Improper Payments: Additional Guidance Could Provide More Consistent Compliance Determinations and Reporting by Inspectors General
Released: 2017-06-13T00:00:00

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). The amended legislation requires executive branch agencies to (1) review all programs and activities and identify those that may be susceptible to significant improper payments (commonly referred to as a risk assessment), (2) publish improper payment estimates for those programs and activities that the agency identified as being susceptible to significant improper payments, (3) implement corrective actions to reduce improper payments and set reduction targets, and (4) report on the results of addressing the foregoing requirements.

In addition to the agencies’ identifying programs and activities that are susceptible to significant improper payments, OMB also designates as high-priority the programs with the most egregious cases of improper payments. Specifically, OMB is required by IPERIA 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 fiscal year.

IPERA 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; 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.

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, IPERA requires the agency 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. Because the legal requirement to report to Congress is triggered by the IG reporting noncompliance, rather than the noncompliance itself, agencies are not subject to the congressional reporting requirement until their IGs report their determinations. In addition, as we previously reported, when agencies determine that reauthorization or statutory changes are not considered necessary to bring the programs into compliance, the agencies should state so in their letters to Congress.

Furthermore, IPERIA requires the IGs at agencies with OMB-designated high-priority programs to perform additional procedures. OMB also provides guidance, in OMB Circular No. A-123, Appendix C (OMB M-15- 02), to the IGs regarding their annual IPERA compliance reports. This guidance restates the statutory requirements and adds procedures that the IGs are encouraged to adopt at their discretion during their annual IPERA reviews (hereafter referred to as optional procedures). It is important to note that some of the optional procedures outlined in OMB guidance are similar to those required for programs designated by OMB as high-priority; however, whether to perform such procedures for non-high-priority programs is up to the IGs. Figure 1 details the IGs’ required and optional procedures.

Over Half of the CFO Act Agencies Continue to Be Reported as Noncompliant under IPERA, but the IGs’ Compliance Determinations for Fiscal Year 2015 Were Inconsistent

Five years after the implementation of IPERA, 15 of the 24 agencies were reported as noncompliant under IPERA for fiscal year 2015. Although the number of agencies reported as noncompliant improved in fiscal years 2012 and 2013, decreasing to 12 and 11 agencies, respectively, IGs collectively reported an increase in agency noncompliance to 15 agencies in fiscal years 2014 and 2015. However, as discussed later in this report, we found that the IGs’ compliance determinations for fiscal year 2015 were not based on a consistent government-wide approach. Figure 2 summarizes the number of agencies noncompliant under IPERA each year since fiscal year 2011, as reported by their IGs.

We found that noncompliance frequently stretched across multiple years. For instance, 14 of the 15 agencies were noncompliant in fiscal years 2014 and 2015. In addition, 9 of the 15 noncompliant agencies in fiscal year 2015 have been reported as noncompliant since IPERA was implemented—for 5 consecutive years. Figure 3 details the 24 agencies’ overall compliance under IPERA, as reported by their IGs, for fiscal years 2011 through 2015.

The IGs associated with the 15 noncompliant agencies reported that a total of 52 programs were responsible for identified instances of noncompliance in fiscal year 2015. As shown in figure 4, the noncompliant programs accounted for a reported $132 billion in fiscal year 2015 estimated improper payments, which is approximately 96 percent of the $136.7 billion government-wide reported estimate.

Seven Agencies Were Reported as Noncompliant for 3 Consecutive Years or More, as of Fiscal Year 2015, and One Agency Did Not Provide Congress with the Required Information

Seven agencies were reported as noncompliant for 3 or more consecutive years as of the end of fiscal year 2015, representing 12 programs. IPERA requires agencies that have been deemed noncompliant for consecutive years to take certain actions. Specifically, according to IPERA and OMB guidance, if a program is found to be noncompliant by an agency’s IG for 3 or more consecutive years, 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 also states that agencies should share these proposals or plans with their respective IGs.

For the 7 agencies that had noncompliant programs for 3 or more consecutive years as of the end of fiscal year 2015, as reported by their IGs, we found that 6 agencies submitted the required information to Congress. The remaining agency, the U.S. Department of Agriculture (USDA), had not submitted the required information to Congress, despite our prior recommendation, as well as USDA IG recommendations, to do so. Specifically, 5 USDA programs were reported as noncompliant for at least 3 consecutive years as of fiscal year 2015. Four of these programs were noncompliant for 5 consecutive years, and 1 was noncompliant for 3 consecutive years. Figure 5 lists the 7 agencies and the 12 programs that were noncompliant for 3 or more consecutive years, as reported by their IGs.

USDA’s Office of Chief Financial Officer (OCFO) informed us that some of the delays for issuing the letter were caused by the office’s need to meet with OMB to determine how best to satisfy the requirements. For example, according to the USDA OCFO, OCFO met with OMB in June 2014, and OMB advised USDA OCFO that proposed statutory changes were not needed and that a letter to Congress was acceptable to satisfy the requirements. However, almost 3 years later, USDA has still not issued the letter. The USDA OCFO stated that it plans to submit the required information for all 5 programs by the end of fiscal year 2017. However, IPERA and OMB guidance calls for the information to be submitted within 30 days of the IG’s reported noncompliance. Therefore, for the 4 programs that were noncompliant for 5 consecutive years, the required information should have been submitted within 30 days of the 3 consecutive years noncompliance reporting, which occurred in April 2014. We also recommended in June 2016 that USDA take the required actions for these 4 programs, and as of March 2017, our prior recommendation remains open. For the 1 remaining program, which was noncompliant for 3 consecutive years, the information was required to be submitted in June 2016. When agencies do not report the required information, Congress may lack the information necessary to monitor the implementation of IPERA and take action to address problematic programs in a timely manner.

