Improper Payments:

Agencies' Fiscal Year 2005 Reporting under the Improper Payments Information Act Remains Incomplete

GAO-07-92: Published: Nov 14, 2006. Publicly Released: Nov 14, 2006.

Additional Materials:

Contact:

Kay L. Daly
2025166906
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Fiscal year 2005 marked the second year that executive agencies were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). As a steward of taxpayer dollars, the federal government is accountable for how its agencies and grantees spend billions of taxpayer dollars and is responsible for safeguarding those funds against improper payments. GAO was asked to determine the progress agencies have made in their improper payment reporting and the total amount of improper payments recouped through recovery auditing. To accomplish this, GAO reviewed improper payment information reported by 35 agencies in their fiscal year 2005 performance and accountability or annual reports.

While making progress, agencies' fiscal year 2005 reporting under IPIA does not yet reflect the full scope of improper payments across executive branch agencies. Major challenges remain in meeting the goals of the act and ultimately improving the integrity of payments. GAO found that these challenges continue to hinder full reporting of improper payment information because of the following three factors: (1) Existing reporting incomplete. Although 18 agencies collectively identified and estimated improper payments for 57 programs and activities totaling $38 billion, some agencies still had not instituted systematic methods of reviewing all programs, resulting in their identification of none or only a few programs as susceptible to significant improper payments. In many cases, these same agencies had well-known and documented financial management weaknesses as well as fraudulent, improper, and questionable payments. Further, improper payment estimates totaling about $389 million for 9 programs were not based on a valid statistical sampling methodology as required. Higher estimates would have been expected had the correct methods been used, given that total outlays for these 9 programs exceeded $58.2 billion. (2) Large programs still not included. Improper payment estimates for 10 risk-susceptible programs with outlays totaling over $234 billion still have not been provided. Most of these programs were subject to Office of Management and Budget (OMB) reporting requirements that preceded IPIA. (3) Threshold criteria limit reporting. The act includes broad criteria to identify risk-susceptible programs. OMB's implementing guidance includes more specific criteria that limit the disclosure and transparency of agencies' improper payments. With regard to agencies' recovery audit efforts, GAO found that the data reported may present an overly optimistic view of these efforts. While 21 agencies were required to report on their recovery audit efforts, GAO identified discrepancies in several agencies' information and found limited reviews over contract payments. For example, for fiscal year 2005, the National Aeronautics and Space Administration (NASA) reported that it had identified and recovered $617,442 in contract payments, a 100 percent recovery rate. Yet, the NASA Office of Inspector General reported it had identified over $515 million in questioned contract costs during fiscal year 2005, of which NASA management decided to pursue recovery of $51 million. Had this amount been compared to the $617,442 NASA actually recovered, its recovery rate would drop from the reported 100 percent to 1.2 percent. In addition, we noted that 5 of the 21 agencies did not review all of their agency components as part of their recovery audit efforts while 2 agencies reported that recovery auditing was not cost beneficial without reporting any details to support this determination.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On July 22, 2010, President Barack Obama signed into law the Improper Payments Elimination and Recovery Act of 2010 (IPERA), Public Law No. 111-204. The act amends the Improper Payments Information Act of 2002 in order to prevent the loss of billions in taxpayer dollars. A key amendment of the act requires that agencies conduct recovery audits with respect to each program and activity that expends $1 million annually if conducting such audits would be cost-effective. The recovery audits would include the recoupment of overpayments related to grants, benefits, loans, and contract payments. As such, payments made under statute or judicial determinations that later are determined to be overpayments would also be subject to recovery audits and collection. IPERA requires that no later than November 1st of each year, each agency shall submit a report on actions taken on any recommendations made by a recovery audit contractor on how to mitigate conditions that gave rise to the overpayments. Further, IPERA requires that the Director of the Office of Management and Budget annually provide government-wide reporting on agencies actions to recover improper overpayments. The reporting elements include(1)a discussion of the methods used by the agency to recover overpayments;(2)the amounts recovered, outstanding, and determined to not be collectable, including the percent such amounts represent of the total overpayments of the agency;(3)if a determination has been made that certain overpayments are not collectable, a justification of that determination; (4)an aging schedule of the amounts outstanding;(5)a summary of how recovered amounts have been disposed of;(6)a discussion of any conditions giving rise to improper payments and how those conditions are being resolved; and (7)a justification for the determination that a recovery audit is not cost-effective. IPERA's requirement for this detailed level of goverment-wide reporting on agencies actions to recover overpayments and conditions giving rise to such overpayments could provide valuable information to Congress, agency management, and other decision maker's on agency overpayments recovered that were initially made under statute or judicial determinations. These statutory reporting requirements sufficiently address the intent of our recommendation.

