  It did not provide a fiscal year  2000 DI accuracy rate.  In continuing efforts to improve payment accuracy,  SSA invested more than $1 billion in processing over 9 million alerts in  fiscal year 2001.  Current estimates indicate that these payment-safeguard  activities detected or prevented about $7 billion in overpayments.
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.  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.
The large number of Medicare transactions precludes a manual  examination of each transaction to identify associations and patterns of  unusual activities, making data mining an effective and efficient alternative.   CMS is currently involved in two data mining efforts.  Its claims  administration contractors currently use data mining and statistical  analysis as part of their postpayment review activities.  At the request of  the states, CMS has also undertaken a Medicare/Medicaid data exchange  project.  This project’s goal is to use data mining to query data from both  programs in an effort to find fraudulent or abusive patterns that may not be  evident when billings for either program are viewed in isolation, but would  become evident when they are compared.
Computerized edit checks are used to ensure that valid and authorized  transactions are recorded and executed according to management and  program requirements.   USDA’s RMA provides the regulations, crop  policies, underwriting standards, and loss-adjustment standards for crop  insurance policies, although private insurance companies deliver the actual  crop insurance program.  RMA’s crop insurance program uses a variety of  computer-generated edit checks to ensure valid program requirements are  met.  These edit checks include ensuring that the liability was not increased  at the time of loss, the cause of loss was insurable according to policy  language, and the insurance company applied appropriate calculations to  determine the loss payment.  In addition, RMA matches each producer’s  social security and employer identification numbers with the agent and loss  adjuster to ensure that the producers have not been debarred from  participating in the crop insurance program.  Once information is accepted  through the above edit processes, RMA loads it into databases where it is  subject to further audit and review.
The computerized data sharing and data mining efforts discussed in this  report help identify improper payments by providing more useful and  timely access to information.  These techniques can result in significant  savings by identifying client reporting errors and misinformation during the  eligibility determination process—before payments are made—or by  detecting improper payments that have been made.  However, the  extensive use of personal information in an evolving technological  environment raises new questions about how individual privacy should be  protected.  In the federal arena, such activities must be implemented  consistent with all protections of the Privacy Act of 1974, as amended by  the Computer Matching and Privacy Protection Act of 1988, and other  privacy statutes.
Not every control activity identified involved computer applications.  The  agencies that participated in this review also used on-site visits and manual  claims reviews to help reduce improper payments.  For example, USDA’s  Farm Service Agency (FSA) administers programs for the Commodity  Credit Corporation (CCC).  Among other income and commodity support  programs, CCC indemnifies food producers for the extraordinary losses of  crops or livestock resulting from weather-related disasters and pest  infestations.  Over 2,200 FSA local county offices are responsible for  ensuring that producers provide reliable claim information.  FSA performs  random reviews of about 5 to 20 percent of producer-provided information  to verify that, among other things, acreage has not been overstated.  (These  spot checks search for anomalies such as numbers outside of reasonable  ranges.)  Similarly, at HHS, CMS manually reviews Medicare claims to  determine whether benefits are provided to eligible beneficiaries, charges  are covered, and services are medically necessary and reasonable.
section_title: Information, Communications, and Monitoring
paragraphs: Once an organization has identified its improper payment-related risks and  undertaken activities to reduce them, federal officials with program  management, oversight, and monitoring roles need relevant, reliable, and  timely information to help them make operating decisions and monitor  performance on a day-to-day basis and over time.  For example, a major  objective of the Federal Financial Management Improvement Act is to have  systems that provide good cost accounting information that program  managers can use in managing day-to-day operations.  Managerial cost  accounting is aimed at providing reliable and timely information on the full  cost of federal programs, their activities, and outputs.  This cost  information can be used by the Congress and federal executives in making  decisions about allocating federal resources, authorizing and modifying  programs, evaluating program performance, and developing the  information to support GPRA requirements.
The need for information and communication extends beyond  organizational boundaries.  Educational activities for both beneficiaries  and other program participants help reduce improper payments and  strengthen program operations.  Complex program regulations can be  confusing to both agency personnel and beneficiaries and thus can  potentially contribute to improper payments.  The better educated agency  employees, contractors, and beneficiaries are about what is expected of  them and the consequences of not meeting those expectations, the greater  the chances for reducing fraud and errors in the payment process.  All four  agencies visited educated recipients and service providers on complex  program regulations using various mechanisms, including the Internet and  printed materials.
For example, at USDA, FSA maintains a Web site with program  descriptions and information for producers.  This site has hyperlinks to  additional information, guidance, and contacts for FSA and CCC.  It  includes links to farm loan information, youth loans, disaster assistance,  price supports, and conservation programs.  Furthermore, CCC regularly  sends out news releases explaining policies and procedures.