IGs Reported Agencies’ Continued Noncompliance with Several IPERA Criteria

The IGs’ IPERA compliance reports showed areas where agency compliance has remained a challenge throughout the past 5 years. Specifically, as shown in figure 6, noncompliance with the IPERA criterion to publish and meet annual improper payment reduction targets has been the primary reason agencies were reported as noncompliant by their respective IGs for 5 consecutive years. For instance, for fiscal years 2011 through 2015, IGs reported that 11 agencies did not comply with this criterion. Of these 11 noncompliant agencies, 8 agencies have been noncompliant with this criterion every year since fiscal year 2011. While the IGs generally reported that agencies published reduction targets for applicable programs, the targets were regularly not met as the actual rates exceed the targets.

Although reported noncompliance for several IPERA criteria increased or stayed the same in fiscal year 2015, as compared to fiscal year 2014, the total instances of noncompliance (i.e., sum of all instances of IG-reported agency noncompliance for all six IPERA criteria) has declined since IPERA was first implemented in fiscal year 2011, as noted in figure 7. Specifically, in fiscal year 2011, the IGs reported 38 total instances of noncompliance for all six IPERA criteria, compared to 28 reported instances of noncompliance in fiscal year 2015.

Although agencies’ continued noncompliance is concerning, we have previously reported that an agency’s failure to meet reduction targets and report improper payment rates below 10 percent may not necessarily suggest that the agency failed to adequately monitor its programs’ improper payments. For example, certain IGs reported increases in improper payment rates because of factors such as improved sampling and emphasis on training, which enhanced their agencies’ ability to detect improper payments. Specifically, the Department of Veterans Affairs (VA) IG reported in its fiscal year 2015 report that 2 VA programs—Community Care and Purchased Long-Term Services and Support—reported improper payment rates of 54.77 percent and 59.14 percent, respectively. According to the VA IG, these rates were significantly higher than those in the prior year when both programs reported improper payment rates slightly below 10 percent. According to the VA IG, the dramatic increase in improper payment rates for the 2 programs occurred primarily because of improved sample evaluation procedures in fiscal year 2015, which resulted in more improper payments being identified. Significant improvements in sampling, training, and the ability to detect improper payments could considerably reduce the likelihood that an agency will meet a predetermined reduction target or report an improper payment rate below 10 percent.

As previously discussed, for the past 5 years, IGs reported that there were 11 agencies that did not meet the IPERA criterion that required agencies to publish and meet reduction targets. For fiscal year 2015, 4 of the 11 agencies—the Department of Defense (DOD), Department of Education (Education), Department of Homeland Security (DHS), and Social Security Administration (SSA)—that did not meet reduction targets were compliant with the remaining five IPERA criteria. Therefore, once these 4 agencies implement the necessary controls to prevent and detect improper payments, they may be able to meet their reduction targets, which in turn, could result in these 4 agencies becoming compliant under IPERA overall in future years. Furthermore, 3 other agencies—the Department of Labor (DOL), VA, and Small Business Administration (SBA)—out of the 11 that did not meet reduction targets were reported by their IGs as being noncompliant with only one other IPERA criterion (to report improper payment rates below 10 percent). Therefore, these 3 agencies may also become compliant under IPERA once they implement the necessary controls to prevent and detect improper payments, as they may be able to meet their reduction targets and report improper payment rates below 10 percent. Appendix III details the agency programs that did not meet their reduction targets and that reported improper payment rates above the 10 percent threshold for fiscal year 2015.

IGs Reported Fiscal Year 2015 Compliance Determinations Inconsistently

We reviewed the IGs’ fiscal year 2015 IPERA compliance reports and found that the IGs were not consistent with one another regarding how they determined and reported on compliance when issues were identified. Some IGs reported compliance based on the presence or absence of the required analysis or reporting (hereafter referred to as a pass/fail determination by the IG), regardless of whether the IGs identified flaws, whereas other IGs reported agencies as noncompliant based on the IGs performing some degree of evaluative procedures to determine whether the agencies’ analyses or reports were substantively adequate (hereafter referred to as a determination based on evaluative procedures). IPERA does not clearly indicate whether, for example, an IG should report an agency as compliant under the criteria regarding publication of improper payment estimates if the agency reports an improper payment estimate that is based on a flawed methodology. While we recognize that the severity of the issues may have resulted in the IGs’ reporting noncompliance for some agencies, we found, as noted in some of the examples below, the types of issues identified for both the compliant and noncompliant agencies were similar.