    Recommendation: To help further the progress toward meeting the goals of IPIA and ensuring the integrity of payments, the Director, Office of Management and Budget, should gather from agencies the dollar amount of payments that agencies make under statute or judicial determinations that later are determined to be overpayments in order for OMB to assess and determine the magnitude of the issue and whether additional reporting is warranted.

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

  2. Status: Closed - Implemented

    Comments: On July 22, 2010, President Barack Obama signed into law the Improper Payments Elimination and Recovery Act of 2010 (IPERA), Public Law No. 111-204. The act amends the Improper Payments Information Act of 2002 in order to prevent the loss of billions in taxpayer dollars. A key amendment of the act requires that agencies to produce a statistically valid estimate of the improper payments made by each program and activity, or an estimate that is otherwise appropriate using a methodology approved by the Director of the Office of Management and Budget. IPERA requires that no later than 6 months after the date of enactment of IPERA, the Director of OMB prescribe guidance to implement the requirements of the act, including the requirement that agencies produce a statistically valid improper payment estimate. The actions above sufficiently address our recommendation.

    Recommendation: To help further the progress toward meeting the goals of IPIA and ensuring the integrity of payments, the Director, Office of Management and Budget, should enforce existing guidance requiring agencies to use a statistically valid sampling methodology to calculate improper payment estimates.

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

  3. Status: Closed - Implemented

    Comments: On March 22, 2010, OMB expanded the IPIA guidance with issuance of Part III to OMB Circular A-123, Appendix C. Part III of Appendix C provides goverment-wide guidance on the implementation of Executive Order 13520 "Reducing Improper Payments" signed by President Obama on November 20, 2009. The updated guidance was effective for agencies to use immediately and for fiscal year 2010 reporting. Among other things, this guidance describes in more detail reporting requirements related to root causes of improper payments, corrective actions being implemented, accountable official responsibilities, and identification of statutory barriers. Specifically, agencies are required to report causes of improper payments (under and overpayments) based on 3 categories of error--documentation and administrative errors, authentication and medical necessity errors, and verification errors. Documentation and administrative errors are caused by the absence of supporting documentation necessary to verify the accuracy of a payment; or error caused by incorrect inputting, classifying, or processing of applications or payments at the federal or state level or by a third party who is not a beneficiary. Authentication and medical necessity errors are caused by an inability to authenticate eligibility criteria through third party databases or other resources; or providing a service that was not medically necessary given the patient's condition. Verification errors are caused by the failure or inability to verify recipient information including earnings, income, assets, or work status; or errors due to beneficiaries failing to report correct information to an agency. In addition, applicable agencies are required to annually report to their cognizant Inspector General (IG) corrective actions that are being implemented and their full implementation date, they types of errors the corrective actions will address and their expected impact, and the anticipated costs of the corrective actions and their likely return on investment. Also, applicable agencies are required to designate an agency official to oversee efforts to reduce improper payments. A second accountable official can also be designated at the component or bureau level if a single component or bureau makes up a significant portion of the agency's improper payments. Lastly, as part of the annual report to the IG, applicable agencies must incorporate key elements of the IPIA guidance issued in August 2006, including information on statutory barriers. Specifically, agencies are required to describe plans for meeting program reduction targets for improper payments that identify any statutory or regulatory barriers which may limit the agencies' corrective actions in reducing improper payments. Similarly, the March 2010 IPIA guidance provides that agencies' remediation plans may include administrative, regulatory, or statutory changes that the program would need to reach established targets for reducing improper payments. The report can also contain information on any statutory, regulatory, budgetary, or administrative impediments that have delayed the implementation of the corrective actions. Collectively, these above actions addressed the intent of our recommendation.