Agencies also use printed materials to educate recipients and service  providers.  HUD publishes reference guides, handbooks, forms, and other  tools for homeowners and lenders.  Its OIG has also published fraud  prevention guidance, Guidelines for Public Housing Authorities to  Prevent, Detect and Report Fraud.  At USDA, FNS publishes guidance that  focuses on improving both access to the food stamp program and the  accuracy of eligibility requirements for benefit determinations.  For  example, in September 2001, FNS updated its food stamp program fact  sheet, which is distributed to applicants in state food stamp agencies and is  available on its Web site.  The fact sheet describes the rules and types of  documentation that applicants will need to provide at the interviews to  verify eligibility.  SSA has also developed brochures and printed materials  as part of its campaign to keep the public informed about Social Security  programs.
section_title: Barriers to More Effectively Managing Improper Payments
paragraphs: When discussing actions to reduce improper payments, officials at all four  agencies cited barriers that restricted their ability to better manage their  programs against improper payments.  Generally, agency officials noted  that they encounter barriers due to legislative provisions, program design  factors, and resource limitations.  It should be recognized that many of  these barriers exist as a result of decisions to ensure beneficiary privacy  and other data safeguards, the inherent nature of some federal programs,  and budgetary realities.  As a result, it may be difficult to eliminate or  mitigate these barriers to the point where they no longer restrict agency  actions in certain areas to better manage their improper payment  problems.  However, to the extent that that is the situation, federal  agencies, the administration, the Congress, and the public must recognize  that some level of improper payments will occur because of these  decisions.  This section of the report discusses these types of barriers.
subsections: section_title: Legislation-Based Barriers
paragraphs: Legislative actions can give agencies the authority to implement activities  to identify improper payments and, subsequently, to hold the responsible  parties accountable.   They can compel agencies to work together using  common data to detect and prevent improper payments, and can authorize  agencies to develop incentive programs to increase accuracy in program  administration.  Yet they can also limit an agency’s ability to take actions to  reduce improper payments.  Agencies trying to identify ineligible  individuals receiving government benefits and hold them accountable have  met with legislation-based barriers that limit their efforts to minimize  improper payments.
HUD officials told us that, to reduce improper payments in subsidized  housing programs, they could benefit by having access, even if it is only  limited access, to data from other federal agencies and by sharing relevant  information with entities implementing HUD’s programs.  However, they  stated that the Internal Revenue Code and the Privacy Act of 1974 have  prevented or made it difficult for HUD to obtain this information and have  limited how HUD can use it.  Specifically, HUD officials noted that the  agency can only disclose federal tax data to the tenants and not to the  POAs—the entities that determine monthly housing benefits based, in part,  on income information.  When HUD identifies discrepancies, it sends  letters to the tenants notifying them of the discrepancies and directing  them to submit revised income information to their respective POAs.  At  the same time, HUD notifies the POAs that discrepancies exist between the  income in HUD’s tenant databases and federal tax data for specific tenants,  but it is prohibited from identifying the specific amounts in question.  HUD  then requests that the POAs resolve the unspecified discrepancies and  report the resolution to HUD.
Data currency is also a factor.  HUD receives taxpayer income data in  September for the previous year and, by then, many of the beneficiaries  were either no longer working, had changed jobs, or had moved.  While  more timely data are available, legislation prevents HUD from using it.  For  example, the HHS Office of Child Support Enforcement maintains the  National Directory of New Hires containing employee wage data that is  updated quarterly, versus the IRS data that is updated annually.   However,  Section 453 of the Social Security Act limits use of the data to those entities  listed in the act, and HUD is not one of those entities.
Some improper payments are inevitable because agencies are not  permitted to stop or adjust payments until the due process hearing or  appeals processes are completed.  For example, SSA disburses SSI  payments to recipients at the beginning of the month based on the income  and asset levels recipients expect to maintain during the month.  Some  government programs pay benefits in advance under the assumption that  the beneficiary’s circumstances, such as income and asset levels, will  remain the same during the period for which payment was rendered.  If  SSA initially determines that an overpayment occurred, court decisions  and language in the Social Security Act allow individuals to continue  receiving the same amount of SSI and DI benefits pending the results of a  hearing to determine eligibility.  If the initial determination is affirmed, the  payments made during the hearing and appeals processes are considered  overpayments, which SSA may recover using a variety of means.
