In an effort to reduce and ultimately eliminate billions of dollars in improper payments made by federal agencies each fiscal year, Congress passed the Improper Payments Information Act (IPIA; P.L. 107-300 ; 116 Stat. 2350) in 2002. IPIA established an initial framework for identifying, measuring, preventing, and reporting on improper payments at each agency. Separately, Congress also passed legislation, the Recovery Audit Act of 2002 ( P.L. 107-107 ; Section 831; 115 Stat. 1186), which required agencies that awarded more than $500 million annually in contracts to implement plans to recover overpayments to contractors. Reports on improper payments and recovery audits were first issued for FY2004. After five years of reporting, the data showed that progress under IPIA was uneven—while many individual programs reduced their improper payment rates, the total amount of improper payments and the government-wide improper payment rate both increased between FY2004 and FY2008. During that same time period, Government Accountability Office (GAO) auditors had identified weaknesses in numerous agencies' recovery audit programs. In response, Congress passed new legislation, the Improper Payments Elimination and Recovery Act of 2010 (IPERA; P.L. 111-204 ; 124 Stat. 2224), which amended and consolidated the requirements of both IPIA and the Recovery Audit Act. As discussed below, IPERA retained the core provisions of the IPIA while requiring improvements in agency improper payment estimation methodologies and improper payment reduction plans. It also significantly expanded the scope and reporting requirements of recovery audit programs. IPERA defines an improper payment as a payment that should not have been made or that was made in an incorrect amount, including both overpayments and underpayments. This definition includes payments that were made to an ineligible recipient, duplicate payments, payments for a good or service not received, and payments that do not account for credit for applicable discounts. Under IPERA, "payment" is defined as a transfer or commitment to transfer federal funds in the future—including cash, securities, loans, loan guarantees, and insurance subsidies—to a nonfederal entity. Thus, the law applies to federal funds paid or obligated by a federal agency to nonfederal grantees, contractors, and loan recipients, including state or local governments who administer federal programs or activities. IPERA requires agencies to take specific steps to identify and reduce improper payments. First, it requires agencies to perform a risk assessment of all programs and activities and identify those that were susceptible to "significant" improper payments. IPERA defined "significant" for FY2011 and FY2012 as either (1) improper payments that exceed both $10 million and 2.5% of program or activity outlays; or (2) improper payments in excess of $100 million. Beginning in FY2013, the 2.5% threshold dropped to 1.5%, with other aspects of the definition unchanged. IPERA also requires agencies to perform the initial risk assessment for every program and activity during the year in which IPERA was enacted (i.e., in 2011) and to perform subsequent risk assessments at least every three years. When performing risk assessments, IPERA requires agencies to consider several risk factors that may make a program or activity susceptible to "significant" improper payments: whether the program or activity is new to the agency; the complexity of the program or activity; the volume of payments; whether payments or payment eligibility decisions are made outside the agency, such as by a state government; recent major changes in program funding, authorities, practices, or procedures; the level of experience and quality of training for personnel responsible for making program eligibility determinations or certifying that payments are accurate; and major deficiencies in an agency's audit report or other source that might result in inaccurate payment certification. Once a program or activity has been identified as susceptible to "significant" improper payments, agencies are required to estimate the amount of improper payments made under each. IPERA requires agencies to report on the actions they have taken to reduce improper payments for each program and activity in the accompanying materials to their annual financial statement. IPERA also requires agencies to provide an estimate of improper payments for each program or activity identified as susceptible through the risk assessment, and to describe the causes of improper payments, the actions planned or taken to correct those problems, and when those actions were completed or will be completed. Target dates for achieving reductions in improper payments must be approved by the Office of Management and Budget (OMB), and agencies must include annual performance criteria used to hold the appropriate parties accountable for meeting those targets—whether they work for the agency or for a state or local government that helps implement the program. The performance criteria must also include an evaluation of the internal controls within the agency, or state or local government, that are intended to prevent, detect, and recover improper payments. IPERA also requires agencies to include a statement as to whether they have sufficient resources to develop their own internal controls for reducing improper payments—such as human capital and information systems—and, if not, to identify what additional resources are needed to do so. OMB is also required to establish criteria that agencies must meet to demonstrate that they have effective internal control systems. IPERA also requires OMB to submit a report to two congressional committees—the House Committee on Oversight and Government Reform and the Senate Committee on Homeland Security and Governmental Affairs—that provides a government-wide summary of agency efforts to reduce and recover improper payments. This report must include (1) government-wide improper payment reduction targets; (2) the compliance status of each agency; (3) a discussion of progress made towards meeting improper payment reduction targets; and (4) a summary of the improper payment reduction and recovery actions of each agency. IPERA further directs OMB to provide guidance on the timing and format of the improper payments reports required by IPERA, both at the agency level and government wide. OMB's guidance, which was issued in 2011, is discussed in detail in the " OMB Guidance " section of this report. The inspector general of each agency must determine whether the agency is in compliance with IPERA and report its findings to the head of the agency, the Comptroller General, the House Committee on Oversight and Governmental Reform, and the Senate Committee on Homeland Security and Government Affairs. An agency is deemed in compliance if it has published an annual financial statement; conducted risk assessments for each program or activity; published improper payment estimates, corrective action plans, and improper payment reduction targets for all risk-susceptible programs and activities; and reported no improper payment rate that met or exceeded 10%. By definition, then, an agency must report that all of its programs and activities have an improper payment rate of less than 10% to be deemed in compliance with IPERA. Agencies that are deemed noncompliant must submit a plan to Congress that describes the steps they will take to become fully compliant. The plan must include (1) measurable milestones that will result in compliance for each program or activity deemed noncompliant; (2) the name of a senior agency official who is responsible for ensuring the agency becomes compliant; and (3) an "accountability mechanism" that may include incentives and consequences tied to the ability of the responsible official to bring the agency into compliance. If an agency is deemed noncompliant for two consecutive years, and OMB has determined that additional funding would help the agency become compliant, then the agency head would be required to obligate additional funds—in an amount determined by OMB—for "intensified compliance efforts." IPERA does not provide agencies with new authority for transferring funds. Agencies that were unable to obligate all of the additional funds required by OMB under their existing authorities, then, would need statutory authority to transfer funds under Title 31 of the U.S. Code . If an agency is deemed noncompliant for three or more consecutive years for the same program or activity, then the agency must submit to Congress reauthorization proposals for those programs or activities, along with proposed statutory changes that may bring the agency into compliance. IPERA gives OMB the authority to conduct compliance pilot programs to "test potential accountability mechanisms" and to report the findings from those pilot programs within five years from enactment (i.e., before July 22, 2015). A recovery audit, or payment recapture audit, is a review process designed to identify overpayments. According to OMB guidance, "It is not an audit in the traditional sense. Rather it is a detective and corrective control activity designed to identify and recapture overpayments, and, as such, is a management function and responsibility." IPERA requires agencies to perform recovery audits on each program or activity with expenditures of $1 million or more per year. In addition, the legislation stipulates that the performance of recovery audits is conditional on cost-effectiveness, though the term "cost-effective" is not defined in law. IPERA contains provisions for the conduct of these recovery audits. The legislation establishes agencies' threshold requirement for recovery auditing, details certain procedures for the performance of recovery audits, mandates collection of overpayments, specifies disposition allotments for recovered amounts, and imposes reporting requirements on actions to recover improper payments. The legislation institutes two procedural requirements for the conduct of recovery audits. First, it requires agencies to prioritize both the most recent payments and those deemed susceptible to "significant" improper payments. Second, the legislation specifies options for recovery audit services—they could be performed within the agency itself or by other U.S. departments and agencies, or private sector services could be procured by contract. Although IPERA permits contractors to conduct recovery audits on agencies' behalf, it circumscribes their scope of authority.