    Recommendation: To help further the progress toward meeting the goals of IPIA and ensuring the integrity of payments, the Director, Office of Management and Budget, should expand OMB's IPIA implementing guidance to describe in greater detail factors agencies should use when reporting improper payments in their performance and accountability reports (PARs), such as (1) provide a baseline of what agencies should include when reporting on causes, corrective actions, and manager accountability and (2) require that applicable agencies cite the specific law or regulation in their PARs when describing statutory barriers that may limit the agencies' corrective actions for reducing improper payments.

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

  4. Status: Closed - Implemented

    Comments: On July 22, 2010, President Barack Obama signed into law the Improper Payments Elimination and Recovery Act of 2010 (IPERA), Public Law No. 111-204. The act amends the Improper Payments Information Act of 2002 in order to prevent the loss of billions in taxpayer dollars. A key amendment of the act requires that agencies take into account those risk factors that are likely to contribute to a susceptibility to significant improper payments. IPERA list seven risk factors as examples for agencies to consider, such as(1)whether the program or activity reviewed is new to the agency;(2)the complexity of the program or activity reviewed;(3)the volume of payments made through the program or activity reviewed; (4)whether payments or payment eligibility 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 program 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. IPERA requires that no later than 6 months after the date of enactment of IPERA, the Director of OMB prescribe guidance to implement the requirements of the act, including the factors agencies should consider when conducting their annual risk assessment. The actions above sufficiently address our recommendation.

    Recommendation: To help further the progress toward meeting the goals of IPIA and ensuring the integrity of payments, the Director, Office of Management and Budget, should expand OMB's IPIA implementing guidance to describe in greater detail factors that agencies should consider when conducting their annual risk assessments, such as program complexity, operational changes, findings from investigative reports, and financial statement and performance audit reports.

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

  5. Status: Closed - Implemented

    Comments: On July 22, 2010, President Barack Obama signed into law the Improper Payments Elimination and Recovery Act of 2010 (IPERA), Public Law No. 111-204. The act amends the Improper Payments Information Act of 2002 in order to prevent the loss of billions in taxpayer dollars. A key amendment of the act relates to the identification and estimation of improper payments. Specifically, IPERA includes criteria that agencies should use to identify which programs and activities are susceptible to significant improper payments. Prior to fiscal year 2013, the act defines the term "significant" as improper payments exceeding $10 million and 1.5 percent of program outlays or $100 million. Beginning with fiscal year 2013, IPERA lowers the threshold for determining a program susceptible to improper payments by defining the term "significant" as improper payments exceeding $10 million and 2.5 percent of program outlays or $100 million. If a program or activity meets the stated criteria, then agencies must measure improper payments in that program. These actions sufficiently address our matter for congressional consideration.

    Recommendation: To help ensure the complete disclosure and transparency of governmentwide improper payments, the Congress may wish to consider amending existing IPIA provisions to define specific criteria, such as a dollar threshold, agencies should use to identify which programs and activities are susceptible to significant improper payments.

    Agency Affected: Congress

  6. Status: Closed - Implemented

    Comments: On July 22, 2010, President Barack Obama signed into law the Improper Payments Elimination and Recovery Act of 2010 (IPERA), Public Law No. 111-204. The act amends the Improper Payments Information Act of 2002 in order to prevent the loss of billions in taxpayer dollars. A key amendment of the act requires that agencies report on all actions taken to recovery improper payments, including among other things, a justification for the determination that performing recovery audits for any applicable program or activity is not cost-effective. IPERA requires that no later than 6 months after the date of enactment of IPERA, the Director of OMB prescribe guidance to implement the requirements of the act, including the requirement that agencies report when recovery audits are not cost-effective and justification for this determination. The actions above sufficiently address our recommendation.

    Recommendation: To help further the progress toward meeting the goals of IPIA and ensuring the integrity of payments, the Director, Office of Management and Budget, should modify existing guidance to require those agencies stating that recovery auditing over contract payments is not cost beneficial to include their rationale for this determination.

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

 

Explore the full database of GAO's Open Recommendations »

Nov 20, 2014

Nov 17, 2014

Nov 12, 2014

Nov 10, 2014

Nov 7, 2014

Nov 6, 2014

Sep 22, 2014

Looking for more? Browse all our products here