USDA’s FNS faces a similar situation.  FNS officials stated that the Privacy  Act of 1974 has several disclosure prohibitions, access and amendment  provisions, and record-keeping requirements that hinder its efforts to share  information with other federal agencies and with state agencies.  The  Computer Matching and Privacy Protection Act of 1988 amended the  Privacy Act of 1974 to add procedural requirements for agencies to follow  when conducting computer matching.  For example, agencies must provide  matching subjects with opportunities to receive notice and to refute  adverse information before having a benefit denied or terminated.   Agencies must establish data protection boards to oversee the data  matching activities.  Exceptions to the disclosure requirements are  possible but require a series of due process steps designed to validate the  debt and offer the individual an opportunity to repay it.  In commenting on  this report, OMB officials told us that it prefers removing statutory barriers  only when appropriate privacy safeguards are in place.
section_title: Program Design Barriers
paragraphs: Benefit or entitlement programs operated by the federal government in  partnership with state or local governments or private intermediary  organizations are particularly vulnerable to improper payments.  Generally,  the federal government provides broad statutory and regulatory guidelines  as well as all or a part of the program funding, while the other entities  manage the day-to-day program operations.  As such, federal agencies must  depend on state, county, and local officials and other entities to ensure that  eligibility requirements are met and that benefit amounts are determined  correctly.  Further, these third-party organizations that manage federal  programs often have little incentive to ensure that the right amounts go to  the right individuals.
Medicaid is the primary source of health care for 34 million enrollees, or  about 12 percent of the U.S. population.  In fiscal year 2000, federal and  state Medicaid outlays totaled $207 billion—of which $119 billion  represented federal expenses.  Medicaid legislation provides states with a  variety of options for program administration.  They can elect to administer  the program at the state or county level, and they can operate fee-for- service programs, managed care programs, or some combination of the  two.  States may also elect to operate their claims-processing systems  directly or contract with private vendors.  The variety and complexity of  the state Medicaid programs provide challenges for federal oversight.    CMS assists interested states in developing methodologies and conducting  pilot studies to measure and ultimately reduce improper payments.   However, according to CMS officials, only a limited number of states are  interested in participating in these studies since they believe that  measuring improper payments could lead to penalties against states based  on their error rates.  There are, however, some promising activities.  Some  states are devoting more resources to program integrity activities than they  had previously and are obtaining more sophisticated computer analytic  capacity to review payment trends and spot improper billing.  Still others  are implementing stricter health care fraud and abuse control laws and  policies.
HUD officials also face the problem of third-party management of a federal  program and the lack of a financial benefit or other incentive to encourage  the POAs to minimize improper payments.  For example, HUD’s public  housing programs are operated by over 3,000 PHAs, which operate under  state and local laws but are funded by HUD.  Initial rent determination is  based on reported income levels.  HUD officials stated that PHAs have little  incentive to protect the interests of the government when determining the  tenant benefit amount since it is easier to collect payments from HUD than  from tenants.  Thus, PHA’s have the incentive to keep the HUD payment  portion as high as possible.
section_title: Resource Barriers
paragraphs: Each of the agencies visited processes a large number of payments and  claims and emphasizes providing benefits to needy individuals and families  as fast as possible.  At these agencies, officials noted that speed of service  issues coupled with resource constraints can result in improper payments.   For example, CMS contracts with health insurance companies to process  890 million Medicare fee-for-service claims each year and SSA processes  monthly payments to approximately 51 million individuals.  Officials at  these agencies stated that resource limitations hinder their ability to  perform oversight and monitoring functions, such as site visits and  documentation reviews, to ensure that payments are valid.
USDA’s RMA expressed similar concerns.  Private insurance companies  administer the crop insurance for RMA.  These companies are responsible  for educating the agents who sell crop insurance policies and the parties  that purchase the policies.  Improper payments can result when crop  producers misunderstand the policies or when they detect program  vulnerabilities and intentionally misuse the system.  RMA has less than two  investigators per state and over 1 million policies nationwide, making  compliance with laws, policies, and procedures difficult to monitor.  Also at  USDA, CCC officials stated that there is no time for second-party review of  the over 2,300 county offices administering the programs because staff size  has decreased while the number of programs has increased over recent  years.
Legislative, program design, and resource barriers represent serious  obstacles to an organization’s ability to effectively manage improper  payments and affect the amounts of improper payments occurring in  federal programs.  They can be significant inhibitors that departments must  face, but which they often do not have the ability to eliminate through  independent actions.  Addressing these barriers will require coordination  and cooperation between federal agencies, state and local organizations,  the administration, and the Congress.
section_title: A Collaborative Effort Is Needed for Managing Improper Payments
paragraphs: The magnitude of improper payments reported in agency financial  statements, GAO and OIG audit reports, and other documents over the past  3 years clearly demonstrates the need for a governmentwide effort to  remedy this situation.  Many individual agencies have taken measures to  address their improper payments during this period, yet the total amount  reported has remained fairly constant at around $19 billion to $20 billion.
As we noted in our report on strategies to manage improper payments, high  levels of improper payments need not and should not be an accepted cost  of running federal programs.  Identifying and implementing steps to reduce  improper payments will likely be difficult, time consuming, and costly.   While individual agencies must be responsible for their own programs and  related improper payments, the collective efforts of agency management,  the administration, and the Congress are necessary to attack improper  payments on an agency and governmentwide basis to achieve greater  results.
