The FECA program provides wage loss compensation and payments for medical treatment to federal employees who are injured in the performance of their federal duties. During fiscal year 2006, OWCP made over $1.8 billion in wage-loss-compensation payments to injured federal employees (“claimants”) and processed approximately 20,000 new wage loss claims. At the end of fiscal year 2006, over 55,000 claimants were receiving regular monthly wage-loss-compensation payments from OWCP. Federal agencies use their own annual appropriations to reimburse Labor for wage-loss-compensation payments made to their employees each year, while most of the program’s administrative costs are covered by direct appropriations from the Congress. For fiscal year 2008, Labor requested that the Congress provide $93.4 million in administrative funding for the FECA program and sought an additional $52.3 million from certain federal agencies for administrative purposes. In total, this funding would provide 895 full-time equivalent positions for the FECA program. USPS pays more in FECA compensation than any other federal agency. In 2004, USPS paid approximately $852 million in wage loss compensation. During this same period, the Departments of Navy and Army paid the second and third highest amounts in FECA wage loss compensation to injured civilian employees of their agencies, approximately $245 and $177 million dollars, respectively. Claims examiners at OWCP’s 12 district offices determine applicants’ eligibility for FECA benefits and process claims for wage loss payments. FECA divides work-related injuries into two categories: “traumatic injuries” and “occupational illnesses or diseases.” Traumatic injuries are wounds or other conditions that occur within a single day or work shift, such as when an employee slips at work and sprains his ankle. An occupational illness or disease is a physical condition produced by the work environment over a period longer than one workday or shift, such as carpal tunnel syndrome. In this report, we use the term “injuries” to refer to both workers who have sustained traumatic injuries and workers who have experienced an occupational illness or disease. FECA regulations specify complex criteria for computing compensation payments. Using information provided by the employing agency and the claimant on a claims form, OWCP calculates compensation based on a number of factors, including the claimant’s rate of pay, deductions for health and life insurance benefits, the claimant’s marital status, and whether or not the claimant has dependents. In addition, claimants cannot receive FECA benefits at the same time they receive certain other federal disability or retirement benefits. For example, claimants cannot receive both FECA wage-loss-compensation payments and disability payments from the Department of Veterans Affairs (VA) for the same injury. Further, claimants cannot receive federal retirement benefits paid through the Office of Personnel Management (OPM) concurrently with FECA benefits and must elect to receive one or the other. However, a claimant can receive both FECA and SSA retirement benefits, although the claimant’s FECA wage-loss-compensation payments should be reduced by the amount of SSA retirement benefits attributable to federal service. Similarly, a claimant can receive both FECA and SSA disability benefits, although SSA is required to reduce the level of disability benefits it pays by the amount of FECA wage loss compensation received by the claimant. Figure 1 details the process for filing and calculating claims for wage loss compensation under the FECA program. Based on various eligibility factors, the amount of wage loss compensation OWCP pays claimants varies widely. For example, a claimant who earned $2,500 per month ($30,000 a year), paid $67 a month for health insurance benefits, and had no dependents would receive approximately $1,600 a month in FECA wage loss compensation. A married claimant who earned $8,500 per month ($102,000 a year) and paid $150 a month for health insurance benefits would receive approximately $6,050 a month in FECA compensation. Compensation payments are issued on a monthly or weekly basis. Claimants who are expected to experience wage loss for longer than 3 months receive automatic monthly payments as long as their eligibility for wage loss compensation continues. Alternatively, claimants who are expected to recover more quickly and return to work within 3 months are required to file new claims forms each payment cycle in order to prove that they were off work and receive manually generated payments. OWCP provides wage loss compensation until claimants can return to work in either their original positions or other suitable positions that meet medical work restrictions. If claimants return to work but do not receive wages equal to that of their prior positions—such as claimants who return to work part-time—FECA benefits cover the difference between their current and previous salaries. FECA regulations require claims examiners to verify annually that claimants who are receiving automatic monthly compensation payments remain eligible for compensation. This verification process relies almost entirely on information provided by claimants on a form that OWCP mails them each year. Claims examiners are responsible for following up and taking necessary action to ensure that the forms are completed and