Fiscal year 2011 marked the eighth year of implementation of the Improper Payments Information Act of 2002 (IPIA), as well as the first year of implementation for the Improper Payments Elimination and Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies to annually review all programs and activities to identify those that are susceptible to significant improper payments, estimate the annual amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce improper payments for programs with estimates that exceed $10 million. IPERA, enacted July 22, 2010, amended IPIA by expanding on the previous requirements for identifying, estimating, and reporting on programs and activities susceptible to significant improper payments and expanding requirements for recovering overpayments across a broad range of federal programs. IPERA included a new, broader requirement for agencies to conduct recovery audits, where cost effective, for each program and activity with at least $1 million in annual program outlays. This IPERA provision significantly lowers the threshold for required recovery audits from $500 millionprograms and activities. Another new IPERA provision calls for federal agencies’ inspectors general to annually determine whether their respective agencies are in compliance with key IPERA requirements and to report on their determinations. Under Office of Management and Budget (OMB) implementing guidance, these reports are required to be completed within 120 days of the publication of the federal agencies’ annual PAR or AFR, with the fiscal year 2011 reports for most agencies due on March 15, 2012. to $1 million and expands the scope for recovery audits to all OMB continues to play a key role in the oversight of the governmentwide improper payments problem. OMB has established guidance for federal agencies on reporting, reducing, and recovering improper payments has established various work groups responsible for developing recommendations aimed at improving federal financial management activities related to reducing improper payments. OMB, Circular No. A-136 Revised, Financial Reporting Requirements (Oct. 27, 2011); OMB Memorandum M-11-16, Issuance of Revised Parts I and II to Appendix C of OMB Circular A-123 (Apr. 14, 2011); OMB Memorandum M-11-04, Increasing Efforts to Recapture Improper Payments by Intensifying and Expanding Payment Recapture Audits (Nov. 16, 2010); and OMB Memorandum M-10-13, Issuance of Part III to OMB Circular A- 123, Appendix. C (Mar. 22, 2010). Federal agencies reported improper payment estimates totaling $115.3 billion in fiscal year 2011, a decrease of $5.3 billion from the revised prior year reported estimate of $120.6 billion. Based on the agencies’ estimates, OMB estimated that fiscal year 2011 improper payments comprised about 4.7 percent of the $2.5 trillion in total spending during that year for the agencies’ related programs (i.e., a 4.7 percent error rate). The decrease in the fiscal year 2011 estimate is attributed primarily to decreases in program outlays for the Department of Labor’s Unemployment Insurance program, and decreases in reported error rates for fiscal year 2011 (compared to fiscal year 2010) for the Department of the Treasury’s (Treasury) Earned Income Tax Credit program and the Department of Health and Human Services’ (HHS) Medicare Advantage program. The $115.3 billion in estimated federal improper payments reported for fiscal year 2011 was attributable to 79 programs spread among 17 agencies. Ten of these 79 programs account for most of the $115.3 billion of reported improper payments. Specifically, as shown in table 1, these 10 programs accounted for about $107 billion or 93 percent of the total estimated improper payments agencies reported for fiscal year 2011. The 10 programs with the highest error rates had rates ranging from 11.0 percent to 28.4 percent. Specifically, as shown in table 2, those 10 programs accounted for $45 billion, or 39 percent of the total estimated improper payments for fiscal year 2011. Since the implementation of IPIA in 2004, federal agencies have continued to identify new programs or activities as risk-susceptible and report estimated improper payment amounts. The fiscal year 2011 governmentwide estimate of $115.3 billion included improper payment estimates for nine additional programs that did not report an estimate in fiscal year 2010, with the HHS Medicare Prescription Drug Benefit (Part D) program having the highest estimate of the newly included programs. We view these agencies’ efforts as a positive step towards increasing the transparency of the magnitude of improper payments. However, three additional programs providing estimates in fiscal year 2011 were not included in the governmentwide totals because their estimation methodologies were still under development. The three excluded programs were the: Department of Education’s Direct Loan, Department of Defense’s (DOD) Defense Finance and Accounting Service Commercial Pay, and DOD’s Army Corps of Engineers Commercial Pay. A number of federal agencies have reported progress in reducing improper payment error rates in some programs and activities. For example, we identified 40 federal agency programs, or about 50 percent of the total