IPERA criterion: Publish an AFR or PAR. One IG reported its respective agency as noncompliant with this criterion. While this IG reported the Department of Transportation (DOT) noncompliant as a result of finding issues with improper payment information included in the AFR (i.e., noncompliance based on evaluative procedures), six other IGs reported their respective agencies—the Department of Housing and Urban Development (HUD), Department of State (State), Environmental Protection Agency (EPA), National Aeronautics and Space Administration (NASA), General Services Administration (GSA), and Office of Personnel Management (OPM)—as compliant despite finding similar issues with the improper payment information included in the agencies’ published AFRs or PARs (i.e., compliance based on pass/fail determinations). For example, the DOT IG reported noncompliance with this criterion as a result of identified issues with the outlays reported in DOT’s AFR, which is the same issue that was identified by another IG that reported its agency (GSA) as compliant. As shown in table 1, if the IGs consistently determined compliance with this IPERA criterion based on pass/fail determinations or based on evaluative procedures, the number of agencies reported as noncompliant with this IPERA criterion could have decreased by 1 (from 1 agency to none) or increased by 6 (from 1 to 7 agencies), respectively.

IPERA criterion: Conduct program-specific risk assessments. Four IGs reported their respective agencies as noncompliant with this criterion. One of the 4 IGs reported its agency, the Department of the Interior (DOI), as noncompliant because the agency did not prepare a required risk assessment (i.e., compliance based on pass/fail determinations). The remaining 3 IGs reported their respective agencies—the Department of Health and Human Services (HHS), HUD, and OPM—as noncompliant based on identified issues with the risk assessments (i.e., noncompliance based on evaluative procedures). However, 6 other IGs reported their respective agencies—EPA, GSA, NASA, the National Science Foundation (NSF), State, and the Department of the Treasury (Treasury)—as compliant despite finding similar issues with the risk assessments (i.e., compliance based on pass/fail determinations). For example, 2 IGs reported that their respective agencies (HUD and OPM) were noncompliant with the IPERA risk assessment criterion as a result of their agencies not considering all nine required risk factors, as outlined in OMB guidance, during program-specific risk assessments, whereas another IG reported its agency (NSF) as compliant with this IPERA criterion, despite also finding issues with the agency’s consideration of the nine required risk factors. In addition, although the State IG reported that the qualitative risk assessments conducted by State included an evaluation of the nine risk factors required by OMB, the State IG also reported that the agency could have improved its risk assessment process regarding one of the nine risk factors— significant increases in funding. Specifically, the State IG reported that there was a deficiency with State’s process for identifying programs with significant funding changes. The State IG recommended that State expand its process to identify programs with significant funding changes to consider additional factors that may increase the risk of significant improper payments, including, at a minimum, the percentage increase of the change. According to the State IG, if the State’s risk assessment process does not consider the percentage increase, then the agency may not identify all programs that had increased risks of improper payments because of increased funding. For example, the State IG stated that a program that had expenditures of $101 million in year one and experienced an increase in expenditures of $99 million (98 percent) in year two would not meet the $100 million threshold and, as a result, would not be identified as a program with significant funding changes, which would require a risk assessment. As shown in table 1, if the IGs consistently determined noncompliance with this IPERA criterion based on pass/fail determinations or based on evaluative procedures, the number of agencies reported as noncompliant with this IPERA criterion could have decreased by 3 (from 4 to 1 agencies) or increased by 6 (from 4 to 10 agencies), respectively.

IPERA criterion: Publish improper payment estimates. This criterion did not apply to 5 agencies. For the remaining 19 agencies, 5 agencies were reported as noncompliant with this criterion. Two of these agencies (GSA and HHS) were reported as noncompliant because the agencies did not publish required estimates (i.e., compliance based on pass/fail determinations), and the remaining 3 agencies (USDA, DOI, and OPM) were reported as noncompliant because of identified issues with their estimates (i.e., noncompliance based on evaluative procedures). While the IGs for these 3 agencies reported noncompliance as a result of identified issues with the estimates, there were 6 other IGs that reported their respective agencies (DOD, DOL, Education, HUD, SBA, and VA) were compliant despite finding similar issues with the estimates (i.e., compliance based on pass/fail determinations). For example, 1 IG (USDA) reported that its respective agency was noncompliant with the IPERA improper payment estimate criterion because the agency was not using sufficient sampling methods to report improper payment estimates, whereas another IG (Education) reported its agency as compliant with the same IPERA criterion, despite reporting that its agency used flawed estimation methodologies to calculate its estimates. As shown in table 1, if the IGs consistently determined noncompliance with this IPERA criterion based on pass/fail determinations or based on evaluative procedures, the number of agencies reported as noncompliant with this IPERA criterion could have decreased by 3 (from 5 to 2 agencies) or increased by 6 (from 5 to 11 agencies), respectively.

IPERA criterion: Publish corrective action plans. This criterion did not apply to 9 agencies. Of the remaining 15 agencies, 1 (HHS) was reported as noncompliant with this criterion because it did not publish a corrective action plan for one of its eight risk-susceptible programs. Although we did not find any instances of IGs reporting noncompliance as a result of identified issues with the corrective action plans, we identified 5 IGs that reported their respective agencies (DOD, GSA, OPM, USDA, and HUD) as compliant despite finding issues with the corrective action plans (i.e., compliance based on pass/fail determinations). For example, 1 IG reported that its respective agency was compliant with this IPERA criterion, but the IG also reported that the agency’s corrective action plans did not explain how it addressed the root causes identified and did not include planned or actual completion dates of the actions. As shown in table 1, if the IGs consistently determined noncompliance with this IPERA criterion based on evaluative procedures, the number of agencies reported as noncompliant with this IPERA criterion could have increased by 5 (from 1 to 6 agencies). There would be no changes to the number of agencies reported as noncompliant if such determinations were made based on pass/fail basis, as the 1 IG would have still reported its agency as noncompliant for failing to publish a corrective action plan.

