Financial Management:

Challenges in Meeting Requirements of the Improper Payments Information Act

GAO-05-417: Published: Mar 31, 2005. Publicly Released: May 4, 2005.

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Fiscal year 2004 marked the first year that federal agencies governmentwide were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). The increasing scope of reporting over the past several years has demonstrated that improper payments are a significant and widespread problem in federal agencies, and in the past a limited number of agencies reported in their Performance and Accountability Reports (PAR) annual payment accuracy rates and estimated improper payment amounts. Because of your continued interest in addressing the governmentwide improper payments issue, you asked GAO to report on (1) the extent to which agencies have performed the required assessments to identify programs and activities that are susceptible to significant improper payments and (2) the annual amount estimated for improper payments by the agencies.

The federal government made progress in identifying programs susceptible to the risk of improper payments in response to the new IPIA requirements. The fiscal year 2004 PARs for 29 of 35 federal agencies that are significant to the U.S. government's consolidated financial statements show that even with the enhanced emphasis on improper payment reporting fueled by the new legislation, 6 agencies reported that they did not perform risk assessments of all their programs. The magnitude of the governmentwide improper payment problem is still unknown, because agencies have not yet prepared estimates of improper payments for all of their programs. In the 29 agency PARs included in GAO's fiscal year 2004 review, 17 agencies reported over $45 billion of improper payments in 41 programs governmentwide. This represented almost a $10 billion, or 27 percent, increase in the amount of improper payments reported by agencies in fiscal year 2003. This increase was primarily attributable to changes in the method for estimating and reporting improper payment amounts in one major program. Looking forward, future estimates are likely to trend higher because the governmentwide estimate did not include 12 programs with outlays of $248.7 billion in fiscal year 2004 that were required to annually report improper payments under OMB Circular No. A-11 during the past 3 years. This included some of the largest risksusceptible federal programs, such as the Department of Health and Human Services' Medicaid Program, with outlays exceeding $175 billion annually, or the Department of Education's Title I Program, with outlays of over $10 billion annually.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To help ensure the successful implementation of the Improper Payments Information Act of 2002 and its goal of enhancing the accuracy and integrity of federal payments, the Director of the Office of Management and Budget (OMB) should require those agencies that did not address the IPIA requirements or did not perform risk assessments of all of their programs and activities to establish time frames and identify resources needed to perform risk assessments and satisfy reporting requirements.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: The Improper Payments Information Act of 2002 (IPIA) and related OMB implementing guidance require that agencies identify programs and activities susceptible to significant improper payments, estimate amounts improperly paid, and report on the amounts of improper payments and their actions to reduce them. In our March 2005 report GAO-05-417), we determined that 6 agencies (USDA, EPA, FCSIC, NCUA, NSF, PBGC-significant to the U.S. government's consolidated financial statements (CFS)-had not address the IPIA requirements or did not perform risk assessments of all their programs and activities(also known as a risk assessment) as part their fiscal year 2004 IPIA reporting. We recommended that OMB require these agencies to establish time frames and identify resources needed to perform risk assessments and satisfy reporting requirements. Since issuance of our March 2005 report, 4 of the 6 agencies (USDA, NCUA, NSF, PBGC) reported that they had performed agency-wide risk assessments in their annual report. For the remaining 2 agencies, one agency (EPA) was granted relief from OMB, based on OMB's revised guidance, from conducting a risk assessment until fiscal year 2010. While the other agency (FCSIC, an independent federal corporation), had not addressed the IPIA requirements, the actions substantially address the intent of our recommendation.

    Recommendation: To help ensure the successful implementation of the Improper Payments Information Act of 2002 and its goal of enhancing the accuracy and integrity of federal payments, the Director of OMB should develop a plan to address the resource needs of those agencies that did not perform risk assessments or satisfy reporting requirements.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: The Improper Payments Information Act of 2002 (IPIA) and related OMB implementing guidance require that agencies identify programs and activities susceptible to significant improper payments, estimate amounts improperly paid, and report on the amounts of improper payments and their actions to reduce them. In our March 2005 report (GAO-05-417), we determined that OMB 6 agencies (USDA, EPA, FCSIC, NCUA, NSF, PBGC)-significant to the U.S. government's consolidated financial statements (CFS)- had not addressed the IPIA requirements as part their fiscal year 2004 IPIA reporting. We recommended that OMB develop a plan to address the resource needs of those agencies that did not perform risk assessments or satisfy reporting requirements. Since issuance of our March 2005 report, 5 of the 6 agencies (USDA, EPA, NCUA, NSF, PBGC) had addressed IPIA in their annual reporting. Of the 5 agencies, 4 agencies (USDA, NCUA, NSF, and PBGC) reported on applicable IPIA requirements, including conducting agency-wide risk assessments. For the remaining 1 agency (EPA), it was granted relief from OMB (based on OMB's August 2006 revised guidance) from conducting a risk assessment until fiscal year 2010. The other agency (FCSIC) has not addressed IPIA in any of its annual reports since fiscal year 2004 governmentwide implementation. However, this agency is an independent federal corporation and is not significant to the governmentwide improper payments problem. Consequently, the actions taken substantially address the intent of our recommendation.

    Recommendation: To help ensure the successful implementation of the Improper Payments Information Act of 2002 and its goal of enhancing the accuracy and integrity of federal payments, the Director of OMB should consider as part of the budget process, for any agency that OMB deems to have not taken the IPIA requirements seriously or that has lagged behind, the feasibility of disincentives for poor performance, such as reductions in funds for the program involved or adding incentives such as gain sharing for making substantive progress.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: The Improper Payments Information Act of 2002 (IPIA) and related OMB implementing guidance require that agencies identify programs and activities susceptible to significant improper payments, estimate amounts improperly paid, and report on the amounts of improper payments and their actions to reduce them. In our March 2005 report (GAO-05-417), we found that the governmentwide improper payment estimate did not include 12 programs (Agriculture Marketing and Assistance, Foster Care, State Children's Insurance Program, Child Care Development Fund, 7(a) Business Loan Program, Medicaid, School Programs, Women Infant and Children Program, Workforce Investment Act, Title I, Temporary Assistance for Needy Families, and Community Development Block Grant) with outlays of $248.7 billion in fiscal year 2004 that were required to annually report improper payments under IPIA and had previous improper payment reporting requirements (pre-IPIA) under OMB Circular No. A-11. We recommended that OMB consider, as part of its budget process for any agency that OMB deems to have not taken the IPIA requirements seriously or that has lagged behind, the feasibility of disincentives for agencies' poor performance or adding incentives for agencies making substantive progress. Consistent with the intent of our March 2005 recommendation, agencies have since reported improper payment estimates for these 12 programs demonstrating that agencies have taken the IPIA requirements seriously.

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