programs reporting improper payment estimates in fiscal year 2011, that reported a reduction in the error rate of estimated improper payments in fiscal year 2011 when compared to fiscal year 2010 error rates. We caution, however, that these rates have not been independently verified or audited. The following are examples of agencies that reported reductions in program error rates and estimated improper payment amounts (along with corrective actions to reduce improper payments) in their fiscal year 2011 PARs, AFRs, or annual reports. Treasury reported that the fiscal year 2011 Earned Income Tax Credit (EITC) program’s estimated improper payment amount decreased from the fiscal year 2010 amount of $16.9 billion to $15.2 billion, which represented a decrease in the error rate from 26.3 percent to 23.5 percent. Treasury reported that corrective actions taken to reduce improper payments primarily focused on completing examinations on tax returns that claimed the EITC before issuing the EITC portion of the refund, identifying math or other statistical irregularities in taxpayer returns, and comparing income information provided by the taxpayer with matching information from employers to identify discrepancies. HHS reported that the fiscal year 2011 estimated improper payment amount for the Medicare Advantage (Part C) program decreased from the fiscal year 2010 reported amount of $13.6 billion to $12.4 billion, which represented a decrease in the error rate from 14.1 percent to 11.0 percent. HHS reported that it reduced payment errors by continuing to routinely implement controls in its payment system to ensure accurate and timely payments, and implementing three key initiatives, including contract level audits, physician outreach, and Medicare Advantage organization guidance and training. In addition, agencies have further developed the use of recovery audits to recapture improper payments. In 2010, the President set goals, as part of the Accountable Government Initiative, for federal agencies to reduce overall improper payments by $50 billion, and recapture at least $2 billion in improper contract payments and overpayments to healthcare providers, by the end of fiscal year 2012. For fiscal year 2011, OMB reported that governmentwide agencies recaptured $1.25 billion in overpayments to contractors and vendors. Over half of this amount, $797 million, can be attributed to the Medicare recovery audit contractor program which identifies improper Medicare payments—both overpayments and underpayments—in all 50 states. Cumulatively, OMB reported $1.9 billion recaptured from overpayments to contractors, vendors, and healthcare providers for fiscal years 2010 and 2011 towards the President’s goal of recapturing at least $2 billion by the end of fiscal year 2012. Despite reported progress in reducing estimated improper payment amounts and error rates for some programs and activities during fiscal year 2011, the federal government continues to face challenges in determining the full extent of improper payments. Specifically, some agencies have not yet reported estimates for all risk-susceptible programs and some agencies’ estimating methodologies need to be refined. We have also found that internal control weaknesses exist, heightening the risk of improper payments occurring. Until federal agencies are able to implement effective processes to completely and accurately identify the full extent of improper payments and implement appropriate corrective actions to effectively reduce improper payments, the federal government will not have reasonable assurance that the use of taxpayer funds is adequately safeguarded. We are currently working on engagements related to improper payment reporting at both DOD and HHS. Furthermore, as I will discuss later in this statement, additional analysis is needed to assess the root causes of improper payments, a key factor in identifying and implementing effective corrective actions. We found that not all agencies have developed improper payment estimates for all of the programs and activities they identified as susceptible to significant improper payments. Specifically, three federal entities did not report fiscal year 2011 estimated improper payment amounts for four risk-susceptible programs. In one example, HHS’s fiscal year 2011 reporting cited various statutory barriers that hindered it from reporting improper payment estimated amounts. HHS cited statutory limitations for its state-administered Temporary Assistance for Needy Families (TANF) program, which prohibited it from requiring states to participate in developing an improper payment estimate for the TANF program. Despite these limitations, HHS officials stated that they will continue to work with states and explore options to allow for future estimates for the program. For fiscal year 2011, the TANF program reported outlays of about $17 billion. For another program, HHS cited the Children’s Health Insurance Program Reauthorization Act of 2009 as prohibiting HHS from calculating or publishing any national or state- specific payment error rates for the Children’s Health Insurance Program (CHIP) until 6 months after the new payment error rate measurement rule became effective on September 10, 2010.