Improper Payments: CFO Act Agencies Need to Improve Efforts to Address Compliance Issues
Released: 2016-07-11T00:00:00

Letter

Background

In November 2002, Congress passed and the President signed the Improper Payments Information Act of 2002 (IPIA), which was later amended by IPERA and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA). IPIA, as amended, requires federal executive branch agencies to (1) review all programs and activities and identify those that may be susceptible to significant improper payments, (2) estimate the annual amount of improper payments for susceptible programs and activities, (3) implement actions to reduce improper payments and set reduction targets, and (4) report on the results of addressing the foregoing requirements.

Section 3 of IPERA also calls for executive agencies’ IGs to annually determine and report on whether their respective agencies complied with the following six criteria: publish a report in the form and content required by OMB—typically an AFR or a PAR—for the most recent fiscal year, and post that report on the agency website; conduct a program-specific risk assessment for each program or activity that conforms with IPIA as amended; publish improper payment estimates for all programs and activities deemed susceptible to significant improper payments under the agency’s risk assessment; publish corrective action plans for those programs and activities assessed to be at risk for significant improper payments; publish and meet annual reduction targets for all programs and activities assessed to be at risk for significant improper payments; and report a gross improper payment rate of less than 10 percent for each program and activity for which an improper payment estimate was published.

OMB plays a key role in overseeing the implementation of improper payments legislation. OMB is directed by statute to provide guidance to federal agencies on estimating, reporting, reducing, and recovering improper payments, and has also issued guidance to agencies on improving improper payment estimates as required by IPERIA.

In October 2014, OMB issued new guidance on improper payments that changed certain requirements for fiscal year 2014 reporting, such as extending the reporting period for IG IPERA reports and also eliminating an additional criterion for IGs to assess whether agencies have reported on efforts to recapture improper payments. Per this guidance, an agency’s IG is required to submit a report on its assessment of the agency’s compliance with the criteria listed in IPERA, as applicable, to the head of the agency, the Senate Committee on Homeland Security and Governmental Affairs, the House Committee on Oversight and Government Reform, the Comptroller General, and the OMB Controller within 180 days of the publication of the agency’s annual PAR or AFR.

IPERA states that if an IG reports that an agency is not in compliance with any of the IPERA criteria for 1 fiscal year, the agency head must submit a plan to appropriate congressional committees and OMB describing the actions that the agency will take to come into compliance. If an agency is found noncompliant with respect to the same program for 2 consecutive years, IPERA directs OMB to review the program and determine if additional funding would help bring the program into compliance and, if so, directs the agency to use any available reprogramming or transfer authority, or request further reprogramming or transfer authority from Congress, to aid in the program’s remediation efforts. For programs determined to be noncompliant for more than 3 consecutive years, the agency is required by IPERA to submit to Congress within 30 days of the IG’s report either (1) a reauthorization proposal for the program or (2) proposed statutory changes necessary to bring the program or activity into compliance. In addition, OMB’s guidance stipulates that OMB may require agencies that are noncompliant to complete additional requirements. For example, OMB could require that the agency re-evaluate or re-prioritize its corrective actions, intensify and expand existing corrective action plans, or implement or pilot new tools and methods to prevent improper payments.

OMB is required to annually identify a list of high-priority federal programs in need of greater oversight and review. In general, OMB has implemented this requirement by designating high-priority programs based on a threshold of $750 million in estimated improper payments for a given year. OMB guidance directs IGs at executive branch agencies with high-priority programs, as part of their annual compliance reviews, to (1) evaluate the agency’s assessment of risk level and quality of the improper payment methodology for estimation; (2) determine the extent of oversight needed; and (3) provide the agency with recommendations, as necessary, for improving its methodology, internal controls, or level of program access and participation.

In addition to the laws and guidance noted above, the Disaster Relief Appropriations Act, 2013 requires that all programs receiving funds appropriated by that act be deemed susceptible to significant improper payments, which consequently requires the agencies responsible for these programs to estimate improper payments, implement corrective actions, and report on their results for these programs.

IGs Reported a Decrease in Compliance with IPERA Criteria Caused Primarily by Agencies’ Failure to Meet Improper Payment Reduction Targets

For fiscal year 2014, 15 of the 24 CFO Act agency IGs reported their agencies as noncompliant with one or more of the IPERA Section 3 criteria. This is the largest number of agencies deemed noncompliant under IPERA since IGs began reporting on their agencies’ compliance with these criteria in fiscal year 2011. Further, this represents an increase of 4 agencies reported to be noncompliant compared to fiscal year 2013.

A total of 38 programs accounting for a reported $100.6 billion in estimated improper payments were responsible for identified instances of noncompliance in fiscal year 2014. Figure 1 summarizes agencies’ reported compliance by IPERA criterion for fiscal year 2014.

Based on our review of IG IPERA reports for fiscal year 2014, we found that the causes for noncompliance most commonly reported were related to the IPERA provisions regarding publishing and meeting planned improper payment reduction targets and reporting improper payment error rates below 10 percent. Specifically, 12 of the 24 CFO Act agencies did not meet one or both of these criteria. These results are similar to those reported by the IGs in fiscal year 2013. The reports also showed that most agencies complied with other IPERA criteria, such as publishing required information in a PAR or AFR and publishing corrective action plans for relevant programs. Table 1 displays each agency’s compliance status for each IPERA criterion, as reported by its IG, for fiscal year 2014.

Eleven Agencies Did Not Meet or Publish Improper Payment Reduction Targets for 29 Programs

The most common reason for reported noncompliance under IPERA in fiscal year 2014, as in fiscal year 2013, was the failure to publish and meet annual improper payment reduction targets. Eleven agencies did not meet this criterion in fiscal year 2014. Specifically, 10 agencies published reduction targets but failed to meet them, and 1 agency—the Department of Labor (DOL)—failed to comply because it did not publish an improper payment reduction target rate for its Unemployment Insurance benefit program. DOL IG reported that the agency did not publish an annual reduction target for this program because DOL was awaiting additional guidance and consultation regarding estimation methodology with OMB. Other IGs reported that factors affecting compliance with this criterion included challenges in maintaining adequate and complete supporting documentation and conducting adequate reviews. For example, IGs at the U.S. Department of Agriculture (USDA), the Department of Health and Human Services (HHS), and the General Services Administration (GSA) reported that administrative errors, documentation errors, or both prevented the agencies from meeting their reduction targets.