For the two remaining IPERA criteria, which required agencies to publish and meet reduction targets and report improper payment rates below 10 percent, we found that the IGs consistently made pass/fail determinations. Specifically, 11 agencies were reported as noncompliant because they each had at least 1 program that did not meet its reduction target, and 6 agencies were reported as noncompliant because they had at least 1 program that did not report an improper payment rate below 10 percent. As a result, for these two IPERA criteria, table 1 shows no differences between the original IG noncompliance determinations and the potential noncompliance results if determinations were consistently based on pass/fail or evaluative procedures.

We believe that the variations in the IGs’ determinations reduce their usefulness for comparing compliance and progress across agencies. As shown in table 1, compliance results could change significantly if the IGs consistently determined compliance by performing either pass/fail determinations or the evaluative procedures that some IGs use, which we describe in this report. Specifically, if the IGs had all performed IPERA compliance determinations based on pass/fail determinations, the number of noncompliant agencies could decrease by 1 agency (OPM), from 15 to 14 agencies. In addition, the total instances of noncompliance for all six IPERA criteria could have been 21 as compared to 28 instances as originally reported by the IGs. Alternatively, if the IGs had consistently determined compliance based on the evaluative procedures some IGs used, the number of noncompliant agencies could have been over one-third higher—an increase of 4 noncompliant agencies (State, EPA, NASA, and NSF), for a total 19 noncompliant agencies for fiscal year 2015. Also, the number of instances of noncompliance for all six IPERA criteria could increase from the originally reported 28 instances to 51 instances.

Standards for Internal Control in the Federal Government states that management should establish measurable objectives that are stated in a form that permits reasonably consistent measurement. However, IPERA and related guidance from OMB does not specify what, if any, evaluative procedures should be conducted as part of the compliance determination, beyond simply checking for the presence or absence of the required analysis or report. In addition, there are no specific requirements for IGs to be consistent with one another when determining agency compliance. Lastly, the Council of the Inspectors General on Integrity and Efficiency (CIGIE) stated that although it provided general guidance to the IGs in fiscal year 2011, it has not provided the IGs with any guidance regarding how compliance determinations should be made.

OMB Has Taken Steps to Coordinate with IGs on the IPERA Compliance Reporting Requirements

OMB issued OMB M-15-02, the latest iteration of its Circular No. A-123, Appendix C, in October 2014, which was effective starting with the IGs’ fiscal year 2014 IPERA compliance reviews. The new OMB guidance attempted to make IG determinations of compliance clearer and more concise by instructing IGs to include in their reports a high-level summary of compliance, both overall and by IPERA criteria. While our audit scope did not include testing to determine if the IGs complied with all of the IPERA requirements or whether the IGs followed OMB guidance, as noted above we identified inconsistent reporting among the IGs during the course of our audit work. We presented the inconsistencies we identified to OMB staff, and they informed us that they had noticed similar inconsistencies.

Although OMB held IPERA compliance town halls prior to the IGs’ fiscal years 2015 and 2016 IPERA compliance reviews, the town hall briefing slides did not state OMB’s position on whether the IGs should make compliance determinations based on pass/fail determinations or evaluative procedures. OMB staff confirmed that their guidance, as well as IPERA, does not specify what, if any, evaluative procedures should be conducted as part of the compliance determination, beyond simply checking for the presence or absence of the required analysis or report. Continuing inconsistent compliance determinations may result in potentially misleading information regarding government-wide compliance under IPERA.

Majority of CFO Act Agency IGs Reported Performing One or More Optional Procedures during Their Fiscal Year 2015 IPERA Compliance Reviews

We reviewed the IGs’ fiscal year 2015 IPERA compliance reports and found that 20 of the 24 agencies’ IGs reported that they performed at least one procedure beyond what is required by IPERA and IPIA, as amended by IPERIA. Specifically, as shown in figure 8, we found that the IGs reported that they performed optional procedures, which included evaluations of the (1) agency’s assessment of the level of risk for non-high-priority programs, (2) quality of the agency’s estimation methodology for non-high-priority programs, (3) accuracy and completeness of agency reporting, (4) agency’s performance in recapturing improper payments, and (5) agency’s corrective action plans. Appendix V lists the 20 IGs and the specific optional procedures performed by each IG.

While current improper payment estimation laws and corresponding OMB guidance require the IGs to conduct evaluative procedures of the agencies’ risk assessments and estimation methodologies when reviewing programs that OMB designated as high-priority, these types of evaluative procedures are optional for non-high-priority programs. To put this in perspective, in fiscal year 2015, there were 122 programs that published improper payment estimates, and OMB designated 16 of those programs as high-priority programs. Therefore, only those 16 programs were required to undergo the IGs’ evaluations of their risk assessments and improper payment estimates (two IPERA criteria). While $127 billion of the $136.7 billion fiscal year 2015 government-wide improper payment estimate was attributable to the 16 OMB-designated high-priority programs, there was $9.7 billion in reported estimated improper payments for the remaining programs that are not considered high-priority. Although the IGs were not required to perform annual evaluative procedures to identify issues with the agencies’ risk assessments and estimation methodologies for the non-high-priority programs, as noted in figure 8, some IGs elected to perform these evaluative procedures for such programs. OMB staff stated that they believe that performing evaluative procedures is beneficial to addressing government-wide improper payments, and, for that reason, they encourage IGs to do more substantive, in-depth work during their annual IPERA compliance reviews.

The following examples provide additional details regarding the IGs’ performance of these optional procedures:

Evaluation of agency’s risk assessment(s) for non-high-priority programs: As noted in figure 8, we found that 11 IGs reported that they evaluated the agency’s program-specific risk assessment(s). Of these 11 agencies, we identified 3 IGs (USDA, Treasury, and NASA) that performed their own independent risk assessments and/or analysis and, as a result, identified additional agency programs that they believed should have been identified as susceptible to significant improper payments during the agencies’ own risk assessments. As a result of performing this optional procedure, certain IGs recommended that the agencies revise their program-specific risk assessment processes to reduce the risk of the agencies not identifying all programs susceptible to significant improper payments. The recommended improvements included revising the processes to include factors such as quantitative assessments in addition to (or instead of) qualitative assessments.

Evaluation of agency’s estimation methodologies for non-high-priority programs: As noted in figure 8, we found that 10 IGs reported that they evaluated the quality of the agencies’ improper payment estimates and methodologies for certain non-high-priority programs. Specifically, we found that these IGs reported that the published improper payment estimate for at least 1 agency program was unreliable because the agencies used inaccurate data, incomplete data, or insufficient sampling methodologies. As a result of performing this optional procedure, certain IGs provided recommendations to help the agencies improve the precision of their improper payment estimates, such as using improved sampling methodology prepared by a trained statistician.

Evaluation of the accuracy and completeness of agency reporting: As noted in figure 8, this was the most frequently performed optional procedure. Specifically, we found that 15 of the 24 IGs reported that they evaluated the accuracy and completeness of their agencies’ reporting on improper payments. Specifically, we found most of these IGs reported that they identified errors in improper payment-related information in the agencies’ published AFRs. As a result of performing this optional procedure, these IGs provided recommendations to help the agencies improve the accuracy of the improper payment-related information published in their reports, such as recommending that the agencies implement additional internal controls.

Evaluation of agencies’ performance in recapturing improper payments: As noted in figure 8, we found that 9 IGs reported that they evaluated their agencies’ efforts to recapture improper payments and in some cases found that more improper payments were actually recaptured by the agencies than the agencies reported. Specifically, certain agencies’ summaries of recaptured improper payments failed to include all identified and recaptured improper payments identified through sources outside of the agencies’ recapture audits, such as those payments identified through IG audits. As a result of performing this optional procedure, these IGs made recommendations to help the agencies improve the accuracy and completeness in reporting of their recaptured payments, such as recommending that the agencies develop written policies and procedures detailing the process for reporting overpayments identified and recaptured from sources outside of payment recapture audits.

Evaluation of agency corrective action plans: As noted in figure 8, we found that 6 IGs reported that they determined whether their agencies’ corrective action plans were (1) robust and focused on the appropriate root causes of improper payments, (2) effectively implemented, and (3) prioritized within the agency. Specifically, we found that certain IGs reported that their agencies’ corrective action plans did not explain how the corrective actions addressed the root causes identified, lacked planned or actual completion dates of the actions, or had not been updated to include more current root causes. Identifying the root causes of improper payments enables the agencies to revise their corrective action plans to better reflect the unique processes, procedures, and risks involved with each agency program susceptible to significant improper payments. As a result of performing this optional procedure, 1 IG recommended that the agency revise its corrective action plans to address the issues identified by the IG.

CFO Act Agency IGs Made About 400 Recommendations in Their Fiscal Years 2011 through 2015 IPERA Compliance Reports, and More Than 100 Recommendations Remain Open as of December 31, 2016

Although hundreds of IG recommendations were made, and over two-thirds were closed (320 closed recommendations out of 425 total recommendations) during the past 5 years of the IGs’ IPERA compliance reviews, agencies’ overall noncompliance under IPERA continues to be at its highest point—15 noncompliant agencies for both fiscal years 2014 and 2015. As detailed in figure 9, the total annual number of IG-reported recommendations made by the 24 agencies’ IGs has stayed relatively steady for the IGs’ fiscal years 2011 through 2015 IPERA compliance reviews. There was a decrease in the number of IG-reported recommendations related to the agencies’ compliance under IPERA during fiscal years 2012 and 2013, which coincides with the 2 years that the IGs’ reporting showed slight improvements in agencies’ compliance under IPERA.

As detailed in appendix VI, the number of recommendations per agency varied significantly from fiscal years 2011 through 2015. For instance, the number of recommendations per agency fluctuated from as little as no recommendations for one agency—the Nuclear Regulatory Commission (NRC)—during this time period, to 49 recommendations for another agency—HUD. One potential reason for the significant difference in the number of recommendations per agency could be the extent to which the agencies were compliant under IPERA over the past 5 years. For example, NRC has been reported as compliant for the past 5 years, whereas HUD has been reported as noncompliant for the past 3 years.

As noted in figure 10, there were 105 recommendations open as of December 31, 2016. While the majority of the open recommendations were made in the past 2 years, and the agencies may not have had sufficient time to implement the necessary corrective actions, there was 1 recommendation from fiscal year 2011 that was still open at the time of our review. Specifically, in the HHS IG’s fiscal year 2011 IPERA compliance report issued in March 2012, the HHS IG recommended that HHS develop an improper payment estimate (one of the six IPERA criteria) for the Temporary Assistance for Needy Families (TANF) program and, if necessary, seek statutory authority to require state participation in such a measurement. In the HHS IG’s fiscal year 2015 IPERA compliance report issued in May 2016, the HHS IG made another recommendation for HHS to publish an estimate for TANF. Specifically, the IG recommended that HHS continue to work with OMB to implement one of the OMB-suggested potential alternative approaches to reporting on TANF improper payments in fiscal year 2016.

According to HHS’s fiscal year 2016 AFR, issued in November 2016, HHS plans to encourage Congress to consider statutory modifications that would affect the development of an improper payment estimate when legislation is considered to reauthorize TANF. In addition, in a June 2016 letter to Congress, HHS stated that it wanted to work with Congress to address a set of issues concerning the TANF program related to accountability and how funds are used. Until HHS develops an improper payment estimate for TANF, HHS will continue to be reported as noncompliant with the IPERA criteria that agencies publish improper payment estimates and corrective action plans for all susceptible programs. Based on the HHS IG’s fiscal year 2015 compliance report, HHS was noncompliant with five of the six IPERA criteria; however, its noncompliance with the IPERA criteria to publish an improper payment estimate and publish a corrective action plan was based on the TANF program only.

The open recommendations address a number of improper payment issues, including compliance under IPERA. We reviewed the open recommendations for the 15 agencies reported as noncompliant for fiscal year 2015, and as shown in figure 11, we found that agencies generally had open recommendations for each of the IPERA criteria for which they were reported as noncompliant. If the agencies take the necessary corrective actions to address the IGs’ open recommendations, the number of noncompliant agencies could decrease in future fiscal years, if no new compliance issues arise. In addition, as shown in figure 11, recommendations designed to address noncompliance with certain IPERA criteria were closed by some of the IGs after their fiscal year 2015 IPERA compliance reports were issued. Although these agencies may have taken corrective actions that resulted in the IGs closing the recommendations, the compliance results for these agencies for fiscal year 2016 were not published at the time of our review.

As noted in figure 11, the 3 agencies (DOL, SBA, and Treasury) that did not report improper payment rates below 10 percent either submitted plans to address noncompliance to Congress or submitted proposed statutory changes. For example, in June 2015, Treasury submitted proposed statutory changes to reduce the improper payment rate of the Earned Income Tax Credit program, which reported an estimated improper payment rate of 23.8 percent in fiscal year 2015. Specifically, according to the Treasury IG’s fiscal year 2015 IPERA compliance report, the proposed statutory change would help prevent the improper issuance of billions of dollars in refunds as it would provide the Internal Revenue Service (IRS) with expanded authority to systematically correct erroneous claims that are identified when tax returns are processed, which, according to Treasury, would allow the IRS to deny erroneous Earned Income Tax Credit refund claims before they are paid. However, as of March 2017, legislation had not been enacted to provide Treasury with this authority.

Related to its noncompliance with the IPERA criterion to report an improper payment rate below 10 percent, DOL submitted a legislative proposal in October 2016 to make changes to the federal-state unemployment compensation system to help reduce improper payments. DOL’s Unemployment Insurance program was its only program that reported an improper payment rate over 10 percent, and that program was compliant with the remaining IPERA criteria. However, as of March 2017, legislation had not been enacted to make changes to the federal-state unemployment compensation system. Related to SBA’s fiscal year 2015 noncompliance with the IPERA criterion to report an improper payment rate below 10 percent, its IG noted that the improper payment rate for one program (Disbursements for Goods and Services) increased from 8.46 percent in fiscal year 2014 to 13.52 percent in fiscal year 2015. Although the IG did not issue a recommendation in its fiscal year 2015 IPERA compliance report to address such noncompliance, the IG reported that SBA submitted a letter to Congress and OMB detailing how it would become compliant under IPERA. SBA’s March 2016 letter to Congress included SBA’s corrective action plan for reducing improper payments in its Disbursements for Goods and Services program.

Conclusions

The total amount of estimated improper payments reported government- wide has been estimated to total over $1.2 trillion from fiscal year 2003 through fiscal year 2016. Five years after the implementation of IPERA, 15 of the 24 CFO Act agencies were reported as noncompliant under IPERA for fiscal year 2015. Although noncompliance under IPERA continues to be at its highest point, the inconsistencies in IGs’ determinations of noncompliance that we found in the IGs’ fiscal year 2015 IPERA compliance reports may present potentially misleading information to individuals and entities interested in comparative government-wide compliance under IPERA. OMB guidance and IPERA do not specify what, if any, evaluative procedures should be conducted as part of the IGs’ compliance determinations. CIGIE, which represents the IGs, has also not issued such guidance.

In addition, IGs reported programs at 7 agencies as noncompliant for 3 or more consecutive years as of the end of fiscal year 2015, and as a result, the agencies were required to submit certain information to Congress. However, USDA had not submitted the required information despite prior recommendations from its IG and GAO. When agencies do not submit the required information, Congress may lack the information necessary to effectively monitor the implementation of IPERA and take prompt action to address problematic programs.

Recommendations for Executive Action

We are making the following two recommendations: To help ensure that government-wide compliance under IPERA is consistently determined and reported, we recommend that the Director of OMB coordinate with CIGIE to develop and issue guidance, either jointly or independently, to specify what procedures should be conducted as part of the IGs’ IPERA compliance determinations.