Each of these organizational bodies brings different perspectives and  expertise to the solutions process, which, when consolidated, can help  reduce the governmentwide improper payment problem.  Further, once  committed to a plan of action, all parties must remain steadfast supporters  of the end goals and their support must be transparent to all.
subsections: section_title: Federal Agencies
paragraphs: Within federal agencies, program, Chief Operating Officer (COO), CFO,  Chief Information Officer (CIO), and IG offices have different missions and  areas of responsibility.  They also have the common goal of ensuring that  federal programs and activities operate as effectively and efficiently as  possible.  Therefore, agencies would benefit by consolidating the program  knowledge, expertise, and experience found in these various offices when  developing and implementing controls to minimize improper payments.
COOs are appointed by agency heads.  They are responsible for providing  overall organization management to improve agency performance.  The  COO has agencywide authority and reports directly to the agency head.   COOs provide leadership such as overseeing efforts to improve financial  management, which includes reducing improper payments.
The agency CFO oversees the financial management activities relating to  agency programs and operations.  CFOs are responsible for providing  complete, reliable, and timely financial information and for developing and  maintaining integrated financial management and accounting systems  related to financial reporting and internal controls.  The information  prepared by the CFO includes internal management reports and agency  financial reports.   Agency officials responsible for managing and  controlling program operations need reliable and timely financial  information, including improper payment data, to make operating  decisions, monitor performance, and allocate resources.  CFOs may  identify and incorporate estimated improper payment disclosures into their  agencies’ annual financial reports, which could promote transparency and  help establish accountability.  In addition, CFOs may be required to provide  significant input for agency efforts in developing the improper payment  information required by the recent revisions to OMB Circular A-11.
CIOs are responsible for managing agency information technology  resources of their agencies.  In addition to developing new systems, CIOs  evaluate and monitor existing systems to determine if they meet agency  needs.  Many of the techniques for detecting improper payments, such as  data sharing and data mining, rely on computerized information systems.   Agencies’ computer-related activities must also be consistent with all  protections of the Privacy Act of 1974, as amended by the Computer  Matching and Privacy Protection Act of 1988, and other privacy statutes.   Furthermore, inadequate computer systems can have a serious impact on  agency efforts to minimize improper payments since agencies use a wide  range of computer-assisted activities to address improper payments.  These  activities range from simple comparative analysis (e.g., comparing  beneficiaries with mortality rolls) to sophisticated computer models for  interactive analysis of large amounts of information.  Furthermore,  organizations use computer-generated information to obtain, summarize,  and communicate information needed to evaluate program performance.
When performing audits and investigations, OIGs develop information on  and an understanding of agency internal control systems and detect fraud  and errors involving agency programs and activities.  OIG audits have  historically identified instances of improper payments within agency  programs.  For example, the HHS OIG identified $11.9 billion in  overpayments for services in the Medicare fee-for-service program in fiscal  year 2000 by selecting a sample of payments to providers and then  reviewing the medical records that supported these payments.  In addition,  at the Department of Labor, an OIG investigation found that a claimant  created 13 fictitious companies and submitted Unemployment Insurance  claims for 36 fictitious claimants.
Program managers are the agency’s first line of defense against improper  payments.  They manage their respective programs on a day-to-day basis  and are the principal federal points of contact for program participants,  such as state and local governments, that administer billions of dollars in  federal program and grant funds annually.  In performing their  responsibilities to ensure that their respective programs operate as  intended, they should become aware of the extent and causes of improper  payments in their programs.
Although the various offices cited above have different missions and areas  of responsibility, they must work together and contribute to the successful  management of improper payments.  Central leadership within the agency  is necessary to coordinate and consolidate the knowledge, skills, and  abilities of these diverse entities.  The COOs appear to be the logical choice  to lead this effort due to the central management role played by this  position within each federal agency.
section_title: The Administration
paragraphs: Identifying, measuring, preventing, and collecting improper payments are  continuing processes for which interagency cooperation can identify  practices and procedures that may prove effective governmentwide.
As the President’s agent for managing and implementing policy, OMB issues  guidance and oversees the administrative organization and operations of  federal agencies.  OMB’s staff draws on experience in many areas of  government to challenge the thinking of other agencies, which often cannot  see beyond their own programs.  To promote information sharing across  agencies, OMB leads and participates in interagency groups, such as the  President’s Management Council (PMC), the Chief Financial Officers  Council (CFOC), the Chief Information Officers Council (CIOC), and the  President’s Council on Integrity and Efficiency (PCIE).  These councils,  which are further described below, are good sources of best practice  information for both agencies and OMB to draw on when developing  guidance on improper payment issues.  OMB’s role in managing,  implementing, and overseeing governmentwide administrative policy, its  interagency perspective, and its leadership role on the various interagency  councils make it a key player in the government’s effort to reduce improper  payments.  The following table summarizes the agencies that are members  of each council.