USDA, HHS, the Department of Defense (DOD), and the Department of Transportation (DOT) IGs reported that factors such as mistakes in completing vouchers, inadequate reviews before payment, lack of grantee awareness of documentation requirements, and difficulty complying with new requirements in legislation contributed to these agencies not meeting their reduction targets. HHS reported that new legislative requirements for its Medicare Fee-for-Service and Medicaid programs contributed to the programs’ noncompliance. The USDA IG also reported that a flawed sampling method for USDA’s Federal Crop Insurance Corporation Program Fund resulted in its failure to meet its reduction target because one program component reported a 27 percent error rate. Anomalies in samples for the Department of Veterans Affairs (VA) Veterans Health Administration’s Civilian Health and Medical Program were considered by the agency to be the cause for noncompliance in meeting reduction targets because such sampling issues disproportionately skewed improper payment error rates upwards.

IG reports also indicated that an agency’s failure to meet reduction targets may not necessarily suggest that the agency was not adequately monitoring its programs’ improper payments. For example, the VA, Small Business Administration (SBA), and USDA IGs reported increases in improper payment error rates because of factors such as improved sampling and emphasis on training, which enhanced their agencies’ ability to detect improper payments. Six of the 11 agencies whose IGs reported noncompliance with the criterion to publish or meet reduction targets have no reported noncompliance with the other IPERA criteria.

Five Agencies Reported Improper Payment Error Rates Exceeding 10 Percent for 10 Programs

The second most common reason for noncompliance under IPERA, as reported by IGs for fiscal year 2014, was agencies’ inability to report improper payment error rates for all programs below 10 percent—a threshold which five CFO Act agencies did not meet for at least one of their programs or activities. Of the 119 programs at CFO Act agencies reporting $124.5 billion of estimated improper payments for fiscal year 2014, a total of 10 programs reported improper payment error rates of greater than 10 percent. Had these programs decreased their reported error rates to 10 percent, the government-wide improper payment estimate would have been $23.1 billion, or 18.6 percent, lower. This potential reduction is largely accounted for by 2 programs—the Department of the Treasury’s (Treasury) Earned Income Tax Credit (EITC) and HHS’s Medicare Fee-for-Service. If EITC and Fee-for-Service reported error rates at the 10 percent threshold, the fiscal year 2014 government-wide improper payment estimate would be lowered by $11.18 billion and $9.74 billion, respectively.

Agencies’ IGs reported that factors affecting compliance with this criterion included challenges in complying with documentation requirements and administrative and documentation errors. For example, USDA and HHS IGs reported that administrative and documentation errors in processing payments prevented these agencies from reporting improper payment error rates below the 10 percent threshold. USDA IG also reported that additional payment testing criteria increased the error rate, and HHS IG reported that the provider community experienced issues in complying with certain documentation requirements for some services. Table 2 summarizes agency programs that reported error rates above the 10 percent threshold for fiscal year 2014.

Although the 10 percent threshold was not achieved by 10 programs, some programs in this category still reported improvements in fiscal year 2014. For example, the SBA IG reported that even with the agency’s Disaster Assistance Loans program’s error rate exceeding the 10 percent threshold, the agency reduced the program’s error rate from 18.4 percent in fiscal year 2013 to 12.0 percent in fiscal year 2014. Reported factors that helped improve SBA’s error rate included multilayer payment reviews and improved staff training.

From Fiscal Year 2011 to Fiscal Year 2014, IGs Reported Some Improvements but Ultimately Reported a Decline in the Total Number of Agencies Compliant with IPERA Criteria

According to the fiscal year 2014 IG IPERA reports, overall agency compliance with IPERA criteria has reached its lowest point since IGs began annual reporting. Specifically, in fiscal year 2011—the first year of reporting—14 agencies did not comply with at least one of the IPERA criteria. While the number of agencies reported noncompliant actually improved in fiscal years 2012 and 2013, decreasing to 12 and 11 agencies, respectively, IGs reported an increase in agency noncompliance to 15 agencies in fiscal year 2014. Consequently, IGs reported the greatest number of noncompliant agencies in fiscal year 2014. Figure 2 summarizes the number of CFO Act agencies noncompliant under IPERA each year since fiscal year 2011, as reported by their IGs, and table 3 details individual agencies’ compliance with IPERA criteria, as reported by their IGs, for fiscal years 2011 through 2014.

IG reports showed areas where agency compliance has remained a challenge throughout the years. For example, noncompliance with the criteria to publish and meet annual reduction targets has been at the same level over the 4 years since IPERA was implemented; 11 agencies did not comply with this criterion in each year. Some programs, such as USDA’s School Breakfast and Special Supplemental Nutrition Program for Women, Infants, and Children programs, have not met their reduction targets for each of the last 4 years. Treasury’s EITC program has also reported error rates among the highest in the government, ranging from 22.7 to 27.2 percent since fiscal year 2011. The number of agencies that have been noncompliant with the 10 percent criterion has been 5 or more for each fiscal year.

Another criterion with which agency noncompliance increased in fiscal year 2014 was the requirement to publish estimates for all programs deemed susceptible to significant improper payments. Specifically, 4 agencies’ IGs determined that their agencies did not comply with this requirement—Department of the Interior (DOI), VA, USDA, and HHS. The first three IGs determined that certain programs did not have complete, accurate, or reliable improper payment estimates for at least one program, while HHS was unable to publish an estimate for its Temporary Assistance for Needy Families program (TANF) for the fourth year in a row, reportedly because of statutory limitations that prevent HHS from requiring states that administer the program to participate in improper payment measurement.