returned, and can suspend compensation payments if a claimant fails to submit the form within the specified time period. Once returned, claims examiners review the forms for indications that a claimant’s eligibility has changed and adjust the compensation payments accordingly. For example, if a married claimant indicates that he divorced his wife and does not have any other dependents, the claims examiner should reduce his wage-loss- compensation payment from three-quarters of his salary to two-thirds of his salary. The Improper Payment Information Act enacted in 2002 requires the heads of federal agencies to annually review all programs and activities they administer, identify those that may be susceptible to significant improper payments, and estimate and report the annual amount of improper payments in those programs and activities. The Office of Management and Budget (OMB) defines significant improper payments as payments in any program that exceed both 2.5 percent of total payments and $10 million annually. In addition, OMB has previously identified other programs, including the FECA program, as being at a high risk of improper payments because its total payments exceed $2 billion annually. Because of this high risk designation, Labor must annually estimate the improper payment rate for the FECA program and report this rate in its Performance and Accountability Report, as well as identify the causes of improper payments and report the corrective actions it plans to take to address them. Once an overpayment has been identified by OWCP, the actions taken to recover it depend on the amount of the overpayment. Because of the administrative costs associated with recovering overpayments, OWCP allows claims examiners to waive overpayments less than $200 without taking any action to recover them. For overpayments $200 or greater, claims examiners must send a notice of the overpayment (called a “preliminary notice”) to the claimant within 30 days. The claimant then has 30 days to respond to the preliminary notice and contest the overpayment. If a claimant does not repay the overpayment or appeal the overpayment decision within 30 days of the preliminary notice, claims examiners must issue an additional notice (called the “final notice”) that provides a recovery strategy to the claimant, such as a suggested repayment schedule. As shown in figure 2, the recovery options available to claims examiners depend on whether the claimant continues to receive FECA or other federal compensation payments, the amount of the overpayment, and whether the claimant was found to be at fault in the creation of the overpayment. If the debt is delinquent for 180 days and the claimant has not responded to two additional letters from OWCP demanding repayment, the claims examiner is required to refer the debt to the Department of the Treasury (Treasury) for recovery. OWCP has not established an effective strategy for managing improper FECA payments. The agency does not sufficiently emphasize preventing, detecting, and recovering improper payments. Program staff reported that they focused on the aspects of the claims process that are regularly tracked and measured by managers and said preventing, detecting, and recovering improper payments are often lower priorities. In addition, OWCP lacks the data needed to accurately assess the program’s risk of improper payments. The agency does not collect data on the magnitude or causes of improper payments, making it difficult to identify vulnerabilities that lead to payment errors, implement procedures to prevent them, or evaluate their effectiveness. For the past 5 years, none of the national goals established for the FECA program have addressed improper payments but have focused primarily on improving service delivery. Two of the five national goals set time frames for returning claimants to work; two focus on minimizing medical and compensation costs, and the fifth goal addresses improving customer service by quickly responding to claimant and agency inquiries. Past GAO work has shown that emphasizing the prevention, detection, and recovery of improper payments at the managerial level by establishing goals for reducing improper payments is a key aspect of an effective strategy for managing improper payments. Similarly to the national goals, OWCP’s performance goals for its district offices emphasize timely case management, but do not focus on payment accuracy. None of the 21 performance goals for district offices contained in OWCP’s fiscal year 2007 operational plan address preventing or detecting improper payments, although one focuses on recovering delinquent overpayments. As table 1 illustrates, the majority of OWCP’s performance goals for district offices either support the national goals for the program or focus on quickly adjudicating claims and processing payments. While one goal requires district offices to quickly process wage-loss-compensation payments, OWCP has not established a corresponding goal to ensure that these payments are accurate. Although quickly processing claims and payments are important goals, previous GAO work has shown that the risk of improper payments increases when these goals are not balanced with an emphasis on payment accuracy. In commenting on this report, Labor reported that it has included a new measure on the timeliness of processing overpayments in its 2008 operational plan for the FECA program.