Based on its charter, the PMC’s membership consists of the Deputy  Director of OMB, the Director of OPM, the COOs from the agencies listed in  table 3, and other officials.   Some of PMC’s responsibilities include  implementing the President’s Management Agenda, Fiscal Year 2002,  coordinating management-related efforts to improve government  throughout the executive branch, resolving interagency management  issues, ensuring the adoption of new management practices in agencies,  and identifying and sharing examples of best management practices.  PMC  also seeks advice and information, as appropriate, from federal agencies  and considers the management reform experiences of corporations,  nonprofit organizations, state and local governments, government  employees, public sector unions, and customers of government services.
The CFOC was established under the provisions of the CFO Act of 1990 to  improve financial management in the federal government.  Its membership  consists of the CFOs and deputy CFOs of the largest agencies along with  the senior officials of OMB and Treasury, and it is chaired by the Deputy  Director for Management, OMB.  The CFOC recently established an  Erroneous Payments Committee.  The committee convenes to discuss and  develop methods to address improper payments made by federal agencies.
The CIOC was established in July 1996 by Executive Order 13011 as a  governmentwide body to address crosscutting information technology  issues.  CIOs and deputy CIOs of the 28 largest federal agencies, two CIOs  representing the smaller federal agencies, and other OMB and advisory  members, make up the council’s membership, under the leadership of  OMB’s Deputy Director for Management.  The council was established to  improve agency practices on information technology matters such as the  design, modernization, use, sharing, and performance of agency  information resources.  It also facilitates intergovernmental approaches for  using information resources to support common operational areas such as  reducing improper payments.  For example, it could assist interagency  efforts to compare payment information to ensure that initial eligibility of  individuals for benefits is determined correctly or to determine whether  improper payments have already been made.
The PCIE primarily consists of the presidentially appointed IGs and is  chaired by the Deputy Director for Management of OMB.  Its mission  includes addressing integrity, economy, and effectiveness issues that  transcend individual government agencies.  The council conducts  interagency audits, inspections, and investigations to promote economy  and efficiency in federal programs and operations, and addresses  governmentwide issues of fraud, waste, and abuse, including improper  payments.   PCIE and CFOC have recently established a joint working  group to address improper payments.  The working group is carrying out  several tasks, including  preparing a report that defines its position on mitigating and managing   preparing a critique on the effectiveness of the differing processes used  to determine improper payment rates;   preparing a set of indicators that can be used to effectively represent the  nature and extent of the problem of improper payments;  preparing guidance to ensure sufficient oversight and monitoring, and  adequate eligibility controls and automated systems for agencies  experiencing improper payment problems; and  developing a proposal on funding the administrative costs associated  with activities related to improper payments.
Within these groups, OMB draws together operational, financial,  information technology, procurement, and other experts from across the  government to establish governmentwide goals in their areas of expertise  and to marshal the resources within individual agencies to improve  government performance.  By drawing together representatives from  these various councils, OMB can provide leadership and build on council  members’ combined knowledge, skills, and abilities and work with them to  develop systems and perform other actions to reduce improper payments.   Collectively, these organizations can achieve more than they can by  working alone.
section_title: The Congress
paragraphs: The Congress can further agency efforts to reduce improper payments by  using its appropriation, authorization, and oversight responsibility to  continue to demonstrate a leadership role and by helping to ensure that  agencies are held accountable for meeting performance goals.
The Congress reviews and determines federal financial priorities.  Through  the appropriations process, it has the opportunity to review recent  expenditures in detail.  Specifically, the Congress can use its appropriations  authority to assist agencies in setting financial priorities that support  identifying, reducing, and collecting improper payments.  For example, the  SSA’s fiscal year 2003 budget proposes $1.05 billion for ensuring that only  those who remain disabled continue receiving benefits and for assessing  whether SSI recipients continue to meet the financial eligibility  requirements.  In considering this budget request, the Congress can help set  priorities and expectations for specific program outcomes.
The Congress also reviews the actions taken and regulations formulated by  departments and agencies to make certain that program officials execute  laws according to congressional intent.  Therefore, it can determine  whether the public’s needs are adequately served by federal programs, and  thus lead corrective action through legislation or administrative changes.   For example, in the Budget of the United States Government, Fiscal Year  2003, the President proposes a legislative change to allow IRS to match the  income reported on student aid applications with tax return data.   According to the budget, this action could help reduce improper payments  in the Department of Education’s student aid programs, resulting in an  estimated $138 million savings in 2003.