While the increase in agency noncompliance with some criteria contributed to the increasing number of noncompliant agencies reported, there were also improvements in compliance with other criteria. For example, in fiscal year 2011, five IGs reported that their agencies did not publish corrective action plans; in fiscal year 2014, only one IG—HHS— reported that its agency did not publish necessary corrective action plans. IGs also noted further improvements in the criteria for agencies to conduct risk assessments for all programs susceptible to significant improper payments. In fiscal year 2011, five IGs reported that their agencies did not fulfill the requirement to conduct program-specific risk assessments; in fiscal year 2014, only three IGs reported that their agencies were noncompliant. Figure 3 shows cumulative CFO Act agency compliance by IPERA criterion for fiscal years 2011 through 2014.

Eighteen Programs Were Noncompliant with IPERA Criteria for 3 Consecutive Years or More, as of Fiscal Year 2014, and Some Agencies Did Not Submit Information Required to Address Consecutive Noncompliance

IGs at nine CFO Act agencies determined that 18 programs were noncompliant with IPERA criteria for at least 3 consecutive years as of fiscal year 2014. When a program is reported as noncompliant by its IG for 3 or more consecutive years, the responsible agency is required to submit proposals to Congress within 30 days to reauthorize the program or change the statute that established it. However, we found that only three of the nine agencies submitted the required information to Congress in response to 3 or more years of consecutive noncompliance in fiscal year 2014.

Eighteen Programs at Nine Agencies Were Noncompliant with IPERA Criteria for 3 Consecutive Years or More, as of Fiscal Year 2014

As of fiscal year 2014, IGs reported that there were a total of 38 programs determined to be noncompliant: 17 programs were noncompliant for 1 year, 3 programs noncompliant for 2 consecutive years, and 18 programs were noncompliant for 3 consecutive years or more. Table 4 lists the CFO Act agency programs determined by their agencies’ IGs to be noncompliant with IPERA criteria for 3 or more consecutive years, as of fiscal year 2014.

Three Agencies Submitted Information Required to Address Consecutive Years’ Noncompliance under IPERA in Fiscal Year 2014, but Others Did Not

As previously discussed, IPERA requires agencies that have been deemed noncompliant with IPERA criteria for consecutive years to take certain actions. If a program is found to be noncompliant by an agency’s IG for more than 3 consecutive years with respect to the same program or programs, the agency must submit to Congress within 30 days of such determination a reauthorization proposal for each noncompliant program or any proposed statutory changes it deems necessary to bring the program into compliance. OMB guidance instructs agencies with “three or more” years of reported noncompliance to submit this information, thereby including those with exactly 3 years of reported consecutive noncompliance. Additionally, OMB guidance states that agencies should share these proposals or plans with their respective IGs.

Overall, we found that some agencies complied with these requirements with varying degrees of detail, while others did not submit the required information to Congress. These are detailed below.

Three Agencies Submitted Proposals to Congress to Reauthorize or Change the Statutes of Consistently Noncompliant Programs

Three agencies fulfilled the requirement in IPERA and the related OMB guidance by submitting proposals for reauthorization or statutory change to Congress, although they did not always submit them within the required time frames. For example, when the Treasury IG reported in its fiscal year 2013 report that the Internal Revenue Service’s EITC program had been noncompliant with IPERA criteria each year since 2011 because it reported error rates exceeding 10 percent, the agency submitted proposals to Congress in response. However, this action was not taken until August 2014, surpassing the 30-day period for submission that began in April 2014 when the Treasury IG issued its compliance determination in its report. Although the agency fulfilled the requirement in IPERA to submit legislative proposals to Congress, the Treasury IG further recommended that the agency submit a more comprehensive plan to Congress, including corrective actions to be implemented to correct noncompliance in the EITC program. This plan was submitted to Congress in June 2015.

DOL’s Unemployment Insurance program had first reached 3 consecutive years of noncompliance in fiscal year 2013 and was again found to be noncompliant in fiscal year 2014. After 3 consecutive years of noncompliance for the program as of fiscal year 2013, DOL officials stated that they began preparing a legislative package; however, this package was never transmitted to Congress. When the agency’s Unemployment Insurance program was deemed noncompliant for 4 consecutive years as of fiscal year 2014, DOL produced legislative proposals and sent a letter to Congress, although its submissions also surpassed the 30-day deadline following the IG’s report. Specifically, DOL submitted a letter to Congress regarding Unemployment Insurance improper payments on September 30, 2015, and submitted legislative proposals to OMB in November 2015, which were later included in the President’s Budget for fiscal year 2017 that was transmitted to Congress.

HHS accounted for two programs that were noncompliant with IPERA criteria for 3 or more consecutive years as of fiscal year 2014: the Medicare Fee-for-Service program and TANF. HHS submitted letters to Congress containing legislative proposals and information on corrective actions for both programs, and also stated that it is working with OMB to develop an alternative approach for devising an improper payment estimate for TANF, which has been unable to report an estimate in any year because of statutory limitations that prevent HHS from requiring states that administer the program to participate in improper payment measurement.

Four Agencies Did Not Submit Proposals to Congress Because They Concluded That Reauthorization or Legislative Changes Were Not Necessary

Although IPERA and OMB guidance require agencies to submit proposals for reauthorization or statutory changes after 3 consecutive years of a program’s reported noncompliance with the act’s criteria, four agencies did not do so because they concluded that reauthorization or legislative changes were not necessary. We were told by certain agency officials that implementing corrective actions at the agency level is the only way to bring their programs into compliance under IPERA because legislative provisions, in some cases, are not responsible for agencies failing to meet the IPERA criteria. Additionally, we were told that reauthorization of a program is not always practical or necessary for every program.

