Responses to Posthearing Questions Related to Agencies' Progress in Addressing Improper Payment and Recovery Auditing Requirements
GAO-07-834R, May 30, 2007
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On March 29, 2007, we testified before the Senate Committee on Homeland Security and Governmental Affairs, Federal Financial Management, Government Information, Federal Services, and International Security Subcommittee at a hearing entitled, "Eliminating and Recovering Improper Payments." At the hearing, we discussed federal agencies' progress in addressing key requirements of the Improper Payments Information Act of 2002 (IPIA) and Section 831 of the National Defense Authorization Act for Fiscal Year 2002, commonly known as the Recovery Auditing Act. Our review and testimony focused on (1) trends in agencies' reporting under IPIA from fiscal years 2004 through 2006, (2) challenges in reporting improper payment information and improving internal control, and (3) agencies' reporting of recovery auditing efforts. This letter responds to Congress's April 18, 2007, request to provide answers to follow-up questions relating to our March 29, 2007, testimony. The responses are based on work associated with previously issued GAO products and data reported in agencies' performance and accountability reports (PAR).
Generally, improper payments result from a lack of or an inadequate system of internal controls, but some result from program design issues. For fiscal year 2006, agency auditors reported numerous internal control weaknesses that could increase the risk of improper payments. As we stated in our testimony, IPIA does not include a separate reporting requirement for auditors to assess agencies' compliance with the act. However, where agencies' auditors have elected to test specific compliance with IPIA, their assessments have provided a valuable independent validation of agencies' efforts to implement the act. Identification of any deficiencies in implementing IPIA helps agencies determine if risks exist, what those risks are, and the potential or actual effect of those risks on program operations. Independent assessments of these estimates would also enhance an agency's ability to identify sound performance measures, monitor progress against those measures, and help establish performance and results expectations. Finally, independent assessments of agencies' improper payments estimates would enable agencies and others with oversight and monitoring responsibilities to measure progress over time and determine whether further action is needed to minimize future improper payments. As we reported in our testimony, the $42 billion total improper payment estimate reported by agencies for fiscal year 2006 may not reflect the full magnitude of total improper payments. We noted that agencies employed different sampling methodologies to estimate improper payments, including statistical sampling, nonstatistical sampling, or a combination of the two. Results of a nongeneralizable, or judgmental, sample may not be extrapolated beyond the sample transactions tested. Agency statisticians should be engaged throughout the sampling process, from design of the sampling methodology to evaluation of the results. This is consistent with the Office of Management and Budget's (OMB) revised IPIA implementation guidance, which provides general steps that agencies should follow to obtain a statistically valid improper payment estimate. The current IPIA reporting requirements increase the visibility over the governmentwide improper payments problem and transparency of agencies' efforts to address improper payments in their programs. Improper payments are a significant problem in the federal government and information on actions taken, and the results of those actions, is a critical element in the overall process of reducing improper payments. We reported in November 2006 that OMB's implementation of IPIA's general criteria to identify risk-susceptible programs limits the disclosure and transparency of governmentwide improper payments. This limitation does not further the objectives of IPIA, as programs that do not meet OMB's criteria of exceeding $10 million and 2.5 percent of program payments are excluded from agencies' improper payment reporting. In response to posthearing questions related to our December 5, 2006, testimony, we included suggested language for amending IPIA for better transparency and disclosure of improper payments reporting. As we reported in our March 2007 testimony, the number of agencies reporting recovery auditing information, including the dollar amounts identified for recovery and actually recovered, had increased from fiscal year 2004 to 2006. We also reported that agencies conducted in-house recovery audits, contracted out their recovery audit services, or used a combination of the two methods. However, we have not analyzed the relative effectiveness of the different types of methods agencies used to recover overpayments.