Congressional oversight committees investigate alleged instances of poor  administration and fraud, waste, and abuse that could result in improper  payments in federal programs.  On July 9, 2002, the House of  Representatives passed the “Improper Payments Information Act of 2002”  (H.R. 4878).  This legislation is currently at the Senate for its consideration.   This bill requires more stringent requirements in the areas of improper  payment review and reporting than is currently required by the President’s  Management Agenda, Fiscal Year 2002, and OMB Circular A-11.   Specifically, it requires that agency heads review all programs and activities  that they administer, identify those that may be susceptible to improper  payments, estimate the annual amount of improper payments, and, where  estimated improper payments exceed the lesser of 1 percent of the total  program budget or $1,000,000 annually, report on actions the agency is  taking to reduce improper payments.   On the other hand, the President’s  Management Agenda, Fiscal Year 2002, and OMB Circular A-11 apply only  to large-dollar programs.
Further, most federal agencies and programs are under regular and  frequent reauthorizations.  As a consequence of these oversight efforts, the  Congress can abolish or curtail obsolete or ineffective programs by cutting  off or reducing funds.  Conversely, the Congress may enhance effective  programs by increasing funds or reducing legislative barriers to agency  actions to better control improper payments.
section_title: Conclusions
paragraphs: The extent of governmentwide improper payments is not known but is  likely to be billions of dollars more than the approximately $19 billion to  $20 billion reported annually in agency financial statements over the past 3  years.  Current requirements and guidance do not require or offer a  comprehensive approach to measuring improper payments, developing and  implementing corrective actions, or reporting on the results of the actions  taken.
Measuring improper payments and designing and implementing actions to  reduce or eliminate these payments are not simple tasks.  However, as  evidenced by the actions taken by USDA, HUD, HHS, and SSA, federal  agencies can perform them and these actions can result in reductions in  improper payment rates.  Determining payment error rates is important to  ensure program integrity.  In addition, the administration and the Congress  have taken important steps to address improper payments.  For example,  the President’s Management Agenda, Fiscal Year 2002, and OMB’s  revisions to Circular A-11 demonstrate the administration’s interest in and  plans to address improper payments across the government.  Both  documents call for OMB to work with agencies to establish goals and  action plans to reduce improper payments.  The agenda and the revisions  to the circular are important first steps.  The administration must now take  all necessary actions to ensure that federal agencies meet the requirements  set forth in those documents.    In addition, through legislation, the  Congress has provided resources for anti-fraud and abuse activities and  agencies with the authority to impose penalties and take actions to keep  dishonest recipients from further program participation.  Legislative  initiatives such as these are critical to governmentwide actions to reduce  improper payments and demonstrate that the Congress is willing to take  actions to address improper payments.  As stated in the Budget of the  United States Government, Year 2003, “The Administration cannot  improve the federal government’s performance and accountability on its  own.  It is a shared responsibility that must involve the Congress.”
Few agencies publicly report improper payment information such as  improper payment rates, causes, and strategies for better managing their  programs to reduce or eliminate these payments.  This is evidenced by the  fact that publicly available documents such as annual agency financial  statements and the performance plans required by GPRA contain minimal  information on the extent of improper payments, the actions taken by  agencies to address them, and the impact or results of those actions on  improper payment levels.  OMB Circular A-11 requires that 16 agencies  report improper payment information, including error rates and target  rates for improvement, but that information is not publicly reported and,  therefore, the Congress, the public, and others with oversight and  monitoring interests cannot use this information to hold agencies  accountable for achieving target rates or otherwise implementing  specifically planned actions.
On a case-by-case basis, agencies’ abilities to control improper payments  can be hindered by legislative, program design, and resource barriers.   These barriers can hamper the design and implementation of actions to  prevent, detect, and mitigate improper payments.  Reducing or eliminating  some of these barriers may not be feasible without legislative or program  design changes that could significantly alter federal program missions or  the methods used to achieve the program goals and objectives established  by the Congress and the administration.  Yet it must be recognized that,  barring actions in these areas, these barriers will continue to restrict an  agency’s ability to address all of its improper payment problems.
As we noted in our report on strategies for managing improper payments,  significant progress in minimizing improper payments can only occur as a  collaborative governmentwide effort.  The government’s reduction of  improper payments will only be achieved as a result of the design,  development, and implementation of better internal controls.  These efforts  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.  Agency management,  the administration, and the Congress must work together to identify and  implement effective controls to reduce improper payments.  The  mechanisms already exist for this to happen.  Agency experts in financial  matters, information systems, and general management issues;  governmentwide councils under OMB’s direction; and the Congress each  provide valuable resources that could be useful in addressing the  government’s improper payment problems.  Individually, each can have an  impact; collectively, they can achieve more by sharing experiences and  practices and working together to address improper payment problems.
section_title: Recommendations for Executive Action
subsections: section_title: CFO Act Agencies
paragraphs: 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.  These responsibilities should include, but not be limited to   developing detailed action plans to determine the nature and extent of  possible improper payments for all agency programs and/or activities  spending federal funds;   identifying cost-effective control activities to address the identified risk   assigning responsibility for specific areas of improper payment-related  activities to appropriate program or activity officials;   establishing improper payment goals or targets and measuring  performance against those goals to determine progress made and areas  needing additional actions;    developing procedures for working with OMB and the Congress to  address barriers encountered that inhibit actions to reduce improper  payments; and   periodically reporting, 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.
section_title: Office of Management and Budget
paragraphs: We recommend that the Director of OMB take the following actions.