For example, USDA did not submit proposals to Congress for some of its noncompliant programs because, according to agency officials, the time frame established by statute for reauthorization did not coincide with the requirement in IPERA to submit such proposals. For fiscal year 2014, the USDA IG reported five programs at USDA as noncompliant with IPERA criteria for 4 consecutive years. The IG recommended in its fiscal year 2014 report that three of these programs administered by USDA’s Food and Nutrition Service (FNS)—the Child and Adult Care Food Program, the National School Lunch Program, and the School Breakfast Program— submit proposals for legislative changes to Congress. The IG had previously made this recommendation in its fiscal year 2013 report after these programs were noncompliant for 3 consecutive years. Despite USDA’s response at the time that it would issue guidance to its agencies to comply with this recommendation, no proposals were submitted to Congress. In its fiscal year 2014 response, FNS noted that its opportunities to suggest reauthorization proposals for the National School Lunch and School Breakfast programs are limited to times of reauthorization, which occur every 5 to 6 years and may not coincide with the timing of the IPERA requirement. FNS stated that it submits budget proposals each year as part of USDA’s annual budget process, but some of these proposals for fiscal year 2016 related to funding aimed at reducing improper payments were not included in USDA’s final budget. Further, FNS did not submit a reauthorization proposal for its Special Supplemental Nutrition Program for Women, Infants, and Children in response to 3 and 4 years of consecutive noncompliance in fiscal years 2013 and 2014, respectively, though the agency stated in its official response to the IG’s fiscal year 2014 IPERA compliance report that it was involved in reauthorization discussions with USDA.

USDA’s fifth program reported as noncompliant for 3 consecutive years in fiscal year 2014—the Direct and Counter-Cyclical Payments program— was repealed by the February 2014 enactment of the Agricultural Act of 2014. Because this program is no longer authorized to receive appropriations, the need for a reauthorization proposal no longer exists.

SBA officials stated that the agency also did not submit proposals for reauthorization or statutory changes to Congress because its noncompliant programs—7(a) Guaranty Loan Approvals and Disaster Assistance Loans—are permanently authorized and thus do not require reauthorization. Because of this, SBA officials told us, submitting reauthorization proposals to Congress would be inapplicable and unnecessary. The agency also noted that statutory changes were not proposed for these programs because they would not reduce their improper payment error rates or address the root causes for improper payments. SBA officials stated that they consider corrective actions at the agency to be the most appropriate solution to achieving IPERA compliance in future years. The SBA IG further indicated that corrective actions appeared to be effective at reducing improper payments for the Disaster Assistance Loans program, resulting in the IG changing the status of corrective actions to address its management challenge related to the Disaster Assistance Loans program in fiscal year 2015 to “implemented.”

Officials at DOT stated that the agency did not submit proposals for reauthorization or statutory changes because such actions would not help the agency achieve compliance with IPERA criteria for its Federal Transit Administration Formula Grants program, which failed to meet its improper payment reduction target for 3 consecutive years. The agency noted that in its 2014 agency financial report, it did not identify any statutory or regulatory barriers that would prevent the agency from implementing corrective actions to reduce improper payments. Submitting a proposal for reauthorization or statutory changes to the Formula Grants program would appear to contradict this assessment and was unnecessary, according to DOT.

DOD did not submit proposals for reauthorization or statutory changes to Congress in response to 3 consecutive years of noncompliance in its Travel Pay program as of fiscal year 2014. In its response to the IG’s fiscal year 2014 IPERA compliance report, DOD officials stated that the agency’s root causes of noncompliance are covered by existing internal controls and regulations that management would ensure were implemented and enforced. In December 2015, DOD issued an internal memorandum addressing the need for internal controls and training intended to reduce improper payments within the Travel Pay program, rather than submitting proposals to Congress.

Although officials at some of the agencies maintain that reauthorization or statutory change will not achieve compliance under IPERA, by not reporting to Congress as required when an agency does not comply for 3 consecutive years and informing Congress of the agency’s challenges with achieving compliance under IPERA, Congress is limited in its ability to monitor the law’s implementation and ensure that its intent is being fulfilled. Standards for Internal Control in the Federal Government also states that management should ensure an adequate means of communicating information that may have a significant impact on the agency to external stakeholders.

Two Agencies Did Not Submit Proposals to Congress Because They Were Not Initially Reported by Their IGs as Noncompliant for 3 Consecutive Years

Two agencies—the Department of Homeland Security (DHS) and the Social Security Administration (SSA)—were not initially required to submit proposals for reauthorization or statutory changes to Congress in response to fiscal year 2014 noncompliance because their respective IGs initially did not report the agencies as noncompliant for 3 consecutive years. Because the legal requirement to report to Congress is triggered by the IG reporting noncompliance, rather than the noncompliance itself, these two agencies are not subject to the congressional reporting requirement until such time as each IG updates its determination. These instances are detailed later in this report.

Certain IGs Did Not Fully Adhere to Statutory Requirements and OMB Guidance for IPERA Reporting for Fiscal Year 2014

We found that in conducting their IPERA compliance reviews for fiscal year 2014, certain IGs did not consistently adhere to the requirements contained in IPERA and other applicable laws, such as the Disaster Relief Appropriations Act, 2013 as well as the guidance provided by OMB to clarify IPERA criteria and establish reporting requirements for OMB- designated high-priority programs. Specifically, we found, for fiscal year 2014, that the IGs did not always determine compliance as required by IPERA, summarize agency compliance as directed by OMB guidance, assess their agencies’ high-priority programs in accordance with OMB guidance, and report determinations of compliance for disaster relief programs that reported improper payment estimates.

Five IGs Did Not Summarize Agency Compliance as Outlined in OMB Guidance

Based on our review of IG IPERA reports, we noted that five IGs did not fully adhere to OMB’s guidance for conducting their IPERA compliance reviews. As previously noted, OMB Circular A-123, Appendix C, contains guidance for IGs to use in carrying out their reviews of agencies’ improper payment information as required by IPERA. Specifically, this guidance directs each agency IG’s IPERA report to include a high-level summary toward the beginning of the report that (1) indicates which of the six specific criteria contained in IPERA the agency did and did not comply with and (2) clearly states the agency’s compliance status overall. In accordance with IPERA, OMB’s guidance states that if an agency does not meet one or more of the six IPERA criteria for any one or more of its programs, it is considered noncompliant overall under IPERA. IPERA does not support a finding of partial compliance by an IG. Table 5 lists the instances in which IGs did not adhere to OMB’s implementing guidance for high-level summaries in their fiscal year 2014 reports.