To help fulfill USDA’s requirements under IPERA and OMB guidance— that agencies submit proposals to Congress when a program reaches 3 or more consecutive years of noncompliance with IPERA criteria—we recommend that the Secretary of Agriculture submit a letter to Congress detailing proposals for reauthorization or statutory changes in response to 3 consecutive years of noncompliance as of fiscal year 2015 for its Farm Security and Rural Investment Act Program. 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.

Agency Comments

We requested comments on a draft of this report from the 24 CFO Act agencies and their IGs, OMB, and CIGIE. We received letters from CIGIE, HUD, Treasury, and SSA, as well as from the IGs for DHS and HUD. These letters are reprinted in appendixes VIII through XIII. In addition, all of the other agencies and the IGs either notified us that they had no comments or provided their comments via e-mail. Specifically, OMB’s liaison to GAO stated in an e-mail that they had no comments on the report or the recommendation to coordinate with CIGIE to develop guidance. Similarly, USDA’s Acting Deputy Secretary concurred with our recommendation to USDA by e-mail.

We also received technical comments from the Department of Commerce, HHS, HUD, State, Treasury, EPA, NSF, SBA, and SSA, which we incorporated in the report as appropriate. In addition, the IGs for DHS, HUD, State, Treasury, VA, EPA, NASA, NSF, and SSA also provided technical comments, which we also incorporated in the report as appropriate.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Agriculture, the Director of the Office of Management and Budget, and other interested parties. 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 davisbh@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 who made key contributions to this report are listed in appendix XIV.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to review the following: 1. The extent to which the 24 agencies listed in the Chief Financial Officers Act of 1990, as amended (CFO Act), complied with the criteria listed in the Improper Payments Elimination and Recovery Act of 2010 (IPERA), for fiscal years 2011 through 2015 as reported by their inspectors general (IG); the criteria and programs that the IGs concluded were responsible for instances of agency noncompliance and the number of programs at the 24 CFO Act agencies that were reported as noncompliant under IPERA criteria by their IGs for 3 or more consecutive years as of fiscal year 2015: and the extent to which the responsible agencies submitted the required information to Congress. 2. The extent to which CFO Act agency IGs reported that they performed additional optional procedures during their fiscal year 2015 reviews, as outlined in Office of Management and Budget (OMB) guidance contained in OMB Circular No. A-123, Appendix C, OMB Memorandum No. M-15-02 (OMB M-15-02). 3. The extent to which the IGs’ fiscal years 2011 through 2015 IPERA compliance reports included recommendations and the status of these recommendations as of December 31, 2016, and for the open recommendations associated with noncompliant agencies, the extent to which the recommendations were designed to address agencies’ noncompliance with one or more of the six IPERA criteria.

Although the responsibility for complying with provisions of improper payment-related statutes rests with the head of each executive agency, we focused on 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 2015. Our work did not include validating or retesting the data or methodologies used by the IGs to determine and report compliance. We corroborated our findings with OMB and all 24 CFO Act agencies and IGs.

To address our first objective, we identified the requirements that agencies must meet by reviewing the Improper Payments Information Act of 2002 (IPIA), IPERA, the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), and OMB guidance. We analyzed CFO Act agency IGs’ fiscal year 2015 IPERA reports, which were the most current reports available at the time of our review; summarized information related to agency compliance under 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 through 2014, as reported in our June 2016 report on IPERA compliance reporting, and compared agencies’ compliance with each IPERA criterion over fiscal years 2011 through 2015, as reported by the IGs.

In addition, we identified the programs responsible for noncompliance over this period by analyzing and summarizing the determinations made in the IG reports. Further, we reviewed the fiscal years 2015 and 2016 improper payments information, which OMB provided to GAO during the audit of the fiscal years 2016 and 2015 consolidated financial statements of the U.S. Government, and compared such information to the agency financial reports or performance and accountability reports to determine the total improper payment estimate reported for the 24 agencies (see apps. IV and VII, respectively). To determine the extent of inconsistencies between the IGs’ fiscal year 2015 noncompliance determinations, we summarized the noncompliance determinations by “noncompliance based on pass/fail determinations” and “noncompliance based on evaluative procedures.” To determine if agencies responsible for the programs that were reported as noncompliant for 3 or more consecutive years 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 draw conclusions as to the sufficiency or completeness of the information contained in proposals for reauthorization or statutory changes submitted to Congress. Lastly, we corroborated our findings with OMB and all 24 CFO Act agencies and IGs.

To address our second objective, we identified procedures that agencies’ IGs were required to perform during their annual IPERA compliance reviews, as required by IPIA, IPERA, IPERIA, and OMB M-15-02. We also reviewed IPIA, IPERA, IPERIA, and OMB guidance to identify a list of optional procedures. To verify that we had properly identified and categorized the optional IG procedures, we interviewed and obtained confirmation from OMB staff. We reviewed and summarized the CFO Act agencies’ IGs’ fiscal year 2015 IPERA compliance reports to determine if the IGs reported that they performed one or more of the optional procedures. Given that some of the optional procedures were only optional when the IGs were reviewing non-high-priority programs, we determined the population of OMB designated high-priority programs for fiscal year 2015 based on information from www.paymentaccuracy.gov. To verify that this list was reported correctly on the website, we interviewed OMB staff and corroborated the information. For each agency responsible for a non-high-priority program, we reviewed the related IG’s IPERA compliance report for fiscal year 2015 to determine whether the IG reported that it performed one or more of the optional procedures for non- high-priority programs. We did not evaluate the sufficiency of the optional procedures performed by the IGs nor did we determine whether the IGs completed the required procedures, as outlined in IPIA, IPERA, IPERIA, and OMB guidance. Lastly, we corroborated our findings with the 24 CFO Act agencies’ IGs.

To address our third objective, we reviewed the 24 CFO Act agency IGs’ fiscal years 2011 through 2015 IPERA compliance reports to determine the number of recommendations made by the IGs. To determine the status of the recommendations as of December 31, 2016, we reviewed the recommendation status information obtained from the IGs. To determine whether the IGs associated with the 15 noncompliant agencies had open recommendations that were designed to address the agencies’ noncompliance with one or more of the six IPERA criteria, we reviewed and categorized the IGs’ open recommendations, as of December 31, 2016. For those agencies that did not have open recommendations, as of December 31, 2016, that addressed the agencies’ noncompliance with the IPERA criteria, we determined whether any of the closed recommendations addressed noncompliance with the IPERA criteria and were closed after the IGs’ fiscal year 2015 IPERA compliance reports were issued in May 2016. For the noncompliant agencies that did not have any open recommendations or recommendations that were closed after May 2016 that were designed to address the agencies’ noncompliance with one or more of the six IPERA criteria, we determined whether those agencies submitted information to Congress to address IPERA noncompliance, such as reauthorization proposals, proposed statutory changes, or agency action plans. Lastly, we corroborated our findings with the respective agencies and their IGs.

We conducted this performance audit from June 2016 to May 2017 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 Reported as Noncompliant under IPERA by IGs for Fiscal Year 2015

Figures 12 and 13 detail agencies’ compliance under Improper Payments Elimination and Recovery Act of 2010 criteria, as reported by their inspectors general, for fiscal year 2015.

Appendix III: CFO Act Agencies and Programs Reported as Noncompliant under IPERA by Their IGs for Fiscal Year 2015

Table 2 lists the Chief Financial Officers Act of 1990 agencies and their programs that their inspectors general reported in fiscal year 2015 were noncompliant under the Improper Payments Elimination and Recovery Act of 2010.

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

Table 3 lists the Office of Management and Budget (OMB)-reported improper payment estimates by agency and program or activity for fiscal year 2015, which relate to fiscal year 2015 compliance determinations of the CFO Act agency inspectors general (IG) as discussed in this report. As noted in table 3, excluding the Defense Finance Accounting Service Commercial Pay program, there were 115 Chief Financial Officers Act of 1990 agency programs that reported an improper payment estimate (either a zero estimate or higher) for fiscal year 2015. Appendix VII details the fiscal year 2016 improper payment estimates, which OMB provided to GAO in December 2016 during the audit of the fiscal years 2016 and 2015 consolidated financial statements of the U.S. government; the IGs’ reports regarding such estimates are due in May 2017.

Appendix V: Optional Procedures Performed by the IGs during Their Fiscal Year 2015 IPERA Compliance Reviews

Table 4 summarizes the optional procedures the CFO Act agency inspectors general reported that they performed during their fiscal year 2015 IPERA compliance reviews.

Appendix VI: Fiscal Years 2011 through 2015 Compliance Results and the Status of the IGs’ Recommendations

Table 5 details the status of the recommendations made in the Improper Payments Elimination and Recovery Act of 2010 (IPERA) compliance reports of the CFO Act agency inspectors general (IG) for fiscal years 2011 through 2015, as of December 31, 2016. The IGs’ recommendations address a number of improper payment issues, including compliance under IPERA. The number of open and closed recommendations, as well as the total number of recommendations, excludes the same (or similar) recommendations that were repeated from a prior year. Additional information regarding the status of the recommendations can be found in the IGs’ annual IPERA compliance reports.

Appendix VII: Reported Improper Payment Estimates by Agency and Program/Activity for Fiscal Year 2016

Table 6 lists Office of Management and Budget (OMB)-reported improper payment estimates by agency and program or activity for fiscal year 2016, which OMB provided to GAO in December 2016 during the audit of the fiscal years 2016 and 2015 consolidated financial statements of the U.S. government. The IGs’ reports regarding these estimates are due in May 2017. As noted in table 6, excluding the Defense Finance Accounting Service Commercial Pay program, there were 105 Chief Financial Officers Act of 1990 agency programs that reported an improper payment estimate (either a zero estimate or higher) for fiscal year 2016. The total government-wide improper payment estimate for fiscal year 2016 totaled $144.3 billion for 112 federal entity programs that reported estimates.

Appendix VIII: Comments from the Council of the Inspectors General on Integrity and Efficiency

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

Appendix X: Comments from the Department of Housing and Urban Development

Appendix XI: Comments from the Department of Housing and Urban Development Office of Inspector General

Appendix XII: Comments from the Department of the Treasury

Appendix XIII: Comments from the Social Security Administration

Appendix XIV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Phillip McIntyre (Assistant Director), Michelle Philpott (Auditor in Charge), John Craig, Melanie Darnell, Sophie Geyer, Wilfred Holloway, Jason Kelly, Jason Kirwan, Emily Matic, Brian Paige, Dacia Stewart, and Fabiola Torres made key contributions to this report.