Develop, as a result of interactions with agency officials and through  participation on interagency groups, information on lessons learned and  best practices that federal agencies have used to address their improper  payment problems.  Once developed, OMB should issue specific  guidance, as we have previously recommended, to agencies that  provides a comprehensive approach to reducing improper payments,  including providing the transparency in reporting that is crucial to  addressing this problem.
Work with agency officials to provide all reasonable assistance in  implementing the corrective action plans developed to reduce improper  payments.
Work with agency officials to identify and help eliminate or reduce, to  the extent practicable, the barriers that restrict agency actions to reduce  improper payments.  OMB should work with the agencies in clearly  defining and evaluating these barriers and in assisting agencies in  eliminating them.
Work with the Congress to identify and develop actions to reduce or  eliminate, to the extent practical, barriers that hinder agency actions to  reduce improper payments.
Require federal agencies to report the information called for by OMB  Circular A-11 on improper payments in a specific, publicly available  document such as annual performance reports, annual agency financial  statements, or other annual report.  All agencies should report this  information in the same document to facilitate oversight and monitoring  by interested parties including the Congress and the public.
section_title: Matters for Congressional Consideration
paragraphs: The Congress should consider using available improper payment  information to engage agencies in discussions about progress that is being  made, additional steps planned, and actions the Congress can take to help  reduce improper payments.  When, based on these discussions, the  congressional actions necessary to eliminate barriers to agency corrective  action are identified, the Congress should consider taking the legislative  and oversight actions necessary to provide the agencies and the  administration with tools needed to reduce improper payments, both at the  agency and governmentwide levels.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on this report, HHS, HUD, SSA, and OMB noted that they  had actions in progress or that were completed that addressed our  recommendations or that agency units supported the essence of the topics  covered by the report.  Each of these organizations and USDA also  provided technical comments and other editorial suggestions for our  consideration.  We considered all comments and made changes to the  report, as appropriate.  HHS, HUD, and SSA provided written comments to  our draft report.  USDA provided comments via e-mail and OMB provided  its comments orally.  (The written comments from HHS, HUD, and SSA are  reprinted in appendixes IV through VI, respectively.)
In oral comments, OMB generally agreed with the report’s findings.  OMB  also stated that it believes its current focus on improper payments will  address the majority of the concerns the report raises.  OMB considers the  recommendations in the report to already be in place, since the President  has made addressing and reducing improper payments a priority in his  management agenda and the Chief Financial Officers Council has  established an Erroneous Payments Committee to address the problem.   The President’s focus on improper payments, OMB’s leadership in this area,  and the administration’s efforts to date are positive steps to ultimately  addressing the serious problems in this area.  At the same time, agencies  still face significant challenges in identifying and measuring their improper  payments, setting performance goals, implementing corrective actions, and  reporting the results against the goals.  Fully implementing our  recommendations will be important to addressing the underlying internal  control problems agencies face in reducing improper payments.
In written comments (reprinted in app. IV) HHS stated that CMS is already  implementing the recommendations of the report and is in the process of  designating a senior official to oversee the identification, correction, and  reporting of improper payments, as we recommended.  Furthermore, CMS  has undertaken a number of efforts to better manage all of its financial  management systems.  The comments also suggested technical revisions  and clarifications, which we considered and included in the report, where  appropriate.
HUD generally agreed with the report’s conclusions and recommendations.   Its comments (reprinted in app. V) stated that strengthening management  controls and reducing improper payments are priorities for HUD’s  administration.  HUD further indicated, that, as acknowledged in the draft  report, it has already initiated corrective actions to strengthen management  controls and reduce improper payments in the rental housing assistance  program area.  Its comments also identified several revisions and technical  or editorial issues.  We considered these issues and included them in the  report, as appropriate.
SSA’s comments (reprinted in app. VI) stated that each of its components,  directly or indirectly, supports the essence of the topic of our report— reducing improper payments.  Its efforts involve collaboration between  SSA components, data match partners, OMB, and the Congress.  The  comments also noted that the Deputy Commissioner of SSA (Chief  Operating Officer) has overall responsibility for addressing the  responsibilities outlined in our recommendations to the federal agencies.   They also provided information on the improper payment efforts of SSA  units other than those included in our review and provided suggested  revisions and clarifications to the report.  We considered these suggestions  and included them in the report, as appropriate.
USDA responded via e-mail.  The comments provided several editorial  and/or clarification points which we considered and included in the report,  as appropriate.
