One of the five government-wide initiatives in the 2001 President’s Management Agenda (PMA) was improved financial management, which targeted improper payments as an area with opportunities for improvement. This initiative called for the administration to establish a baseline on the extent of improper payments. In July 2001, as part of its efforts to advance the PMA initiative, OMB revised Circular No. A-11 by requiring 16 federal agencies to submit data on improper payments, including estimated improper payment rates. Section 831 of the National Defense Authorization Act for Fiscal Year 2002 included the provisions commonly referred to as the Recovery Auditing Act (RAA).required, among other things, that all executive branch agencies entering into contracts with a total value exceeding $500 million in a fiscal year The RAA have cost-effective programs for identifying errors in paying contractors and for recovering amounts erroneously paid. Fiscal year 2011 marked the eighth year of the implementation of IPIA as well as the first year of implementation of IPERA. IPIA required executive agencies to (1) identify programs and activities susceptible to improper payments (typically referred to as risk assessments), (2) estimate the amount of improper payments in susceptible programs and activities, and (3) report these improper payment estimates and actions taken to reduce them. Among other things, IPERA amended IPIA by changing the definition of programs susceptible to significant improper payments and adding minimum risk factors for agencies to consider in identifying such programs. In addition, IPERA generally repealed the RAA and included a new, broader requirement for agencies to conduct recovery audits, where cost effective, for each program and activity with at least $1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 lowered the threshold for required recovery audits and expanded the scope for recovery audits to all programs and activities, including grant and loan programs. IPERA also added new accountability provisions. For example, in its improper payments reporting, an agency is to describe how it ensures that agency managers, programs, and states and localities (where applicable) are held accountable for meeting applicable improper payment reduction targets as well as establishing and maintaining sufficient internal controls to prevent improper payments and promptly detect and recover those improper payments that are made. The following sections describe key provisions of IPIA, the RAA, and IPERA. Under IPIA, executive agencies were required to annually review all programs and activities that they administer and identify any that may be susceptible to significant improper payments. OMB, in its 2006 guidance,to apply to only those programs and activities where the risk level was unknown. For those programs deemed not risk susceptible, risk assessments were required every 3 years. In addition, the guidance defined “significant improper payments”—the threshold at which agencies must perform an estimate for a program—as annual improper payments in the program exceeding both 2.5 percent of program payments and $10 million. interpreted this IPIA requirement for annual risk assessments IPERA changed several of the requirements associated with risk assessments. Specifically, IPERA did the following: Amended IPIA to require agency heads to review agency programs and activities during the year following IPERA’s enactment and at least once every 3 fiscal years thereafter to identify those that may be susceptible to significant improper payments. Defined “significant” in the law for the purpose of determining a program’s susceptibility to significant improper payments. IPERA defined “significant improper payments” as gross annual improper payments (i.e., the total amount of overpayments plus underpayments) in the program that may have exceeded either (1) both 2.5 percent of program outlays and $10 million, or (2) $100 million (regardless of the improper payment percentage of total program outlays). Included the following minimum risk factors likely to contribute to a susceptibility to significant improper payments that agencies are to consider in performing risk assessments: (1) whether a program or activity is new to the agency; (2) the complexity of the program; (3) the volume of payments made through the program or activity; (4) whether payment decisions are made outside of the agency, such as by a state or local government; (5) recent major changes in program funding, authorities, practices, or procedures; (6) the level, experience, and quality of training for personnel responsible for making eligibility determinations or certifying that payments are accurate; and (7) significant deficiencies in the audit report of the agency or other relevant management findings that might hinder accurate payment certification. Under IPIA, for each program or activity identified as susceptible to significant improper payments, the head of each agency was to (1) estimate the annual amount of improper payments and (2) submit those estimates to Congress before March 31 of the following applicable year, with all agencies using the same method of reporting, as determined by the Director of OMB. IPERA revised the IPIA requirements for estimating improper payments by directing agency heads to produce statistically valid estimates of their agencies’ improper payments, or an estimate that is otherwise appropriate using a methodology approved by the Director of OMB, and to include the annual improper payment estimates in their performance and accountability reports or in the agency financial reports. Under IPIA, annual reporting requirements for reducing improper payments included a description of the steps the agency has taken to ensure that agency managers (including the agency head) are held accountable for reducing improper payments. IPERA amended IPIA’s requirements for reporting on corrective actions. Specifically, it required that agencies’ annual reporting include the estimated completion dates of planned corrective actions. Also, it required agencies to report on steps taken to ensure that states and localities, where applicable, are held accountable for reducing improper payments in the federal programs they implement. OMB’s implementing guidance for IPERA also states that for those agency programs not implemented directly by federal or state agencies or governments, agencies may also consider establishing these accountability mechanisms. OMB encouraged agencies to leverage new technologies and techniques to assist them in preventing and reducing improper payments. Agencies implementing long-term, ongoing corrective actions should annually review their existing corrective actions to determine if any existing action can be intensified or expanded, resulting in a high-impact, high return-on-investment in terms of reduced or prevented improper payments. Recovery audits were not required under IPIA, but were required under the RAA. Specifically, agencies were required to carry out a cost-effective program of recovery audits to identify and recover improper payments to contractors, if they entered into contracts with a total value that exceeded $500 million in a fiscal year. IPERA generally repealed the RAA, expanded the scope for recovery audits beyond commercial payments to include all programs and activities, and lowered the threshold of annual outlays requiring agencies to conduct recovery audits—from $500 million in annual agency contracting to $1 million in annual program expenditures. Specifically, under the recovery auditing provisions of IPERA, agencies are required to identify and recover improper payments by conducting recovery audits, also known as payment recapture audits, for agency programs that expend $1 million or more annually, if such audits would be cost effective. In its November 2010 guidance, OMB required agencies to submit payment recapture audit plans by January 14, 2011, that described the agencies’ current payment recapture efforts under authorities that pre- dated IPERA and their planned payment recapture efforts based on the new authorities provided by IPERA. IPIA required, with respect to any program or activity of an agency with estimated improper payments that exceeded $10 million, the head of the agency to provide along with the estimate a report on what actions the agency was taking to reduce the improper payments, including a discussion of the causes of the improper payments identified, actions taken to correct those causes, and results of the actions taken to address those causes; statement of whether the agency had the information systems and other infrastructure it needed in order to reduce improper payments to minimal cost-effective levels; description of the resources the agency had requested in its budget submission to obtain the necessary information systems and infrastructure if the agency did not have such systems and infrastructure; and description of the steps the agency had taken to ensure that agency managers (including the agency head) were held accountable for reducing improper payments. For RAA, OMB guidance required that agencies include in their annual reporting, among other things, a general description and evaluation of the steps taken to carry out a recovery auditing program, the total amount of contracts subject to review, the actual amount of contracts reviewed, the amounts identified for recovery, and the amounts actually recovered in a current year. Further, OMB Circular No. A-136 required agencies to report cumulative amounts identified for recovery and amounts actually recovered as a part of their current year reporting. IPERA requires the reporting of estimates without regard to thresholds. IPERA and OMB guidance require agencies to report, as part of their agency financial reports, certain information regarding the improper payment estimation process and efforts to recover improper payments. These requirements include, among other things, gross estimates of the annual amount of improper payments (i.e., overpayments plus underpayments) made in the program and a description of the methodology used to derive those estimates; discussion of the root causes of the improper payments identified, actions planned or taken to correct those causes, the planned or actual completion date of those actions, and the results of the actions taken; and discussion of the amount of actual improper payments that the agency expects to recover and how these payments will be recovered. According to OMB’s recovery auditing guidance under IPERA,must continue to report information on improper contract payments reviewed, identified, and recaptured, according to instructions contained in OMB Circulars No. A-123 and A-136. In addition, agencies shall report agencies information on other types of recaptured improper contract payments.