We found that 4 of the 24 IGs did not specify in their reports which of the six IPERA criteria their agencies complied with and did not. Specifically, IGs at DOI, the Department of State (State), GSA, and SSA did not fulfill this requirement. For example, the GSA IG noted that GSA reported inaccuracies in its fiscal year 2014 AFR information and did not complete corrective actions from the previous year’s review, but it was unclear if these instances resulted in determinations of compliance or noncompliance with the IPERA criteria for publishing a PAR/AFR in accordance with OMB guidance or publishing corrective actions.

We also found that IGs at 3 of the 24 CFO Act Agencies—DOI, State, and DOT—did not clearly state whether their agencies were overall compliant or noncompliant with the IPERA criteria. Specifically, DOI IG’s report failed to include an explicit statement of overall agency-level compliance, while the language in the IG reports regarding agency-level compliance under IPERA at State and DOT was unclear. Although the State IG’s report concluded that State “was in substantial compliance with improper payment requirements,” we learned from OMB officials that the State IG determined that the agency was compliant under IPERA. The DOT IG’s report statement was also inconclusive, stating that DOT’s improper payment reporting “generally complies with IPERA requirements.” However, this statement is misleading because the IG also reported that the agency did not comply with one of the IPERA criteria because two DOT programs failed to meet their improper payment reduction targets for fiscal year 2014. As noted above, IPERA defines compliance as including all six of the listed criteria, and OMB guidance requires an IG to state the agency’s overall compliance status in its report.

OMB guidance states that IG compliance reviews are an important component of the accountability of improper payment efforts. Additionally, Standards for Internal Control in the Federal Government provides that timely, relevant, and reliable communications and information are needed for an agency to achieve all of its objectives.

Not adhering to guidance for preparing IPERA compliance reports by failing to report concrete compliance determinations reduces the comparability and consistency of such reports and therefore the reports’ usefulness to the agency. Further, when an IG does not adhere to OMB guidance and statutory requirements by making (1) unclear statements on overall compliance or (2) positive statements of compliance when an agency meets the majority, but not all, of the IPERA criteria, agency officials may incorrectly conclude their agency’s compliance status and therefore delay taking corrective actions. For example, as noted above, we discovered that because the DOI IG did not clearly state that its agency was noncompliant under IPERA, DOI officials were unaware of their agency’s noncompliant status in fiscal year 2014 until later. Such instances could delay the implementation of corrective actions to remediate instances of noncompliance, contributing to continued noncompliance the following year.

Two IGs Did Not Initially Report Their Agencies as Noncompliant for 3 Consecutive Years though the Agencies Had Programs That Failed to Meet Reduction Targets

As noted above, two agencies—DHS and SSA—were not initially required to submit proposals for reauthorization or statutory changes to Congress in response to 3 or more consecutive years of noncompliance as of fiscal year 2014 because their respective IGs initially did not report the agencies as noncompliant for 3 consecutive years. However, in response to our audit findings that identified instances of noncompliance the IGs had not previously reported, one of the IGs subsequently determined that its agency had been noncompliant for 3 or more consecutive years. Until the IG revises its determination, the other agency is not subject to the congressional reporting requirement to submit proposals for reauthorization or statutory changes.

Specifically, during our audit work we found that several DHS programs had not met their improper payment reduction targets in fiscal years 2011 through 2014. The DHS IG agreed and subsequently reissued its IPERA compliance reports for each of these fiscal years from February through April 2016 to reflect determinations of noncompliance. Upon the reissuance of the IG reports, OMB advised DHS to take the actions required under IPERA in response to 1 year of noncompliance for fiscal year 2014. OMB noted that requiring the agency to take the respective actions required for 1, 2, and 3 years of noncompliance in the same year would be challenging for the agency and unlikely to yield meaningful results.

Similarly, the SSA IG reported in fiscal years 2011 and 2012 that the agency was compliant with the six IPERA criteria, but we noted that its Supplemental Security Income (SSI) program failed to meet its reported reduction target in both years. In its fiscal year 2013 and 2014 reports, the SSA IG reported the SSI program as noncompliant with IPERA criteria because the program did not meet its reduction targets. SSA IG officials told us that they have no plans to reissue fiscal year 2011 or 2012 IPERA compliance reports to state a conclusion of noncompliance, thus the requirement for the agency to take action based on this noncompliance was not triggered based on fiscal year 2014 results.

When IGs do not make compliance determinations in accordance with the IPERA criteria, agencies are unable to take the appropriate steps required by the law when programs have been noncompliant for consecutive years. As a result, Congress is not informed of consistently noncompliant programs.

Two IGs Did Not Fully Adhere to OMB’s Requirements for High- Priority Programs

In fiscal year 2014, OMB designated 13 programs with total estimated improper payments of $115.3 billion as high priority. These high-priority programs account for 92.5 percent of the total government-wide improper payment estimate. IPERIA amended IPIA to direct OMB to annually identify a list of high-priority programs in need of greater levels of oversight and review. In general, OMB has implemented this requirement by designating a program as high priority when its estimated improper payments exceed $750 million in the most recent fiscal year.

OMB requires agencies with high-priority programs to develop supplemental measures on an annual or more frequent basis, and to explain how they have tailored their corrective actions to better reflect the specific processes, procedures, and risks surrounding those programs. Furthermore, the agency IG is required to (1) evaluate the agency’s assessment of the program risk level and the quality of the improper payment estimates and methodology, (2) determine the extent of oversight warranted, and (3) provide the agency head with recommendations. However, we found that the SSA IG did not report on its evaluation of SSA’s improper payment rate for SSI and Old-Age, Survivors, and Disability Insurance, the agency’s two high-priority programs. The report did, however, include recommendations to mitigate the main root cause of SSI overpayments.

We also found that the HHS IG reported its evaluation of four of five HHS high-priority programs, but it did not fulfill the requirement for the Children’s Health Insurance Program. Table 6 shows all programs deemed high priority by OMB for fiscal year 2014.

When IGs do not fully evaluate high-priority programs as directed by IPERIA and OMB guidance, their compliance reports are incomplete and therefore of less value in communicating deficiencies to be addressed to the agencies. Specifically, by not reviewing the agencies’ risk assessments for high-priority programs and the quality of the programs’ improper payment estimates and methodologies, the IGs missed the opportunity to provide their agencies with any recommendations for improving internal controls and preventing and reducing improper payments in those programs.

Assessments of Disaster Relief Programs Producing Improper Payment Estimates Were Not Performed by Two IGs

We found that for fiscal year 2014 2 of 16 CFO Act agency IGs—SSA and the Department of Housing and Urban Development (HUD)—did not comply with the requirement to assess compliance for disaster relief programs reporting improper payment estimates. Specifically, the SSA IG’s report did not assess its agency’s Hurricane Sandy Disaster Relief program’s compliance with IPERA criteria, although SSA as an agency reported an estimate of the program’s improper payments in its fiscal year 2014 AFR. Similarly, the HUD IG’s report did not include a determination of HUD’s Community Development Block Grant - Disaster Relief program’s compliance with IPERA criteria, even though HUD included improper payment estimates and related information for this program in its fiscal year 2014 AFR. The Disaster Relief Appropriations Act, 2013 requires all programs or activities receiving disaster relief funding appropriated by that act to be considered susceptible to significant improper payments for purposes of IPIA until those funds are expended. Out of a total of 19 federal agencies that received disaster relief funding under the act, 16 are CFO Act agencies. Because funds from this act are automatically considered susceptible to significant improper payments under IPIA, those agencies’ IGs are required to include their assessments of those programs’ compliance under IPERA in their annual reports. Table 7 lists the 16 CFO Act agencies that received funds under the Disaster Relief Appropriations Act, 2013.

When IGs do not fully comply with IPERA, the Disaster Relief Appropriations Act, and OMB guidance by failing to assess disaster relief programs’ compliance under IPERA, there is an increased risk that agencies’ improper payment estimate reporting is inaccurate or incomplete, thereby undermining the agencies’ ability to effectively develop and implement corrective action plans for programs and increasing the risk of potential future improper payments. Additionally, IG monitoring and assessment of improper payments in federal disaster relief programs could help ensure that emergency disaster relief funding is distributed to the citizens who need it.

OMB Has Taken Steps to Educate IGs on the Form and Content of Their IPERA Compliance Reports

OMB issued the latest iteration of its Circular No. A-123, Appendix C, in October 2014. As stated previously, this guidance changed certain requirements for fiscal year 2014 reporting, extended the reporting period for IG IPERA reports, and eliminated an additional criterion for IGs to assess whether agencies have reported on efforts to recapture improper payments. This guidance also attempted to make IG determinations of compliance and noncompliance more clear and concise by requiring that high-level summaries of compliance be included in their reports, both overall and by IPERA criteria.

As part of its annual monitoring of agency improper payments estimation and reporting, OMB reviews the IGs’ compliance determinations for each criterion, IG recommendations and the agencies’ responses, and areas where additional follow-up or guidance may be needed. In addition to these reviews, OMB responds to questions from the agencies and IGs throughout the year and refers them to the applicable guidance on an as- needed basis.

In October 2015, upon observing that many of the IPERA compliance reports from fiscal year 2014 and prior years were still difficult to interpret and compare, OMB held a town hall for all federal IGs to clarify its implementation guidance contained in OMB Circular No. A-123, Appendix C. The town hall detailed the six IPERA criteria and how IGs can make clearer determinations of compliance and noncompliance in their upcoming fiscal year 2015 reviews that were due in May 2016. OMB officials received feedback from IGs that this town hall was useful in tailoring their IPERA reviews; therefore, OMB officials stated that they plan to conduct another town hall for IGs in the summer or fall of 2016.

To determine if IGs corrected deficiencies identified in preliminary GAO findings shared with them and followed the guidance provided in the October 2015 OMB town hall meeting, we conducted a review of the fiscal year 2015 IPERA reports issued in May 2016 by the seven IGs in whose fiscal year 2014 reports we identified deficiencies. We verified that these deficiencies have been corrected for fiscal year 2015 reporting and therefore determined that no recommendations to these IGs are warranted. OMB officials also stated that they plan to review the compliance status of all agencies contained in the IGs’ fiscal year 2015 IPERA compliance reports and identify areas where additional guidance is needed.

Conclusions

Estimated improper payments across the federal government have increased by over $30 billion in the last 2 fiscal years. During the same time period, agency noncompliance with the criteria listed in IPERA, as determined by IGs, also increased, with the highest number of CFO Act agency IGs reporting noncompliance in fiscal year 2014.

IPERA compliance reviews serve a key function in helping to ensure that federal dollars are not misspent and that estimates of improper payments are accurate and complete. In order to allow Congress to effectively monitor compliance with IPERA criteria, it is important for agencies to keep relevant committees notified of the noncompliant status of their programs. In the past year, OMB has made efforts to clarify its IPERA implementation guidance to IGs and federal agency chief financial officers and address shortfalls in the accuracy and completeness of the IGs’ reports. OMB is attempting to address these shortfalls through its communications with the IGs, and officials told us that the next planned town hall meeting will occur later in the year.

Recommendations for Executive Action

To help fulfill the IPERA and OMB requirements to submit proposals to Congress when agencies reach 3 or more consecutive years of noncompliance with IPERA criteria, we recommend the following four actions.

We recommend that the Secretary of Agriculture or a designee submit a letter to Congress detailing proposals for reauthorization or statutory changes in response to 3 consecutive years of noncompliance as of fiscal year 2014 for its (1) Child and Adult Care Food Program; (2) School Breakfast Program; (3) National School Lunch Program; and (4) Special Supplemental Nutrition Program for Women, Infants, and Children. To the extent that reauthorization or statutory changes are not considered necessary to bring a program into compliance, the Secretary or designee should state so in the letter.

We recommend that the Administrator of the Small Business Administration or a designee submit a letter to Congress detailing proposals for reauthorization or statutory changes in response to 3 consecutive years of noncompliance as of fiscal year 2014 for the agency’s (1) 7(a) Guaranty Loans program and (2) Disaster Assistance Loans program. To the extent that reauthorization or statutory changes are not considered necessary to bring the programs into compliance, the Administrator or designee should state so in the letter.

We recommend that the Secretary of Transportation or a designee submit a letter to Congress detailing proposals for reauthorization or statutory changes in response to 3 consecutive years of noncompliance as of fiscal year 2014 for the agency’s Federal Transit Administration’s Formula Grants program. To the extent that reauthorization or statutory changes are not considered necessary to bring the program into compliance, the Secretary or designee should state so in the letter.

We recommend that the Secretary of Defense or a designee submit a letter to Congress detailing proposals for reauthorization or statutory changes in response to 3 consecutive years of noncompliance as of fiscal year 2014 for its DOD Travel Pay program. To the extent that reauthorization or statutory changes are not considered necessary to bring the program into compliance, the Secretary or designee should state so in the letter.

Agency Comments and Our Evaluation

We provided a draft of this report to OMB, the IG offices of the 24 CFO Act agencies, and the CFO offices of those agencies with programs that were determined to be noncompliant with IPERA criteria for 3 consecutive years as of fiscal year 2014: DOD, DOL, DOT, HHS, SBA, SSA, Treasury, and USDA. These eight agencies included all 4 of the agencies to which we made recommendations. We received responses from all organizations that were provided the draft report. Table 8 summarizes the responses received from these the 24 CFO Act agencies and their IG offices.

DOD and the DOD IG provided a combined response, which is reprinted in appendix IV. OMB’s written comments are reprinted in appendix XIII.

As noted in the table, some of the agencies’ CFO and IG offices also provided technical comments, which we incorporated as appropriate. We also received e-mailed responses from officials at the following offices, stating that the organization had no comments on the draft report: the CFO offices of SBA and SSA; and the IG offices of USDA, the Department of Commerce, the Department of Education, the Department of Energy, the Department of Justice, DOL, the Environmental Protection Agency, NSF, the Nuclear Regulatory Commission, SBA, and the U.S. Agency for International Development.

In their written comments, the CFO offices of DOD and DOT concurred with our recommendations. The DOD CFO office noted that it does not consider reauthorization or statutory change necessary for its Travel Pay program, but will submit a letter to Congress containing planned actions for improvement by August 30, 2016. The DOT CFO office stated that DOT establishes aggressive reduction targets for its programs and noted improvement in its Formula Grants program, which met its reduction target in fiscal year 2015 after being noncompliant under IPERA for 3 consecutive years.

In their e-mailed responses, officials from CFO offices at SBA and USDA neither concurred nor disagreed with our recommendations.

In their written comments, IGs at DOD, DHS, DOI, State, and VA concurred with our findings. OMB provided written comments that reiterated its commitment to improving payment accuracy across the federal government. The HHS IG concurred with our finding in an e- mailed response.

In its written response, the GSA IG office stated that it partially agreed with the findings in our report. While the GSA IG office agreed that its fiscal year 2014 high-level summary of IPERA compliance could be improved, it noted that its summary paragraph specifically identified the criteria that GSA did not meet. However, as we noted in this report, the GSA IG reported inaccuracies in GSA’s fiscal year 2014 AFR information and a failure to complete corrective actions from the previous year’s review, but it was unclear if these instances resulted in determinations of compliance or noncompliance with IPERA criteria. OMB guidance directs IGs to not only report on the IPERA criteria that the IG has determined the agency did not meet, but also those criteria the agency met. The GSA IG office further stated that it has taken actions to clarify its high-level summary in its fiscal year 2015 IPERA compliance report.

In an e-mailed response dated June 1, 2016, the DOT Assistant IG for Information Technology and Audits disagreed with our finding that the IG’s determination that DOT “generally complied” with IPERA criteria was misleading and also stated that the magnitude of DOT’s instances of noncompliance was not conveyed in our report. However, as stated in our report, IPERA defines compliance as including all six of the listed criteria, and thus if an IG reports that any of the IPERA criteria are not met by its agency, the agency is overall noncompliant. Our report further conveys the one criterion and program responsible for DOT’s noncompliance in fiscal year 2014. Despite its disagreement with our findings, the DOT IG office reported a clearer determination of agency compliance in its fiscal year 2015 report, stating that the agency “(did) not comply with IPERA requirements”.

As discussed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 7 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Director of the Office of Management and Budget, all CFO Act agencies’ inspectors general, and select CFO Act agencies’ chief financial officers. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-2623 or davisb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix XIV.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to review (1) the number of agencies, among those listed in the Chief Financial Officers Act of 1990, as amended (CFO Act), that complied with the criteria listed in the Improper Payments Elimination and Recovery Act of 2010 (IPERA), as reported by their inspectors general (IG), for fiscal years 2011 through 2014, and what criteria and programs the IGs concluded were primarily responsible for instances of agency noncompliance; (2) the number of programs at the 24 CFO Act agencies that were determined noncompliant with IPERA criteria by their IGs for 3 or more consecutive years, as of fiscal year 2014, and the extent to which the responsible agencies submitted the required information to Congress; and (3) the extent to which CFO Act agency IGs have adhered to certain IPERA requirements and the related Office of Management and Budget (OMB) guidance contained in OMB Circular No. A-123, Appendix C, in their fiscal year 2014 improper payment compliance reviews, including reporting on special disaster relief appropriations and OMB-designated high-priority programs. Although IPERA requirements apply to the head of each executive agency, we only reviewed reports of those agencies designated as CFO Act agencies because these agencies represented over 99 percent of the total government-wide improper payments reported in fiscal year 2014.

To address our first objective, we identified the requirements that agencies must meet by reviewing the Improper Payments Information Act of 2002, as amended; IPERA; and OMB guidance. We analyzed CFO Act agency IGs’ fiscal year 2014 IPERA reports, which were the most current reports available at the beginning of our review, and summarized information related to agency compliance with IPERA criteria and identified common findings and related causes for improper payments, as reported by the IGs. We also relied on and reviewed prior year supporting documentation and analyses of CFO Act agencies’ IG IPERA reports for fiscal years 2011, 2012, and 2013, as reported in GAO’s December 2014 report (GAO-15-87R), and compared agencies’ compliance with each IPERA criterion over fiscal years 2011 through 2013, as reported by the IGs. To summarize the CFO Act agencies’ noncompliant programs for fiscal years 2011 through 2014, we compared data from the IG IPERA reports and agencies’ performance and accountability reports (PAR) and agency financial reports (AFR) for those years. We also determined the programs responsible for noncompliance over this period by analyzing and summarizing the determinations made in the IG reports. Our work did not include validating or retesting the data or methodologies used by the IGs in coming to their conclusions. We confirmed our findings with the relevant CFO Act agency IGs and OMB. We also obtained and summarized OMB and agencies’ data on improper payment estimates by agency program (see app. III).

To address our second objective, we summarized IG determinations made in the IGs’ annual IPERA compliance reports from fiscal year 2011 through fiscal year 2014. We corroborated our findings with OMB and the relevant CFO Act agency IGs. To determine if agencies responsible for these noncompliant programs had submitted either proposals for reauthorization or statutory changes to Congress, we interviewed and requested information from relevant agency offices of chief financial officer in coordination with the agency IGs. We did not make conclusions as to the sufficiency or completeness of the information contained in proposals for reauthorization or statutory changes submitted to Congress.

To address our third objective, we identified requirements that agencies’ IGs must meet by reviewing IPERA, the Improper Payments Elimination and Recovery Improvement Act of 2012, and OMB guidance for IG IPERA reports, which is contained in OMB Circular No. A-123, Appendix C (OMB Memorandum M-15-02). We compared CFO Act agencies’ IGs improper payment reporting for fiscal year 2014 to statutory requirements and OMB guidance, including reporting on high-priority programs and disaster relief funds. To determine the population of OMB’s high-priority programs, we obtained the list for fiscal year 2014 from www.paymentaccuracy.gov. To ensure that this list was reported correctly on the website, we interviewed OMB officials and corroborated the information. For each agency responsible for a high-priority program, we reviewed the related IG’s IPERA compliance report for fiscal year 2014 to ensure that the IG’s review of the high-priority program met all elements prescribed by OMB Memorandum M-15-02. For agencies reporting improper payment estimates for disaster relief funding, we reviewed the Disaster Relief Appropriations Act, 2013 and determined whether the agencies listed therein reported improper payment estimates and whether their IGs reported compliance determinations for those programs in their fiscal year 2014 IPERA reports.

We also compared the structure and content of the fiscal year 2014 IG reports to that required by IPERA and OMB Memorandum M-15-02. Further, we reviewed the improper payments reporting contained in the AFRs and PARs of the CFO Act agencies for fiscal year 2014 to ensure that certain IG compliance determinations for some criteria agreed to our observations. Specifically, in each fiscal year 2014 CFO Act agency AFR or PAR, we determined whether the following IPERA Section 3 criteria were met for each program assessed to be at risk for significant improper payments: (1) corrective action plans were reported, (2) annual reduction targets were published and met, and (3) a gross improper payment estimate of less than 10 percent was reported for each program. For the remaining criteria related to publishing the required information in the PAR or AFR, conducting risk assessments, and publishing improper payment estimates for programs deemed susceptible to significant improper payments, we did not make conclusions but relied on the IGs’ judgments of compliance and noncompliance. IGs gave their respective agencies the opportunity to comment on their fiscal year 2014 IPERA compliance reports, and we reviewed all agency and IG responses. To determine if certain IGs corrected deficiencies identified in preliminary GAO findings shared with them and followed OMB guidance for fiscal year 2015 reporting, we reviewed the fiscal year 2015 IPERA reports issued in May 2016 by the seven IGs in whose fiscal year 2014 reports we identified deficiencies. We determined that the conclusions in the IGs’ reports were sufficiently reliable for our reporting purposes.

We conducted this performance audit from September 2015 to June 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: CFO Act Agencies and Programs Reported as Noncompliant under IPERA by IGs for Fiscal Year 2014

Table 9 lists the Chief Financial Officers Act of 1990 agencies and their programs that their inspectors general reported in fiscal year 2014 were noncompliant with the Improper Payments Elimination and Recovery Act of 2010.

Appendix III: Reported Improper Payment Estimates by Agency and Program/Activity for Fiscal Year 2015

Table 10 lists reported improper payment estimates by agency and program or activity for fiscal year 2015.

Appendix V: Comments from the Department of Homeland Security Office of Inspector General

Appendix VI: Comments from the Department of the Interior Office of Inspector General

Appendix VII: Comments from the Department of State Office of Inspector General

Appendix VIII: Comments from the Department of Transportation

Appendix IX: Comments from the Department of Veterans Affairs Office of Inspector General

Appendix X: Comments from the General Services Administration Office of Inspector General

Appendix XI: Comments from the Office of Personnel Management Office of Inspector General

Appendix XII: Comments from the Social Security Administration

Appendix XIII: Comments from the Office of Management and Budget

Appendix XIV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Philip McIntyre (Assistant Director), Laura Bednar (Auditor-in-Charge), Maria Belaval, Wilfred Holloway, Jason Kelly, Jason Kirwan, and Ricky A. Perry, Jr., made key contributions to this report.