We are sending copies of this report to the Chairman, Senate Committee on  Governmental Affairs, and the Chairmen and Ranking Minority Members of  the House Committee on Government Reform, Senate Committee on the  Budget, and House Committee on the Budget.  We will also send copies to  the Director of the Office of Management and Budget and the heads of the  CFO agencies and components required to prepare financial statements  and their respective agency CFOs and OIGs.  Copies will also be made  available to others upon request.  In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
This report was prepared under the direction of Sally E. Thompson,  Director, Financial Management and Assurance, who may be reached at  (202) 512-9450 or by e-mail at thompsons@gao.gov if you or your staff have  any questions.  Staff contacts and other key contributors to this report are  listed in appendix VII.
section_title: Programs for Which Erroneous Payment Information Is Required per OMB Circular A-11
paragraphs: Department of Housing and Urban Development Low Income Public Housing Section 8 Tenant Based Section 8 Project Based Community Development Block Grants (Entitlement Grants, States/Small Cities)
section_title: Federal Agencies and Components Required to Prepare Financial Statements under the CFO Act and OMB Guidance
section_title: GAO Products Addressing Agency Key Outcomes and Major Management Challenges
paragraphs: The following lists the GAO products that addressed the status of CFO Act  agency actions to achieve key outcomes and address major management  challenges.
U.S. General Accounting Office.  U.S. Agency for International  Development: Status of Achieving Key Outcomes and Addressing Major  Management Challenges.  GAO-01-721.  Washington, D.C.: August 17, 2001.
U.S. General Accounting Office.  Department of Agriculture: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-761.  Washington, D.C.: August 23, 2001.
U.S. General Accounting Office.  Department of Commerce: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-793.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Department of Defense: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-783.  Washington, D.C.: June 25, 2001.
U.S. General Accounting Office.  Department of Education: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-827.  Washington, D.C.: June 29, 2001.
U.S. General Accounting Office. Department of Energy: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.  GAO-01-823. Washington, D.C.: June 29, 2001.
U.S. General Accounting Office. Environmental Protection Agency: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges. GAO-01-774.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Federal Emergency Management Agency:  Status of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-832.  Washington, D.C.: July 9, 2001.
U.S. General Accounting Office.  General Services Administration: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-931.  Washington, D.C.: August 3, 2001.
U.S. General Accounting Office.  Health and Human Services: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-748.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Department of Housing and Urban  Development: Status of Achieving Key Outcomes and Addressing Major  Management Challenges.  GAO-01-833.  Washington, D.C.: July 6, 2001.
U.S. General Accounting Office.  Department of the Interior: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-759.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Department of Justice: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-729.  Washington, D.C.: June 26, 2001.
U.S. General Accounting Office.  Department of Labor: Status of Achieving  Key Outcomes and Addressing Major Management Challenges.  GAO-01- 779.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  NASA: Status of Achieving Key Outcomes  and Addressing Major Management Challenges.  GAO-01-868.   Washington, D.C.: July 31, 2001.
U.S. General Accounting Office.  National Science Foundation: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-758.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Nuclear Regulatory Commission: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-760.  Washington, D.C.: June 29, 2001.
U.S. General Accounting Office.  Office of Personnel Management: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-884.  Washington, D.C.: July 9, 2001.
U.S. General Accounting Office.  Small Business Administration: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-792.  Washington, D.C.: June 22, 2001.
U.S. General Accounting Office.  Social Security Administration: Status  of Achieving Key Outcomes and Addressing Major Management  Challenges.  GAO-01-778.  Washington, D.C.: June 15, 2001.
U.S. General Accounting Office.  Department of State: Status of Achieving  Key Outcomes and Addressing Major Management Challenges.  GAO-02- 42.  Washington, D.C.: December 7, 2001.
U.S. General Accounting Office.  Department of Transportation: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-834.  Washington, D.C.: June 22, 2001.
U.S. General Accounting Office.  Department of the Treasury: Status of  Achieving Key Outcomes and Addressing Major Management Challenges.   GAO-01-712.  Washington, D.C. June 15, 2001.
U.S. General Accounting Office.  Veterans Affairs: Status of Achieving Key  Outcomes and Addressing Major Management Challenges.  GAO-01-752.   Washington, D.C. June 15, 2001.
section_title: Comments from the Department of Health and Human Services
section_title: Comments from the Department of Housing and Urban Development
section_title: Comments from the Social Security Administration
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, the following individuals made  important contributions to this report: David Elder, Bonnie McEwan, and  Tarunkant Mithani.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the investigative arm of Congress, exists to  support Congress in meeting its constitutional responsibilities and to help improve  the performance and accountability of the federal government for the American  people. GAO examines the use of public funds; evaluates federal programs and  policies; and provides analyses, recommendations, and other assistance to help  Congress make informed oversight, policy, and funding decisions. GAO’s  commitment to good government is reflected in its core values of accountability,  integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
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subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs