Financial Management
Coordinated Approach Needed to Address the Government's Improper Payments Problems Gao ID: GAO-02-749 August 9, 2002This report discusses (1) the amount of improper payments reported in agencies' fiscal year 2000 financial statements, (2) the extent to which agencies' fiscal year 2002 performance plans address improper payments, (3) the extent to which the Office of Management and Budget (OMB) has implemented previous GAO recommendations in this area, and (4) other actions that might encourage agencies to better report improper payments. Of the 15 agency performance plans GAO reviewed, only 4 comprehensively addressed any of the Government Performance and Results Act requirements for evaluating the effectiveness of federal programs and the resources spent on them. GAO found that improper payments often result from a lack of, or breakdown in, internal controls. This report also contains recommendations for agencies to assign responsibilities to minimize improper payments and for OMB to assist agencies in identifying and implementing corrective actions.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-749, Financial Management: Coordinated Approach Needed to Address the Government's Improper Payments Problems
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Report to Ranking Minority Member, Committee on Governmental Affairs,
U.S. Senate:
United States General Accounting Office:
GAO:
August 2002:
Contents:
Letter:
Results in Brief:
Background:
Objectives, Scope, and Methodology:
Agency Financial Statements Provide Limited Information on Federal
Improper Payments:
Limited Information on Improper Payments or on Progress in Reducing
Them Is Publicly Available:
Efforts by Four Agencies to Address Improper Payments Have Met with
Some Success:
Barriers to More Effectively Managing Improper Payments:
Collaborative Effort Is Needed for Managing Improper Payments:
Conclusions:
Recommendations for Executive Action 51 Matters for Congressional
Consideration:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Programs for Which Erroneous Payment Information Is
Required per OMB Circular A-11:
Appendix II: Federal Agencies and Components Required to Prepare
Financial Statements under the CFO Act and OMB Guidance:
Appendix III: GAO Products Addressing Agency Key Outcomes and Major
Management Challenges:
Appendix IV: Comments from the Department of Health and Human
Services:
Appendix V: Comments from the Department of Housing and Urban
Development:
Appendix VI: Comments from the Social Security Administration:
Appendix VII: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Improper Payments Reported by Federal Agencies and Components
in Their Fiscal Years 1999, 2000, and 2001 Financial Statements:
Table 2: Evaluation of How Agencies Addressed Improper Payments in
Their Fiscal Year 2002 Annual Performance Plans:
Table 3: Agency Participation in Councils:
Figures:
Figure 1: Key Governmentwide Components in the Coordination Effort:
Figure 2: Key Agency Components in the Coordination Effort:
Figure 3: Key Administration Components in the Coordination Effort:
Figure 4: Key Congressional Areas in the Coordination Effort:
Abbreviations:
CCC: Commodity Credit Corporation:
CFO: Chief Financial Officer:
CFOC: Chief Financial Officers Council:
CIO: Chief Information Officer:
CIOC: Chief Information Officers Council:
CMS: Centers for Medicare and Medicaid Services:
COO: Chief Operating Officer:
DFAS: Defense Finance and Accounting Service:
DI: Disability Insurance:
DOD: Department of Defense:
EITC: Earned Income Tax Credit:
FCIC: Federal Crop Insurance Corporation:
FNS: Food and Nutrition Service:
FSA: Farm Service Agency:
GPRA: Government Performance and Results Act:
HHS: Department of Health and Human Services:
HUD: Department of Housing and Urban Development:
OIG: Office of the Inspector General:
IRS: Internal Revenue Service:
OASI: Old Age and Survivors Insurance:
OMB: Office of Management and Budget OPM Office of Personnel Management
PCIE: President‘s Council on Integrity and Efficiency:
PHA: public housing agencies:
PMC: President‘s Management Council:
POA: public housing authority, owner, or agent:
REAC: Real Estate Assessment Center:
RHIIP: Rental Housing Integrity Improvement Project:
RMA: Risk Management Agency:
SSA: Social Security Administration:
SSI: Supplemental Security Income:
USDA: Department of Agriculture:
August 9, 2002:
The Honorable Fred Thompson:
Ranking Minority Member:
Committee on Governmental Affairs:
United States Senate:
Dear Senator Thompson:
The federal government of the United States spends approximately $1.8
trillion dollars annually for a variety of grants, transfer and other
payments, and procurement of goods and services. As the steward of
taxpayer dollars, the federal government is accountable for how its
agencies and grantees spend those funds and is responsible for
safeguarding those funds against improper payments. As noted in the
reports we have issued on this matter over the past 3 years, the
federal government‘s record in identifying and reporting the magnitude
of program funds associated with improper payments and actions to
better manage these payments needs improvement.[Footnote 1]
In our view, improper payments include payments that should not have
been made or were made for incorrect amounts. Specifically, they
include inadvertent errors, such as duplicate payments and calculation
errors; payments for unsupported or inadequately supported claims;
payments for services not rendered or rendered to ineligible
beneficiaries; and payments resulting from fraud and abuse. They occur
in a variety of programs and activities, including those related to
contractors and contract management; health care programs, such as
Medicare and Medicaid; financial assistance benefits, such as food
stamps and housing subsidies; and tax refunds. Improper payments result
in spending taxpayer dollars for other than their intended purposes,
services to those not entitled to program benefits at the expense of
legitimate beneficiaries, or both.
As we noted in our report on strategies to manage improper
payments,[Footnote 2] these payments occur for many reasons including
insufficient oversight or monitoring, inadequate eligibility controls,
and automated system deficiencies. However, one point is clear”the
basic or root cause of improper payments can typically be traced to a
lack of or breakdown in internal controls. A lack of internal controls
can result from factors beyond an agency‘s control, such as statutory
barriers and program design issues, as well as factors within its
control, such as ineffective program procedures. Collectively, internal
controls are an integral component of an organization‘s management that
are intended to provide reasonable assurance that the organization
achieves its objectives of (1) effective and efficient operations, (2)
reliable financial reporting, and (3) compliance with laws and
regulations. Internal controls are not one event, but a series of
actions and activities that occur throughout an entity‘s operations on
an ongoing basis.
Because of your continued interest and concerns regarding financial
management in the federal government, you asked us to update certain
aspects of our 2000 report on improper payments.[Footnote 3]
Specifically, you requested that we (1) quantify, where possible, the
amount of improper payments reported in agencies‘ fiscal year 2000
financial statements, (2) assess the extent to which agencies‘ fiscal
year 2002 performance plans address improper payments, (3) determine
the extent to which the Office of Management and Budget (OMB) has
implemented the recommendations made in our prior reports, and (4)
identify other actions that might encourage agencies to better report
the extent of their improper payments. On November 2, 2001, we reported
that agency fiscal year 2000 financial statements identified about
$19.6 billion in improper payments,[Footnote 4] the first item in your
request. This report addresses the remaining areas and identifies the
amount of improper payments reported in agencies‘ fiscal year 2001
financial statements.
Results in Brief:
A review of the improper payments reported in agency financial
statements over the past 3 years shows some change in the amounts
individual agencies reported and the programs with improper payments,
but relatively little change in the total amount of improper payments
over the period. While the total amount reported in agency financial
statements has decreased from about $20.7 billion for fiscal year 1999
to about $19.1 billion for fiscal year 2001 and the number of agencies
reporting improper payments fell from eight to six over the same
period, these figures do not present a true picture of the level of
improper payments in federal programs and activities. As significant as
the $19 billion in improper payments is, the actual extent of improper
payments governmentwide is unknown, is likely to be billions of dollars
more, and will likely grow in the future without concerted and
coordinated efforts by agencies, the administration, and the Congress.
The four agencies collectively reporting the majority of reported
improper payments”the Departments of Agriculture (USDA), Health and
Human Services (HHS), Housing and Urban Development (HUD), and the
Social Security Administration (SSA)”have been actively working to
address improper payments through their systems of internal control.
While they have met with some success in identifying and reducing
improper payments, they have also encountered barriers that have
restricted their ability to better manage against improper payments.
These barriers include legislation-based requirements or prohibitions,
program design obstacles, and resource constraints. Since agencies
alone cannot address these barriers, a united approach involving
federal agencies, the administration, and the Congress is needed.
Together these parties can eliminate or otherwise mitigate the
barriers, as deemed appropriate.
Agencies‘ annual performance plan discussions of improper payments do
not provide the information needed to adequately assess and evaluate
the seriousness of the problem or the effectiveness of actions taken to
address it. The Government Performance and Results Act (GPRA) requires
agencies to prepare annual performance plans for use by agency
officials, the administration, the Congress, and the public as tools
for evaluating the effectiveness of federal programs and the resources
spent in operating them. Of the 15 agency performance plans we
reviewed, only 4 comprehensively addressed any of the GPRA-required
report elements of goals, measures, strategies, and procedures to
validate performance data for improper payments. Further, agency
progress in addressing improper payment problems was difficult to
measure because of continual changes that were hard to track or that
were made with insufficient explanation.
Transparency in reporting improper payments is crucial at both the
federal agency and governmentwide levels. Public reporting helps
establish accountability as well as expectations for improvements. Yet
requirements for federal agencies to publicly report on the extent of
their improper payments and on their actions to address these payments
are very limited. The administration has taken steps to strengthen the
government‘s actions to identify and address its improper payments
problems; however, the required reporting is limited to the initial
budget submissions to OMB for about 50 programs in 16 federal agencies,
15 of which are Chief Financial Officers (CFO) Act agencies. Since the
initial budget submissions to OMB are not publicly disclosed, the
improper payment information contained in them is not routinely or
consistently available for congressional or public review and analysis
or for holding federal agencies accountable for improvement.[Footnote 5]
Current requirements and guidance do not require or offer a
comprehensive approach to measuring improper payments, developing and
implementing corrective actions, or reporting on the results of the
actions taken. We previously recommended that OMB issue guidance to
assist federal agencies in developing and implementing a methodology
for annually estimating and reporting improper payments for major
federal programs. We also recommended that OMB consult with
congressional oversight committees regarding their efforts to help
agencies reduce improper payments. In commenting on those reports, OMB
agreed that its focus on improper payments should be expanded, and it
has begun to implement changes. For example, under OMB‘s guidance,
interagency councils have met to address improper payments and have
started carrying out specific tasks such as preparing a set of
indicators and other agency guidance.
This report contains recommendations for federal executive branch
agencies to assign responsibilities for taking actions to minimize
improper payments and for OMB to assist agencies in developing methods
to identify and implement those actions. We are also presenting matters
for congressional consideration to assist agencies with barriers and to
help agencies with improvement efforts.
In commenting on this report, HHS, HUD, SSA, and OMB noted that they
had actions in progress or that were completed that addressed our
recommendations or that agency units supported the essence of the
topics covered by the report. Each of these organizations and USDA also
provided technical comments and other editorial suggestions for our
consideration. We considered all comments and made changes to the
report, as appropriate.
Background:
As the steward of taxpayer dollars, the federal government is
accountable for how its agencies and grantees spend hundreds of
billions of dollars and is responsible for safeguarding those funds
against improper payments. Our work over the past several years has
demonstrated that improper payments are a significant and widespread
problem in federal agencies. In addition, reports such as the Senate
Committee on Governmental Affairs‘ Government at the Brink[Footnote 6]
and The President‘s Management Agenda, Fiscal Year 2002,[Footnote 7]
highlight the impact of improper payments on federal programs and the
need for actions to strengthen the system of internal control over
areas where improper payments occur.
Our past reports have shown that relatively few agencies report
improper payments in their financial statements, even though our audits
and those of agency Offices of Inspector General (OIG) continue to
identify serious improper payment problems and related internal control
issues. Federal agency financial statements for fiscal years 1999 and
2000 show improper payments of about $20.7 billion and $19.6 billion,
respectively. Along with this decrease in the total amount of improper
payments reported, changes have occurred in the agencies reporting
improper payments and in the programs identified with improper
payments.
During this same period, agency-specific audits and studies continued
to indicate that the extent of the improper payment problem was much
more widespread than had been disclosed in agency financial statements.
For example, in March 2001 we reported[Footnote 8] that, during fiscal
year 2000, the Internal Revenue Service (IRS), relying on past
experience, screened tax returns claiming Earned Income Tax Credits
(EITC) to identify (for detailed examination) those considered most
likely to be invalid. IRS examiners performed detailed reviews of about
257,000 tax returns claiming approximately $587 million in
EITC[Footnote 9] and found that about 173,000 of those tax returns
claiming $395 million in credits (67 percent) were invalid. At the
Department of Defense (DOD) the OIG noted that, during fiscal years
1999 and 2000, the Defense Finance and Accounting Service (DFAS)
overpaid contractors about $183 million and $148 million, respectively,
as a result of inadvertent errors, such as paying the same invoice
twice and data input errors. None of these amounts show up in our
improper payment totals because neither the IRS nor DOD financial
statements reported improper payments for those programs for those
years.
The basic or root causes of improper payments can typically be traced
to a lack of or breakdown in internal controls. Internal controls are
an integral component of an organization‘s management that are intended
to provide reasonable assurance that the organization achieves its
objectives of (1) effective and efficient operations, (2) reliable
financial reporting, and (3) compliance with laws and regulations.
The President‘s Management Agenda, Fiscal Year 2002, includes five
governmentwide initiatives”one of which is improved financial
management. This initiative calls for the administration to establish a
baseline on the extent of erroneous payments.[Footnote 10] Under it,
agencies were to include, in their 2003 budget submissions to OMB,
information on improper payment rates, including actual and target
rates, where available, for benefit and assistance programs over $2
billion. The agenda also notes that, using this information, OMB will
work with agencies to establish goals to reduce improper payments
identified in the programs. In addition, the agenda included specific
program initiatives for HUD and the Department of Education that
addressed improper payments. In July 2001, OMB issued revisions to OMB
Circular A-11, Preparation and Submission of Budget Estimates,
requiring 16 federal agencies[Footnote 11] to include certain improper
payment information for about 50 programs in their initial budget
submissions to OMB. (Appendix I lists these programs.)
Objectives, Scope, and Methodology:
We reviewed fiscal year 2001 financial statement reports prepared under
the CFO Act, as expanded by the Government Management Reform Act, and
OMB guidance to identify improper payments reported. (Appendix II lists
the agencies covered by the CFO Act and the OMB guidance.) We also
identified and reviewed recent reports by us and by agency OIGs to
identify additional agencies and/or programs that experienced improper
payments.
We reviewed the performance plans of the 15 CFO Act agencies required
by OMB Circular A-11 to submit improper payment data, assessments, and
action plans with their initial budget submissions to OMB. We reviewed
these plans to identify improper payment information addressing the
four reporting content elements required by GPRA (goals, measures,
strategies, and procedures to validate performance data). Further, we
reviewed GAO reports that focused on the status of federal agency
actions in achieving key outcomes and addressing major management
challenges at each of the 15 CFO Act agencies covered by OMB Circular A-
11. (See app. III for a list of these reports.) Among other things,
some of these reports often included sections on agency efforts to
reduce fraud, waste, and errors in programs that reported improper
payments. They also compared fiscal years 2001 and 2002 performance
plans for consistency and assessed the progress reported in achieving
these outcomes as well as the strategies agencies have in place to
achieve them.
Recent revisions to OMB Circular A-11 require selected agencies to
report improper payment information in their initial budget submissions
to OMB. In addition, one of the initiatives in the President‘s
Management Agenda, Fiscal Year 2002, called for agencies to establish a
baseline on the extent of erroneous payments. We reviewed the Budget of
the United States Government, Fiscal Year 2003, to assess the extent to
which it contained the improper payment information agencies were to
submit with their initial budget submissions to OMB and/or the baseline
information requested in the agenda.
Since little information was publicly available on agency actions to
reduce improper payments, we reviewed agency responses you provided us
to the June 2001 letters that you and the Chairman of the Senate
Committee on Governmental Affairs sent to the heads and OIGs of the 24
CFO Act agencies. These letters asked the agency heads and OIGs to
assess their improper payment efforts in the five areas outlined in our
October 2001 report, Strategies to Manage Improper Payments: Learning
From Public and Private Sector Organizations. These areas are (1) the
control environment, (2) risk assessments, (3) control activities, (4)
information and communications, and (5) monitoring.
We also selected four CFO Act agencies (USDA, HHS, HUD, and SSA) for
more detailed review of their efforts to reduce improper payments.
These agencies accounted for over 97 percent of the improper payments
reported in fiscal years 1999 and 2000 financial statements. At these
agencies, we spoke to officials in the inspector general, chief
financial officer, and program offices and obtained reports and other
documentation evidencing actions that they have taken or are planning
to take to reduce improper payments. We focused on obtaining
information on the agency actions to reduce the improper payments
reported in their financial statements and/or performance plans. We
also obtained information on barriers that they encountered when
attempting to develop and/or implement methodologies to reduce improper
payments.
Finally, we met with OMB officials and reviewed documents regarding
OMB‘s progress in implementing recommendations made in our prior
report. This included a review of revisions to OMB Circular A-11 and
correspondence and other guidance to agencies on improper payment
related issues.
We performed our work from May 2001 through April 2002. Our work was
conducted in accordance with generally accepted government auditing
standards. We provided a draft of this report for comment to the
Secretaries of HHS, HUD, and USDA, the Commissioner of SSA, and the
Director of OMB. We received written comments from HHS, HUD, and SSA
and have reprinted those comments in appendixes IV, V, and VI,
respectively. USDA responded by e-mail and OMB provided oral comments.
Agency Financial Statements Provide Limited Information on Federal
Improper Payments:
Improper payments are acknowledged to be a widespread and significant
problem in the federal government with billions of dollars in such
payments reported annually in agency financial statements and billions
more identified in audit and other reports. For example, federal agency
financial statements for fiscal years 1999 through 2001 show improper
payments of about $20.7 billion, $19.6 billion, and $19.1 billion,
respectively. Although significant, these amounts are not indicative of
the magnitude of improper payments governmentwide. Currently,
relatively few agencies report improper payments in their financial
statements, even though our audits and those of agency OIGs continue to
identify serious improper payment problems and related internal control
issues. The following table summarizes improper payments reported in
agencies‘ fiscal years 1999, 2000, and 2001 financial statements.
Table 1: Improper Payments Reported by Federal Agencies and Components
in Their Fiscal Years 1999, 2000, and 2001 Financial Statements:
[See PDF for image]
[A] The financial statements did not identify improper payments in
these programs.
[B] The agencies administering these programs acknowledged making
improper payments in their financial statements but did not disclose a
dollar amount.
Source: GAO developed based on a review of agency fiscal years 1999,
2000, and 2001 financial statements.
[End of table]
The dollar amount of improper payments reported annually for fiscal
years 1999 through 2001 decreased by about $1.7 billion and the number
of agencies reporting a specific amount of improper payments in their
financial statements declined from 8 to 6. A review of the table above
shows that, for fiscal years 1999 and 2000, 8 agencies collectively
reported $20.7 billion and $19.6 billion, respectively, whereas for
fiscal year 2001, 6 agencies collectively reported improper payments of
about $19.1 billion. About $18.8 billion (99 percent) of the improper
payments reported in the fiscal year 2001 financial statements occurred
in the programs administered by HHS, HUD, and SSA. In total, 13
agencies acknowledged making improper payments or reported a specific
amount in their financial statements within the 3-year time frame. Ten
of the 13 agencies reported or acknowledged making improper payments
for fiscal year 2001.
A comparison of the fiscal years 2001 and 2000 improper payment
information reported in agency financial statements revealed several
significant differences in the programs reporting improper payments and
the amounts reported.
* In fiscal year 2000, USDA‘s Food and Nutrition Service‘s (FNS)
financial statements identified improper food stamp payments of $1.1
billion. For fiscal year 2001, FNS did not publicly issue separate
financial statements. While USDA‘s financial statements contained FNS‘s
financial information and recognized that improper payments occurred in
the food stamp program, the statements did not identify a specific
improper payment amount.
* HUD reported improper payments of $1.25 billion in fiscal year 2000
and $2 billion in fiscal year 2001. Specifically, in fiscal year 2000
it estimated $1.94 billion in annual housing subsidy overpayments and
$.69 billion in underpayments. In fiscal year 2001, it reported
overpayments of $2.65 billion and underpayments of about $.65 billion.
In commenting on this report, HUD noted that, in fiscal year 2000, it
also identified $617 million in improper payments due to underreporting
of tenant income. We do not include this amount in the HUD total in
table 1 because HUD‘s fiscal year 2000 financial statement notes that
the $1.25 billion and $617 million ’should not be considered totally
additive.“ An unknown amount of overlap exists in these amounts.
Regarding the increase in Page 12 GAO-02-749 Improper Payments improper
payments reported since fiscal year 1999, HUD revised its methodology
for measuring the types of errors that make up its improper payments
estimate. In fiscal year 2000, it expanded the scope of its error
estimation to include subsidy determination errors by its
administrative intermediaries in addition to the impacts of tenant
underreporting of income. In fiscal year 2001, it refined its
methodology to obtain a combined estimate of both types of errors. More
specifically, HUD‘s error measurement methodology covers errors made by
public housing authorities, owners, and agents (POAs) in determining
tenant income and rent as well as errors made by the tenants in
reporting their income. Past estimates only considered the impact of
tenants underreporting income for amounts over $3,000 and used a sample
of tenants from HUD‘s data systems. However, the fiscal year 2001
estimate was based on more stringent criteria. It considered tenant
underreported income for amounts over $1,000 and was based on a random
selection of all tenants, including those who were not covered in the
past.
* At the Office of Personnel Management (OPM), the fiscal years 1999
and 2000 financial statements identified improper payment amounts for
the retirement, federal employees‘ health benefits, and federal
employees‘ group life programs. The fiscal year 2001 statements did not
identify improper payment amounts, but recognized that an unidentified
amount of improper payments occurred in the retirement program and
federal employees‘ health benefits.
* At the Department of Labor, the fiscal year 2001 financial statements
identified the total amount of improper payments for three of its
programs but did not separately identify the improper payments relating
to each program”as it had done in the past.
Recent audits as well as information provided by agency OIGs continue
to demonstrate that improper payments are much greater than has been
disclosed thus far in financial statements. For example, historically,
the IRS‘s EITC program has been vulnerable to high rates of invalid
claims.[Footnote 12] IRS follows up on only a portion of the suspicious
EITC claims it identifies. The amount of improper payments included in
the almost $26 billion IRS disbursed for EITC in fiscal year 2001 is
unknown.[Footnote 13] However, based on an IRS report of the estimated
$31.3 billion in EITC claims made by taxpayers for tax year 1999, an
estimated $8.5 billion to $9.9 billion (27 percent to about 32 percent)
should not have been paid.[Footnote 14] Weaknesses in IRS‘s controls
over refund disbursements, particularly those related to EITC, continue
to expose the federal government to material losses due to disbursing
improper refunds.
Similarly, while DOD reported improper payments related to the Military
Retirement Fund for fiscal years 1999, 2000, and 2001, departmentwide
estimates of improper payments remain unreported in the financial
statements. For example, over the last several years DOD has overpaid
its contractors by hundreds of millions of dollars. Specifically,
according to DFAS Columbus (the largest centralized DFAS disbursing
activity) records, in fiscal year 2001 DOD contractors refunded about
$128 million primarily attributed to DFAS payment errors and duplicate
invoices. This amount might not reflect total improper payments DOD
made to contractors because contract reconciliation is likely to
identify additional overpayments. Further, although small in relation
to the approximately $78 billion that DFAS Columbus disbursed in fiscal
year 2001 to DOD contractors, this amount represents a sizable amount
of cash in the hands of contractors beyond what is intended to finance
and pay for the goods and services DOD purchases, and is indicative of
the need for stronger internal controls within the payment system.
Limited Information on Improper Payments or on Progress in Reducing
Them Is Publicly Available:
Periodically and consistently estimating the rate and/or amount of
improper payments and publicly reporting progress enables 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. It enhances accountability by
identifying performance measures and progress against those measures
and by helping to establish performance and results expectations.
Improper payment information is currently reported in a variety of
places, including annual financial statements, performance plans, and
the budget. However, neither the financial statements, as previously
discussed; the performance plans; nor the budget provide a
comprehensive view of either the scope of the improper payment problem
or of individual agency or governmentwide efforts to reduce it. As
such, they provide limited information for use in establishing (1)
appropriate response levels to correct the problems or (2)
responsibility”holding organizations and/or individuals accountable for
performance and results.
GPRA requires agencies to prepare annual performance plans that inform
the Congress and the public of (1) the annual performance goals for
agencies‘ major programs and activities, (2) the measures that will be
used to gauge performance against these goals, (3) the strategies and
resources required to achieve the performance goals, and (4) the
procedures that will be used to verify and validate performance
information. Agencies develop plans for use by agency officials, the
administration, the Congress, and the public. They provide information
on the purpose and effectiveness of federal programs and on the
resources spent in conducting them. On February 14, 2001, the Director
of OMB issued a memorandum to agency heads requiring agencies to update
their fiscal year 2002 performance plans to include performance goals
for the President‘s governmentwide reforms for every reform that would
significantly enhance the administration and operation of the agency.
One of these reforms is reducing improper payments to beneficiaries and
other recipients of government funds. We did not determine the level of
significance of improper payments at any agency. However, as a result
of the memorandum, we expected improper payment-related actions to have
been discussed in agencies‘ fiscal year 2002 performance plans, at
least for those agencies required to report improper payment
information in their initial budget submissions to OMB. We reviewed the
plans for improper payment-related issues. In general, our review
revealed that none of the 15 performance plans examined contained
detailed information for all of the areas that GPRA requires agencies
to address”goals, measures, strategies, or procedures to validate Page
15 GAO-02-749 Improper Payments performance data”for each reform
discussed in the performance plan. Only 4 of the plans comprehensively
addressed any of the four areas in their improper payments discussion.
Table 2 summarizes our evaluation of the extent to which the annual
performance plans contained improper payment-related discussions for
the four areas GPRA requires to be addressed”goals, measures,
strategies, and procedures to validate performance data”for the 15 CFO
Act agencies required by OMB Circular A-11 to report improper payment
information in their initial budget submissions. This evaluation was
based on the performance plan assessments contained in the separate
agency reports that we issued last year. (Appendix III lists these
reports.) We considered an agency to have comprehensively addressed
goals, measures, strategies, and procedures to validate performance
data if our report did not reveal any weaknesses for how the
performance plan addressed each of those elements for improper payment-
related issues.
Table 2: Evaluation of How Agencies Addressed Improper Payments in
Their Fiscal Year 2002 Annual Performance Plans:
[See PDF for image]
[A] As of May 21, 2002, DOD had not issued a fiscal year 2002
performance plan.
[B] These agencies made no reference to improper payments in their
fiscal year 2002 annual performance plans. Therefore, we were unable to
evaluate their plans or actions to address improper payments, if these
types of payments existed at these agencies.
Legend:
Yes: The performance plan comprehensively addressed improper payments.
Some: The performance plan did not comprehensively address improper
payments.
No: The performance plan did not address this element for improper
payments.
[End of figure]
We found that, although 10 of the 15 agencies discussed improper
payments in their fiscal year 2002 performance plans, none
comprehensively addressed improper payments for all four of the plan
elements required by GPRA. Furthermore, only 4 of the 15 agencies
comprehensively addressed improper payments for any of the GPRA
required elements. In addition, six performance plans discussed at
least one of the elements but not comprehensively. That is, the reports
acknowledged improper payments and cited some information regarding
GPRA required elements one or more of the elements, but that
information was not adequate to use as a basis for evaluating agency
actions or progress in addressing improper payment problems. Further,
four plans made no reference to improper payments.
Our key outcomes reports noted the following examples of weaknesses in
agency performance plans.
* Within HHS, the Centers for Medicare and Medicaid Services
(CMS)[Footnote 15] had adequate procedures to validate performance
data, but the strategies needed to achieve its improper payment goals
were not adequately addressed and these goals were not consistently
measurable. In some instances, the plan stated generally that the
accomplishment of a goal was the target and did not explain, in
sufficient detail, CMS‘s strategies to ensure that the goal is
accomplished. In others, progress was difficult to measure because of
continual goal changes that were sometimes hard to track or that were
made without sufficient explanation. Specifically, in both the fiscal
years 2001 and 2002 performance plans, goals were dropped, revised or
subsumed into other goals, or goals were added for the Medicare program
integrity outcome. While refinements may be desirable as efforts become
more mature, the inability to track individual initiatives makes it
difficult to measure progress in achieving outcomes. Furthermore,
because many of the baselines and measures for the new and revised
goals were under development, CMS‘s intended performance regarding them
was unclear.
* IRS‘s EITC program under Treasury has historically been vulnerable to
high rates of improper refunds”paying billions of dollars for improper
EITC claims. Treasury‘s performance plan did not report on performance
measures for any aspect of IRS‘s administration of the EITC, and IRS
lacked performance measures for the program. Therefore, we are unable
to assess progress toward achieving less waste, fraud, and error in the
program. The performance plan noted that, in 1998, IRS began
implementing a 5-year EITC compliance initiative that involved several
components directed at the major sources of EITC noncompliance. While
IRS is collecting data on the initiative‘s results, the data are not
yet sufficient to determine whether the initiative has reduced the
overall noncompliance rate.
* SSA‘s annual performance plan includes several goals and performance
measures targeted specifically at increasing program integrity and
reducing fraud and abuse. Yet the performance plan was not clear about
SSA‘s progress in meeting these goals because of continued revisions to
prior indicators and goals as well as SSA‘s inability to provide timely
performance data.
Since the conclusion of our fieldwork, some agencies have issued their
annual performance plans for fiscal year 2003. Some of those plans may
have addressed improper payments more thoroughly. In future work, we
plan to review these plans for information on improper payments and
compare fiscal years 2002 and 2003 performance plans for consistency
and to assess the progress reported in achieving improper payment-
related outcomes and strategies.
Although no specific requirement exists for public reporting on
improper payment-related activities at the agency level, the
administration has recognized the importance of reducing governmentwide
improper payments. The President‘s Management Agenda, Fiscal Year 2002,
discusses the reduction of improper payments as a key element under its
initiative to improve financial performance within the government. As a
result of this initiative, OMB revised its Circular A-11 to incorporate
needed efforts to address improper payments within 16 selected federal
agencies and about 50 programs within those agencies. Section 57.3
requires the selected agencies to include specific improper payment-
related information in their fiscal year 2003 initial budget
submissions to OMB. More specifically, the circular states that
agencies that currently estimate improper payment rates for the
programs identified are required to submit the following data:
* estimated improper payment rates projected for fiscal year 2001;
* actual improper payment rates for fiscal years 1999 and 2000, if
available;
* target rates (goals) for improper payments for fiscal years 2002 and
2003;
* causes of improper payments;
* variances from targets or goals that were established; and:
* descriptions and assessments of the current methods for measuring the
rate of improper payments, and of the quality of data resulting from
these methods.
The circular also requires each of these agencies to submit an
assessment of the effectiveness of current agency efforts to minimize
improper payments as well as an action plan that includes:
* additional actions the agency could take to prevent and correct
improper payments,
* an evaluation of the costs and benefits of implementing these
corrective actions,
* a description of programmatic and legal considerations, and:
* an assessment of the extent to which undertaking these actions would
hinder the achievement of major program objectives.
For programs administered by states or other organizations for which
agencies are not currently estimating improper payment rates, the
circular requires each agency to submit an analysis of whether and how
improper payments could be estimated and of the costs and benefits of
collecting new or additional data. In preparing their responses,
agencies were told to consider programmatic and legal obstacles to
collecting additional data or establishing estimation procedures. Both
the circular and the President‘s Management Agenda, Fiscal Year 2002,
note that OMB plans to review the information provided and coordinate
with each agency to develop detailed action plans on a program-by-
program basis.
Furthermore, in August 2001, OMB distributed a memorandum to agency
CFOs and budget officers containing supplemental guidance on submitting
the improper payment information required by OMB Circular A-11. Among
other things, it identified eight basic principles all federal agencies
should recognize to minimize improper payments. The principles are:
* prevention is more effective than after-the-fact efforts,
* program payment integrity is a joint management responsibility,
* improper payments should be kept to the lowest practical level,
* payments should be balanced with program goals and other competing
priorities,
* controls should take into account both the benefits and costs,
* performance measurement and reporting provide better accountability,
* data verification strengthens program payment integrity, and:
* impediments to effective controls may exist and should be considered.
The discussion of one of these principles”performance measurement and
reporting provides better accountability”further notes that ’Public
reporting of progress enhances accountability. Agency performance can
be reported in a variety of places, including reporting under the
Government Performance and Results Act, annual financial reports, or
regularly-issued stand-alone program reports.“ The memorandum also
requires documentation to support any conclusion that estimating
improper payments is unnecessary or would not be cost-beneficial
because the program is not susceptible to significant improper
payments, has strong internal controls to prevent improper payments, or
has not experienced an improper payment problem, or that the burden
outweighs the benefit to be gained by developing estimates. OMB is
currently analyzing the submissions and revising the requirements based
on feedback from agencies.
In addition, other OMB initiatives include (1) working with the
Congress on legislation to improve agency access to data for data
sharing and drafting related agency guidance, (2) refining the OMB
Circular A-11 guidance on reporting improper payment activity, (3)
funding improper payment activities in the budget, (4) establishing
electronic government Web sites including GovBenefits”which should
improve the up-front accuracy of benefit determinations, and (5)
assessing quarterly executive branch management scorecards to track how
well agencies are executing the President‘s management initiatives.
These actions are appropriate for tracking and managing progress in
this area. Unfortunately, the vehicle being used to assemble these data
inhibits public disclosure of the information. OMB Circular A-11
requires selected programs and agencies to submit improper payment data
with their initial fiscal year 2003 budget submissions but Section 36
of the circular prohibits the submissions from being publicly
disclosed. Therefore, we reviewed the Budget of the United States
Government, Fiscal Year 2003, to determine the improper payment
information it contained. Since OMB incorporates the individual
agencies‘ budget requests into the budget and since the administration
has made the reduction of improper payments a priority, we expected to
find some improper payment information in the budget. Our review showed
minimal discussion of improper payments as compared to the detailed
information OMB Circular A-11 requires agencies to provide in their
initial budget submissions. For example, even though OMB Circular A-11
requires 15 CFO Act agencies to provide improper payment information on
about 50 programs, the budget shows:
* actual improper payment rates for fiscal year 2000 for 2
programs”food stamps and Medicare,
* target error rates for food stamps and Supplemental Security Income,
* types and causes of improper payments for the Department of
Education‘s Student Financial Aid Program and HHS‘s Medicare and
Medicaid programs, and:
* a description of additional actions 6 agencies could take to prevent
or correct improper payments for 8 programs.
Furthermore, the Budget did not contain information for any agency for
several areas cited in OMB Circular A-11, including an analysis and
description of whether and how improper payments could be estimated, an
analysis of the costs and benefits of collecting new or additional
data, and obstacles to collecting additional data or establishing
estimation procedures.
Given the fact that the agency financial statements, fiscal year 2002
performance plans, and the budget contained little substantive
information on improper payments, we attempted to locate other data
that might offer added insights into agency efforts. One source was
agency responses to June 2001 congressional requests to agency heads
and OIGs for information on agency efforts to control improper
payments. The requests, from the Chairman and Ranking Minority Member
of the Senate Committee on Governmental Affairs, asked for specific
information about the five components of internal control”control
environment, risk assessment, control activities, information and
communication, and monitoring”outlined in our report that addressed
strategies to manage improper payments.
The congressional requesters received responses from either the agency
head, the IG, or both for 9 agencies. Specifically, we found that, for
the 15 CFO Act agencies required to report improper payment information
under OMB Circular A-11, 9 agency heads and 8 OIGs responded to the
congressional request. For 6 of the agencies, neither the agency head
nor the OIG responded. Of those that did respond, 5 agency heads and 2
OIGs addressed all of the internal control components, as requested, as
demonstrated in the following examples.
* The responses of the Secretary and OIG of HUD show, among other
things, how HUD (1) promoted an environment of accountability to reduce
improper payments by establishing the Rental Housing Integrity
Improvement Project (RHIIP) to help ensure that the ’right benefits go
to the right person,“ (2) estimated its improper payments in the past
and is now implementing plans for a more comprehensive error
measurement process, and (3) reduced the risk of improper payments by
implementing new rent calculation systems and performing data matches
with IRS and SSA data.
* The Secretary of HHS‘s response showed how the agency (1) addressed
the control environment through numerous oversight and program
integrity activities, (2) computed an error rate for Medicare fee-
forservice claims and determined the cause of these improper payments,
(3) established a GPRA goal to reduce the percentage of improper
payments made under the Medicare fee-for-service program, (4) worked on
a methodology to measure improper payments for the Medicare Managed
Care and Medicaid programs, (5) assisted medical providers in
submitting claims correctly, and (6) developed statistical analyses to
stem fraud, waste, and abuse.
* The Acting Commissioner of SSA explained how SSA (1) created a
culture of accountability through the day-to-day operation of its
compliance program, (2) estimated payment errors through stewardship
reviews, (3) detected and deterred improper payments through a series
of system enhancements, (4) collected improper payments by using
various methods such as credit bureaus and the Treasury offset program,
and (5) established payment accuracy goals and methods to track
progress as part of its annual performance plan.
We expected agencies to have accurate and timely information available
to respond to the congressional request since, in February 2001, OMB
had asked these agencies to address their improper payment issues in
their fiscal year 2002 performance plans. However, for the most part,
the responses provide only partial answers showing that, while the
agencies agreed that managing improper payments is important, they
lacked comprehensive strategies to do so. For example, one agency
answered all of the questions, yet indicated that it did not know the
aggregate amount of improper payments made on a departmentwide level
and that the most recent estimate of improper payments for one of its
high-risk programs was from 1997. Another agency stated that it has not
performed a risk assessment and has no formal process to estimate or
track improper payments because it has an inherent culture of high
standards, operating efficiency, sophisticated systems, and personal
attention to detail, which results in few improper payments. A third
agency could not provide substantive answers to the request. Rather, it
stated that while audits have recommended improving internal controls,
it does not believe they disclosed an unacceptable level of risk. This
agency did not estimate the amount of its improper payments or provide
details of any related risk assessments.
The Congress and the administration have clearly indicated that
agencies should consider the reduction of improper payments a top
priority. Despite this focus, little improper payment information is
publicly available. Public disclosure provides information against
which agency efforts to reduce improper payments can be measured and
evaluated. It can also help form a basis for holding agency officials,
the administration, and the Congress accountable for actions that
reduce improper payments and improve program performance.
Efforts by Four Agencies to Address Improper Payments Have Met with Some
Success:
The USDA, HHS, HUD, and SSA collectively reported about $19.1 billion
of improper payments in their fiscal year 2000 financial statements.
Individual amounts of improper payments reported ranged from $1.1
billion for the food stamp program at USDA to $12.5 billion for
Medicare-related payments at HHS. Because of the magnitude of the
amounts reported, we contacted representatives at each agency to
determine their efforts to reduce and manage improper payments. Each
agency has been actively working to address its improper payment
problems. These efforts typically involved activities related to the
five components of internal control”control environment, risk
assessments, control activities, information and communications, and
monitoring. The following sections highlight some of the efforts
undertaken by these agencies.
Control Environment:
The control environment is perhaps the most critical element in
reducing improper payments because it establishes a culture of
accountability and assigns responsibility for actions. A sound control
environment stresses the importance of prevention of improper payments
and efficient and effective program operations while maintaining a
balance with privacy and information security in a world where most
payments are made electronically. In establishing a sound control
environment, agency management recognizes that personnel throughout the
organization make internal controls work and, therefore, human capital
issues must be seriously considered in all changes to the system of
internal control.
As noted in our report on strategies to manage improper payments,
changes in the control environment may require actions by both the
Congress and agency officials. These actions can include enacting
legislation, setting and maintaining the ethical tone, delegating roles
and responsibilities, and implementing human capital initiatives.
Legislative and management actions that affected the control
environment over improper payments occurred at each of the agencies.
Legislative actions involved passing laws that revised program
operations and called for various prevention and detection
methodologies and periodic reporting on the status of agency
improvement efforts. For example, the Agriculture Risk Protection Act
of 2000:
* authorizes additional resources to assist the Risk Management
Agency‘s (RMA) Federal Crop Insurance Corporation (FCIC)[Footnote 16]
in identifying fraud, waste, abuse, and mismanagement in its programs;
16The FCIC is a government-owned corporation within USDA. Page 25 GAO-
02-749 Improper Payments;
* helps FCIC collect bad debts by imposing severe penalties and
interest and offsetting future benefit payments for those who willfully
and intentionally provide false or inaccurate information with respect
to a policy or plan of insurance;[Footnote 17]
* requires RMA‘s Office of Risk Compliance to use data mining, data
warehousing, and data reconciliation to identify potential improper
payments and provides up to $23 million in funding for these efforts
through fiscal year 2005.[Footnote 18]
Two legislative reforms have helped the HHS‘s CMS enhance Medicare‘s
anti-fraud and abuse activities. First, the Health Insurance
Portability and Accountability Act of 1996 established the Medicare
Integrity Program, which provides CMS with levels of funding for
Medicare program safeguard activities such as audits of cost reports
and medical prepayment claim reviews. In the cost report area alone,
CMS reported $570 million and $493 million in improper payments for
fiscal years 2000 and 2001, respectively. In addition, the Balanced
Budget Act of 1997 provided CMS with increased authority to keep health
care providers who have been convicted of health care related crimes
out of the Medicare program, exclude providers who abuse the program,
and impose monetary penalties on such providers.
At SSA, the Foster Care Independence Act of 1999 helped strengthen
program integrity by:
* authorizing SSA to conduct matches with Medicare data and simplify
procedures to gain access to recipient records from financial
institutions to help verify Supplemental Security Income (SSI)
recipients‘ financial eligibility;
* authorizing SSA to prohibit individuals who provide false or
misleading eligibility information from collecting Old Age and
Survivors Insurance (OASI) and Disability Insurance (DI) and SSI cash
benefits;
* making a representative payee”a person authorized to receive benefit
payments for a qualified individual”liable for OASI and DI or SSI
overpayments caused by payments made to deceased beneficiaries; and:
* authorizing SSA to use all available debt collection authorities to
recover SSI debt.
Equally, if not more important, an effective control environment
requires management‘s commitment to reduce improper payments. Agency
management can affect the control environment by, among other things,
setting expectations and goals for reducing improper payments,
implementing program-specific measures to reduce fraud and errors,
calling for periodic performance reporting, and requiring follow-up
actions based on performance results.
For example, USDA‘s FNS administers the food stamp program under which
state welfare agencies certify eligibility and provide benefits to
households. Although not reported in USDA‘s financial statements, FNS
identified about $976 million in food stamp program overpayments for
fiscal year 2001. FNS strives to increase the accuracy of eligibility
determinations and benefit computations and also oversees the level of
benefits issued. Its food stamp Quality Control System (QC) measures
the accuracy of eligibility determinations and benefit computations and
then publicly reports each state‘s overissuance rate. FNS reviews these
data to identify areas needing corrective action and practices that are
effective in improving payment accuracy.
USDA management also encourages state agencies to minimize improper
payments by offering financial incentives for those with high payment
accuracy and imposing sanctions on those with payment overissuance
rates above the national average. In fiscal year 2000, FNS imposed $46
million in financial sanctions on 18 states with overissuance rates
above the national average. At the same time, it provided $55 million
in supplementary funding to 11 states with payment overissuance rates
equal to or below 5.9 percent”a rate well below the national average of
about 8.9 percent.[Footnote 19] These actions have resulted in a
decline in state payment error rates from 10.7 percent in fiscal year
1998 to 9.9 percent in fiscal year 1999, to 8.9 percent for fiscal year
2000. However, FNS and OMB officials believe that the Farm Security and
Rural Investment Act of 2002[Footnote 20] will likely reduce the number
of states sanctioned in future years, as only those with persistently
high rates of improper benefit and eligibility determinations (those
exceeding 105 percent of the national performance measure for 2 or more
consecutive fiscal years) would be penalized.
SSA management demonstrated its commitment to reduce improper payments
in its 1997 strategic plan, Keeping the Promise. One of the strategic
goals cited in the plan is to make SSA program management the best in
business with zero tolerance for fraud and abuse. To achieve this goal,
SSA initiated a program of anti-fraud efforts to:
* eliminate wasteful practices that erode public confidence in the
Social Security system;
* vigorously prosecute individuals or groups who damage the integrity
of the programs; and:
* change programs, systems, and operations to reduce instances of
fraud.
Senior SSA management oversees the implementation and coordination of
these fraud elimination strategies. At the local level, each SSA region
has a Regional Anti-Fraud Committee that acts as the focal point for
the agency‘s effort to combat fraud.
At HUD, management took steps to reduce errors in the rental housing
assistance programs by establishing the Rental Housing Integrity
Improvement Project. A RHIIP advisory group develops and implements
plans to reduce program errors and correct related material management
control deficiencies in HUD‘s high-risk subsidized rental housing
programs. According to a HUD official, the advisory group has taken
steps to increase HUD‘s income data matching authority and utilization
to enable upfront income data sharing to avoid subsidy errors
attributed to unreported and underreported income sources. In addition,
a RHIIP subgroup develops rent calculation software and proposals for
program simplification.
Risk Assessment:
Risk assessment is a key step in gaining assurance that programs are
operating as intended and that they are achieving their expected
outcomes. It entails a comprehensive review and analysis of program
operations to determine where risks exist, what those risks are, and
the potential or actual impact of those risks on program operations.
The information developed during a risk assessment forms the foundation
or basis upon which management can determine the nature and type of
corrective actions needed. It also gives management baseline
information for measuring progress in reducing improper payments. In
performing a risk assessment, management should consider all
significant interactions between the entity and other parties as well
as internal factors at both the entitywide and activity levels.
The specific risk assessment methodology used can vary by organization
because of differences in missions and the methods used in assigning
risk levels. As we noted in the improper payment strategies report
cited earlier, risk identification methods often include qualitative
and quantitative ranking activities, management conferences,
forecasting and strategic planning, and consideration of findings from
audits and other assessments. The information obtained from the four
agencies we visited revealed frequent use of similar risk assessment
activities.
USDA‘s FNS conducts annual quality control reviews to identify the
extent and causes of improper payments in several of its programs,
including the food stamp program. The two most recent reviews estimated
overpayments of $1.1 billion and $976 million in fiscal years 2000 and
2001, respectively. These reviews provided more detailed information
about the causes of the improper payments. For example, the report of
fiscal year 2000 payments found that about 56 percent of the
overpayments and underpayments in the food stamp program occurred when
state food stamp workers made mistakes such as misapplying complex food
stamp rules in calculating benefits. The remaining 44 percent of the
errors occurred because participants, either inadvertently or
deliberately, did not provide accurate information to state food stamp
offices.
HHS measures improper payments within the Medicare fee-for-service
program and estimated improper payments in this program of $11.9
billion and $12.1 billion for fiscal years 2000 and 2001, respectively.
Further, the agency reports that the Medicare fee-for-service claims
error rate was reduced to 6.3 percent in fiscal year 2001 from 6.8
percent in fiscal year 2000 and 7.97 percent in fiscal year 1999.
However, we cannot conclude that these error rate differences are
statistically significant. As reported in the OIG fiscal year 2001
Medicare fee-for-service payments review, ’The decrease this year may
be due to sampling variability; that is, selecting different claims
with different dollar values and errors will inevitably produce a
different estimate of improper payments.“[Footnote 21]
CMS has initiated projects to improve the precision of Medicare fee-
forservice improper payment estimates and aid in the development of
corrective actions to reduce improper payment losses. In fiscal year
2001, CMS implemented a provider compliance rate to measure the
appropriateness of claims submitted prior to payments. In addition, CMS
developed a comprehensive error testing program that will produce
contractor-, provider-, and benefit-specific error rates. These error
rates can be aggregated to add greater precision to the national level
estimates similar to the Medicare fee-for-service error rate.
GAO has designated HUD‘s rental housing assistance programs as high
risk since 1994. HUD has taken several actions to identify the risks
associated with these programs and is working to further refine the
procedures currently used to obtain more useful assessment information.
In one example, HUD analyzed risk designed to measure postpayment
accuracy. An annual study of rent calculation errors estimated the
extent, severity, costs, and sources of rent errors for the Public
Housing and Section 8 programs. The study, which relied on the
integrity of the data supplied by the tenants and third-party income
verification sources, matched independent determinations of tenants‘
incomes, rents, and subsidies to those made by local public housing
agencies (PHAs) and Section 8 staff to identify incorrect rental
calculations due to administrative and mathematical errors. The study
results, issued in June 2001, reported tenant rental underpayments of
approximately $1.7 billion annually (an average of $95 per household)
in 34 percent of households and tenant rental overpayments of over $600
million annually (an average of $56 per household) in 22 percent of
households. HUD used the study results to strengthen its procedures for
ensuring administrative compliance with regulations.
In another study, HUD developed an approach to identify differences
between tenant federal income tax data and the income tenants reported
to HUD by using a large-scale computer matching income verification
process. While initial results were effective in identifying certain
errors in tenant reporting, HUD is currently developing different
methodologies to improve the accuracy of this type of risk assessment.
HUD recently began to expand the scope of its error measurement
methodology to cover the three primary types of rental assistance
program errors”public housing authorities, owners and agents income and
rent determinations; tenant reporting of income; and POA billings to
HUD for subsidy payments. The current error measurement methodology
addresses the first two of these three components and, starting in
2003, HUD intends to annually measure and report on all three error
components. HUD‘s goal is to reduce processing errors and resulting
improper payments by 50 percent by 2005.
Control Activities:
Once an organization has committed to reducing the risk of improper
payments, identified program areas that are at risk, quantified the
possible extent of the risk, and has set a goal for reducing the risk,
it must act to achieve that goal. Control activities are the policies,
procedures, techniques, and other mechanisms designed to help ensure
that management‘s decisions and plans are carried out. Control
activities used by organizations to address improper payments vary
according to the specific threats faced and risks incurred. The types
of payment activities identified as presenting the most significant
risk of improper payments and the kinds of data and other resources
available dictate the specific actions pursued by individual entities.
Additionally, the actions must comply with all relevant laws and strike
a balance between the sometimes competing goals of privacy and program
integrity.
Given the large volume and complexity of federal payments and
historically low recovery rates for certain programs, it is generally
most efficient to pay bills and provide benefits properly in the first
place. Aside from minimizing overpayments, preventing improper payments
increases public confidence in the administration of benefit programs
and avoids the difficulties associated with the ’pay and chase“ aspects
of recovering improper payments. However, since some overpayments are
inevitable, agencies also need to adopt effective detection techniques
to quickly identify and recover them. Detection activities play a
significant role not only in identifying improper payments, but also in
providing data on why these payments were made and, in turn,
highlighting areas that need strengthened prevention controls. The
agencies in our study used many different prevention and detection
control activities to manage improper payments. The nature of these
activities ranged from sophisticated computer analyses of beneficiary
and program participant data using data sharing and computer-editing
techniques to on-site verification of claim information.
Data sharing allows entities to compare information from different
sources to identify inconsistencies and thus help ensure that payments
are appropriate. For example, data matches of social security numbers
and other data can help determine whether beneficiaries are
inappropriately receiving payments at more than one address. For
government agencies, data sharing can be particularly useful in
confirming initial or continuing eligibility of participants in benefit
programs and in identifying improper payments that have already been
made.
Of the four agencies included in our review, SSA is the most active in
the data sharing arena. It performs over 20 data matches with over 10
federal agencies and more than 3,500 state and local entities. For
instance, SSA shares data with HUD so that HUD can perform a match to
verify the identity of recipients of housing benefits and identify
potentially fraudulent claims.
In addition to sharing data with other entities, SSA also uses data
from other sources to perform matches to help prevent and detect
improper payments in its programs. For example, it obtains death
records from states to determine if deceased individuals are still
receiving benefit checks. SSA estimates that it saves $350 million
annually for OASI and DI, and $325 million annually for SSI through its
use of data matching. Further, the savings are not limited to those
realized by SSA. According to SSA, its matches save other agencies
approximately $1.5 billion each year.
According to SSA‘s Performance and Accountability Report, Fiscal Year
2001, it uses computer matching and other payment-safeguard activities
to assist it in finding and correcting improper payments and in
identifying and deterring fraud in its entitlement programs. In
commenting on our report, SSA noted that the OASI accuracy rate for
fiscal year 2000 was 99.9 percent and the SSI accuracy rate was 94.7
percent. It did not provide a fiscal year 2000 DI accuracy rate. In
continuing efforts to improve payment accuracy, SSA invested more than
$1 billion in processing over 9 million alerts in fiscal year 2001.
Current estimates indicate that these payment-safeguard activities
detected or prevented about $7 billion in overpayments.
Data mining is a computer-based control activity that analyzes diverse
data for relationships that have not previously been discovered. The
central repository of data commonly used to perform data mining is
called a data warehouse. Data warehouses store tables of historical and
current information that are logically grouped. Applying data mining to
a data warehouse allows an organization to efficiently query the system
to identify potential improper payments, such as multiple payments for
an individual invoice to an individual recipient on a certain date, or
to the same address.
The large number of Medicare transactions precludes a manual
examination of each transaction to identify associations and patterns
of unusual activities, making data mining an effective and efficient
alternative. CMS is currently involved in two data mining efforts. Its
claims administration contractors currently use data mining and
statistical analysis as part of their postpayment review activities. At
the request of the states, CMS has also undertaken a Medicare/Medicaid
data exchange project. This project‘s goal is to use data mining to
query data from both programs in an effort to find fraudulent or
abusive patterns that may not be evident when billings for either
program are viewed in isolation, but would become evident when they are
compared.
Computerized edit checks are used to ensure that valid and authorized
transactions are recorded and executed according to management and
program requirements. USDA‘s RMA provides the regulations, crop
policies, underwriting standards, and loss-adjustment standards for
crop insurance policies, although private insurance companies deliver
the actual crop insurance program. RMA‘s crop insurance program uses a
variety of computer-generated edit checks to ensure valid program
requirements are met. These edit checks include ensuring that the
liability was not increased at the time of loss, the cause of loss was
insurable according to policy language, and the insurance company
applied appropriate calculations to determine the loss payment. In
addition, RMA matches each producer‘s social security and employer
identification numbers with the agent and loss adjuster to ensure that
the producers have not been debarred from participating in the crop
insurance program. Once information is accepted through the above edit
processes, RMA loads it into databases where it is subject to further
audit and review.
The computerized data sharing and data mining efforts discussed in this
report help identify improper payments by providing more useful and
timely access to information. These techniques can result in
significant savings by identifying client reporting errors and
misinformation during the eligibility determination process”before
payments are made”or by detecting improper payments that have been
made. However, the extensive use of personal information in an evolving
technological environment raises new questions about how individual
privacy should be protected. In the federal arena, such activities must
be implemented consistent with all protections of the Privacy Act of
1974, as amended by the Computer Matching and Privacy Protection Act of
1988, and other privacy statutes.
Not every control activity identified involved computer applications.
The agencies that participated in this review also used on-site visits
and manual claims reviews to help reduce improper payments. For
example, USDA‘s Farm Service Agency (FSA) administers programs for the
Commodity Credit Corporation (CCC). Among other income and commodity
support programs, CCC indemnifies food producers for the extraordinary
losses of crops or livestock resulting from weather-related disasters
and pest infestations. Over 2,200 FSA local county offices are
responsible for ensuring that producers provide reliable claim
information. FSA performs random reviews of about 5 to 20 percent of
producer-provided information to verify that, among other things,
acreage has not been overstated. (These spot checks search for
anomalies such as numbers outside of reasonable ranges.) Similarly, at
HHS, CMS manually reviews Medicare claims to determine whether benefits
are provided to eligible beneficiaries, charges are covered, and
services are medically necessary and reasonable.
Information, Communications, and Monitoring:
Once an organization has identified its improper payment-related risks
and undertaken activities to reduce them, federal officials with
program management, oversight, and monitoring roles need relevant,
reliable, and timely information to help them make operating decisions
and monitor performance on a day-to-day basis and over time. For
example, a major objective of the Federal Financial Management
Improvement Act is to have systems that provide good cost accounting
information that program managers can use in managing day-to-day
operations. Managerial cost accounting is aimed at providing reliable
and timely information on the full cost of federal programs, their
activities, and outputs. This cost information can be used by the
Congress and federal executives in making decisions about allocating
federal resources, authorizing and modifying programs, evaluating
program performance, and developing the information to support GPRA
requirements.
The need for information and communication extends beyond
organizational boundaries. Educational activities for both
beneficiaries and other program participants help reduce improper
payments and strengthen program operations. Complex program regulations
can be confusing to both agency personnel and beneficiaries and thus
can potentially contribute to improper payments. The better educated
agency employees, contractors, and beneficiaries are about what is
expected of them and the consequences of not meeting those
expectations, the greater the chances for reducing fraud and errors in
the payment process. All four agencies visited educated recipients and
service providers on complex program regulations using various
mechanisms, including the Internet and printed materials.
For example, at USDA, FSA maintains a Web site with program
descriptions and information for producers. This site has hyperlinks to
additional information, guidance, and contacts for FSA and CCC. It
includes links to farm loan information, youth loans, disaster
assistance, price supports, and conservation programs. Furthermore, CCC
regularly sends out news releases explaining policies and procedures.
Agencies also use printed materials to educate recipients and service
providers. HUD publishes reference guides, handbooks, forms, and other
tools for homeowners and lenders. Its OIG has also published fraud
prevention guidance, Guidelines for Public Housing Authorities to
Prevent, Detect and Report Fraud. At USDA, FNS publishes guidance that
focuses on improving both access to the food stamp program and the
accuracy of eligibility requirements for benefit determinations. For
example, in September 2001, FNS updated its food stamp program fact
sheet, which is distributed to applicants in state food stamp agencies
and is available on its Web site. The fact sheet describes the rules
and types of documentation that applicants will need to provide at the
interviews to verify eligibility. SSA has also developed brochures and
printed materials Page 35 GAO-02-749 Improper Payments as part of its
campaign to keep the public informed about Social Security programs.
Barriers to More Effectively Managing Improper Payments:
When discussing actions to reduce improper payments, officials at all
four agencies cited barriers that restricted their ability to better
manage their programs against improper payments. Generally, agency
officials noted that they encounter barriers due to legislative
provisions, program design factors, and resource limitations. It should
be recognized that many of these barriers exist as a result of
decisions to ensure beneficiary privacy and other data safeguards, the
inherent nature of some federal programs, and budgetary realities. As a
result, it may be difficult to eliminate or mitigate these barriers to
the point where they no longer restrict agency actions in certain areas
to better manage their improper payment problems. However, to the
extent that that is the situation, federal agencies, the
administration, the Congress, and the public must recognize that some
level of improper payments will occur because of these decisions. This
section of the report discusses these types of barriers.
Legislation-Based Barriers:
Legislative actions can give agencies the authority to implement
activities to identify improper payments and, subsequently, to hold the
responsible parties accountable. They can compel agencies to work
together using common data to detect and prevent improper payments, and
can authorize agencies to develop incentive programs to increase
accuracy in program administration. Yet they can also limit an agency‘s
ability to take actions to reduce improper payments. Agencies trying to
identify ineligible individuals receiving government benefits and hold
them accountable have met with legislation-based barriers that limit
their efforts to minimize improper payments.
HUD officials told us that, to reduce improper payments in subsidized
housing programs, they could benefit by having access, even if it is
only limited access, to data from other federal agencies and by sharing
relevant information with entities implementing HUD‘s programs.
However, they stated that the Internal Revenue Code and the Privacy Act
of 1974 have prevented or made it difficult for HUD to obtain this
information and have limited how HUD can use it. Specifically, HUD
officials noted that the agency can only disclose federal tax data to
the tenants and not to the POAs”the entities that determine monthly
housing benefits based, in part, on income information. When HUD
identifies discrepancies, it sends Page 36 GAO-02-749 Improper Payments
letters to the tenants notifying them of the discrepancies and
directing them to submit revised income information to their respective
POAs. At the same time, HUD notifies the POAs that discrepancies exist
between the income in HUD‘s tenant databases and federal tax data for
specific tenants, but it is prohibited from identifying the specific
amounts in question. HUD then requests that the POAs resolve the
unspecified discrepancies and report the resolution to HUD.
Data currency is also a factor. HUD receives taxpayer income data in
September for the previous year and, by then, many of the beneficiaries
were either no longer working, had changed jobs, or had moved. While
more timely data are available, legislation prevents HUD from using it.
For example, the HHS Office of Child Support Enforcement maintains the
National Directory of New Hires containing employee wage data that is
updated quarterly, versus the IRS data that is updated annually.
However, Section 453 of the Social Security Act limits use of the data
to those entities listed in the act, and HUD is not one of those
entities.[Footnote 22]
Some improper payments are inevitable because agencies are not
permitted to stop or adjust payments until the due process hearing or
appeals processes are completed. For example, SSA disburses SSI
payments to recipients at the beginning of the month based on the
income and asset levels recipients expect to maintain during the month.
Some government programs pay benefits in advance under the assumption
that the beneficiary‘s circumstances, such as income and asset levels,
will remain the same during the period for which payment was rendered.
If SSA initially determines that an overpayment occurred, court
decisions[Footnote 23] and language in the Social Security Act allow
individuals to continue receiving the same amount of SSI and DI
benefits pending the results of a hearing to determine eligibility. If
the initial determination is affirmed, the payments made during the
hearing and appeals processes are considered overpayments, which SSA
may recover using a variety of means.[Footnote 24]
USDA‘s FNS faces a similar situation. FNS officials stated that the
Privacy Act of 1974 has several disclosure prohibitions, access and
amendment provisions, and record-keeping requirements that hinder its
efforts to share information with other federal agencies and with state
agencies. The Computer Matching and Privacy Protection Act of 1988
amended the Privacy Act of 1974 to add procedural requirements for
agencies to follow when conducting computer matching. For example,
agencies must provide matching subjects with opportunities to receive
notice and to refute adverse information before having a benefit denied
or terminated. Agencies must establish data protection boards to
oversee the data matching activities. Exceptions to the disclosure
requirements are possible but require a series of due process steps
designed to validate the debt and offer the individual an opportunity
to repay it. In commenting on this report, OMB officials told us that
it prefers removing statutory barriers only when appropriate privacy
safeguards are in place.
Program Design Barriers:
Benefit or entitlement programs operated by the federal government in
partnership with state or local governments or private intermediary
organizations are particularly vulnerable to improper payments.
Generally, the federal government provides broad statutory and
regulatory guidelines as well as all or a part of the program funding,
while the other entities manage the day-to-day program operations. As
such, federal agencies must depend on state, county, and local
officials and other entities to ensure that eligibility requirements
are met and that benefit amounts are determined correctly. Further,
these third-party organizations that manage federal programs often have
little incentive to ensure that the right amounts go to the right
individuals.
Medicaid is the primary source of health care for 34 million enrollees,
or about 12 percent of the U.S. population. In fiscal year 2000,
federal and state Medicaid outlays totaled $207 billion”of which $119
billion represented federal expenses. Medicaid legislation provides
states with a variety of options for program administration. They can
elect to administer the program at the state or county level, and they
can operate fee-forservice programs, managed care programs, or some
combination of the two. States may also elect to operate their claims-
processing systems directly or contract with private vendors. The
variety and complexity of the state Medicaid programs provide
challenges for federal oversight. CMS assists interested states in
developing methodologies and conducting pilot studies to measure and
ultimately reduce improper payments. However, according to CMS
officials, only a limited number of states are Page 38 GAO-02-749
Improper Payments interested in participating in these studies since
they believe that measuring improper payments could lead to penalties
against states based on their error rates. There are, however, some
promising activities. Some states are devoting more resources to
program integrity activities than they had previously and are obtaining
more sophisticated computer analytic capacity to review payment trends
and spot improper billing. Still others are implementing stricter
health care fraud and abuse control laws and policies.
HUD officials also face the problem of third-party management of a
federal program and the lack of a financial benefit or other incentive
to encourage the POAs to minimize improper payments. For example, HUD‘s
public housing programs are operated by over 3,000 PHAs, which operate
under state and local laws but are funded by HUD. Initial rent
determination is based on reported income levels. HUD officials stated
that PHAs have little incentive to protect the interests of the
government when determining the tenant benefit amount since it is
easier to collect payments from HUD than from tenants. Thus, PHA‘s have
the incentive to keep the HUD payment portion as high as possible.
Resource Barriers:
Each of the agencies visited processes a large number of payments and
claims and emphasizes providing benefits to needy individuals and
families as fast as possible. At these agencies, officials noted that
speed of service issues coupled with resource constraints can result in
improper payments. For example, CMS contracts with health insurance
companies to process 890 million Medicare fee-for-service claims each
year and SSA processes monthly payments to approximately 51 million
individuals. Officials at these agencies stated that resource
limitations hinder their ability to perform oversight and monitoring
functions, such as site visits and documentation reviews, to ensure
that payments are valid.
USDA‘s RMA expressed similar concerns. Private insurance companies
administer the crop insurance for RMA. These companies are responsible
for educating the agents who sell crop insurance policies and the
parties that purchase the policies. Improper payments can result when
crop producers misunderstand the policies or when they detect program
vulnerabilities and intentionally misuse the system. RMA has less than
two investigators per state and over 1 million policies nationwide,
making compliance with laws, policies, and procedures difficult to
monitor. Also at USDA, CCC officials stated that there is no time for
second-party review of the over 2,300 county offices administering the
programs because staff size Page 39 GAO-02-749 Improper Payments has
decreased while the number of programs has increased over recent years.
Legislative, program design, and resource barriers represent serious
obstacles to an organization‘s ability to effectively manage improper
payments and affect the amounts of improper payments occurring in
federal programs. They can be significant inhibitors that departments
must face, but which they often do not have the ability to eliminate
through independent actions. Addressing these barriers will require
coordination and cooperation between federal agencies, state and local
organizations, the administration, and the Congress.
A Collaborative Effort Is Needed for Managing Improper Payments:
The magnitude of improper payments reported in agency financial
statements, GAO and OIG audit reports, and other documents over the
past 3 years clearly demonstrates the need for a governmentwide effort
to remedy this situation. Many individual agencies have taken measures
to address their improper payments during this period, yet the total
amount reported has remained fairly constant at around $19 billion to
$20 billion.
As we noted in our report on strategies to manage improper payments,
high levels of improper payments need not and should not be an accepted
cost of running federal programs. Identifying and implementing steps to
reduce improper payments will likely be difficult, time consuming, and
costly. While individual agencies must be responsible for their own
programs and related improper payments, the collective efforts of
agency management, the administration, and the Congress are necessary
to attack improper payments on an agency and governmentwide basis to
achieve greater results.
Figure 1: Key Governmentwide Components in the Coordination Effort:
This figure is a circular flowchart showing Congress, Agencies, and
Administration in a circular motion illustrating key governmentwide
components in the coordination effort.
[See PDF for image]
[End of figure]
Each of these organizational bodies brings different perspectives and
expertise to the solutions process, which, when consolidated, can help
reduce the governmentwide improper payment problem. Further, once
committed to a plan of action, all parties must remain steadfast
supporters of the end goals and their support must be transparent to
all.
Federal Agencies:
Within federal agencies, program, Chief Operating Officer (COO), CFO,
Chief Information Officer (CIO), and IG offices have different missions
and areas of responsibility. They also have the common goal of ensuring
that federal programs and activities operate as effectively and
efficiently as possible. Therefore, agencies would benefit by
consolidating the program knowledge, expertise, and experience found in
these various offices when developing and implementing controls to
minimize improper payments.
Figure 2: Key Agency Components in the Coordination Effort:
This figure is a flowchart showing key agency components: Congress,
Agencies, and Administration in the coordination effort.
[End of figure]
COOs are appointed by agency heads. They are responsible for providing
overall organization management to improve agency performance. The COO
has agencywide authority and reports directly to the agency head. COOs
provide leadership such as overseeing efforts to improve financial
management, which includes reducing improper payments.
The agency CFO oversees the financial management activities relating to
agency programs and operations. CFOs are responsible for providing
complete, reliable, and timely financial information and for developing
and maintaining integrated financial management and accounting systems
related to financial reporting and internal controls. The information
prepared by the CFO includes internal management reports and agency
financial reports. Agency officials responsible for managing and
controlling program operations need reliable and timely financial
information, including improper payment data, to make operating
decisions, monitor performance, and allocate resources. CFOs may
identify and incorporate estimated improper payment disclosures into
their agencies‘ annual financial reports, which could promote
transparency and help establish accountability. In addition, CFOs may
be required to provide significant input for agency efforts in
developing the improper payment information required by the recent
revisions to OMB Circular A-11.
CIOs are responsible for managing agency information technology
resources of their agencies. In addition to developing new systems,
CIOs evaluate and monitor existing systems to determine if they meet
agency needs. Many of the techniques for detecting improper payments,
such as data sharing and data mining, rely on computerized information
systems. Agencies‘ computer-related activities must also be consistent
with all protections of the Privacy Act of 1974, as amended by the
Computer Matching and Privacy Protection Act of 1988, and other privacy
statutes. Furthermore, inadequate computer systems can have a serious
impact on agency efforts to minimize improper payments since agencies
use a wide range of computer-assisted activities to address improper
payments. These activities range from simple comparative analysis
(e.g., comparing beneficiaries with mortality rolls) to sophisticated
computer models for interactive analysis of large amounts of
information. Furthermore, organizations use computer-generated
information to obtain, summarize, and communicate information needed to
evaluate program performance.
When performing audits and investigations, OIGs develop information on
and an understanding of agency internal control systems and detect
fraud and errors involving agency programs and activities. OIG audits
have historically identified instances of improper payments within
agency programs. For example, the HHS OIG identified $11.9 billion in
overpayments for services in the Medicare fee-for-service program in
fiscal year 2000 by selecting a sample of payments to providers and
then reviewing the medical records that supported these payments. In
addition, at the Department of Labor, an OIG investigation found that a
claimant created 13 fictitious companies and submitted Unemployment
Insurance claims for 36 fictitious claimants.
Program managers are the agency‘s first line of defense against
improper payments. They manage their respective programs on a day-to-
day basis and are the principal federal points of contact for program
participants, such as state and local governments, that administer
billions of dollars in federal program and grant funds annually. In
performing their responsibilities to ensure that their respective
programs operate as intended, they should become aware of the extent
and causes of improper payments in their programs.
Although the various offices cited above have different missions and
areas of responsibility, they must work together and contribute to the
successful management of improper payments. Central leadership within
the agency is necessary to coordinate and consolidate the knowledge,
skills, and abilities of these diverse entities. The COOs appear to be
the logical choice to lead this effort due to the central management
role played by this position within each federal agency.
The Administration:
Identifying, measuring, preventing, and collecting improper payments
are continuing processes for which interagency cooperation can identify
practices and procedures that may prove effective governmentwide.
Figure 3: Key Administration Components in the Coordination Effort:
This figure is a circular flowchart showing key administration
components in the coordination effort: Congress, Agencies, and
Administration.
[See PDF for image]
[End of figure]
As the President‘s agent for managing and implementing policy, OMB
issues guidance and oversees the administrative organization and
operations of federal agencies. OMB‘s staff draws on experience in many
areas of government to challenge the thinking of other agencies, which
often cannot see beyond their own programs. To promote information
sharing across agencies, OMB leads and participates in interagency
groups, such as the President‘s Management Council (PMC), the Chief
Financial Officers Council (CFOC), the Chief Information Officers
Council (CIOC), and the President‘s Council on Integrity and Efficiency
(PCIE). These councils, which are further described below, are good
sources of best practice information for both agencies and OMB to draw
on when developing guidance on improper payment issues. OMB‘s role in
managing, implementing, and overseeing governmentwide administrative
policy, its interagency perspective, and its leadership role on the
various interagency councils make it a key player in the government‘s
effort to reduce improper payments. The following table summarizes the
agencies that are members of each council.[Footnote 25]
Table 3: Agency Participation in Councils:
[See PDF for image]
[A] Indicates member of the Council.
[End of table]
Based on its charter, the PMC‘s membership consists of the Deputy
Director of OMB, the Director of OPM, the COOs from the agencies listed
in table 3, and other officials. Some of PMC‘s responsibilities include
implementing the President‘s Management Agenda, Fiscal Year 2002,
coordinating management-related efforts to improve government
throughout the executive branch, resolving interagency management
issues, ensuring the adoption of new management practices in agencies,
and identifying and sharing examples of best management practices. PMC
also seeks advice and information, as appropriate, from federal
agencies and considers the management reform experiences of
corporations, nonprofit organizations, state and local governments,
government employees, public sector unions, and customers of government
services.
The CFOC was established under the provisions of the CFO Act of 1990 to
improve financial management in the federal government. Its membership
consists of the CFOs and deputy CFOs of the largest agencies along with
the senior officials of OMB and Treasury, and it is chaired by the
Deputy Director for Management, OMB.[Footnote 26] The CFOC recently
established an Erroneous Payments Committee. The committee convenes to
discuss and develop methods to address improper payments made by
federal agencies.
The CIOC was established in July 1996 by Executive Order 13011 as a
governmentwide body to address crosscutting information technology
issues. CIOs and deputy CIOs of the 28 largest federal agencies, two
CIOs representing the smaller federal agencies, and other OMB and
advisory members, make up the council‘s membership, under the
leadership of OMB‘s Deputy Director for Management. The council was
established to improve agency practices on information technology
matters such as the design, modernization, use, sharing, and
performance of agency information resources. It also facilitates
intergovernmental approaches for using information resources to support
common operational areas such as reducing improper payments. For
example, it could assist interagency efforts to compare payment
information to ensure that initial eligibility of individuals for
benefits is determined correctly or to determine whether improper
payments have already been made.
The PCIE primarily consists of the presidentially appointed IGs and is
chaired by the Deputy Director for Management of OMB.[Footnote 27] Its
mission includes addressing integrity, economy, and effectiveness
issues that transcend individual government agencies. The council
conducts interagency audits, inspections, and investigations to promote
economy and efficiency in federal programs and operations, and
addresses governmentwide issues of fraud, waste, and abuse, including
improper payments. PCIE and CFOC have recently established a joint
working group to address improper payments. The working group is
carrying out several tasks, including:
* preparing a report that defines its position on mitigating and
managing payment risks;
* preparing a critique on the effectiveness of the differing processes
used to determine improper payment rates;
* preparing a set of indicators that can be used to effectively
represent the nature and extent of the problem of improper payments;
* preparing guidance to ensure sufficient oversight and monitoring, and
adequate eligibility controls and automated systems for agencies
experiencing improper payment problems; and:
* developing a proposal on funding the administrative costs associated
with activities related to improper payments.
Within these groups, OMB draws together operational, financial,
information technology, procurement, and other experts from across the
government to establish governmentwide goals in their areas of
expertise and to marshal the resources within individual agencies to
improve government performance.[Footnote 28] By drawing together
representatives from these various councils, OMB can provide leadership
and build on council members‘ combined knowledge, skills, and abilities
and work with them to develop systems and perform other actions to
reduce improper payments. Collectively, these organizations can achieve
more than they can by working alone.
The Congress:
The Congress can further agency efforts to reduce improper payments by
using its appropriation, authorization, and oversight responsibility to
continue to demonstrate a leadership role and by helping to ensure that
agencies are held accountable for meeting performance goals.
Figure 4: Key Congressional Areas in the Coordination Effort:
This figure is a circular flowchart showing key congressional areas in
the coordination effort.
[See PDF for image]
[End of figure]
The Congress reviews and determines federal financial priorities.
Through the appropriations process, it has the opportunity to review
recent expenditures in detail. Specifically, the Congress can use its
appropriations authority to assist agencies in setting financial
priorities that support identifying, reducing, and collecting improper
payments. For example, the SSA‘s fiscal year 2003 budget proposes $1.05
billion for ensuring that only those who remain disabled continue
receiving benefits and for assessing whether SSI recipients continue to
meet the financial eligibility requirements. In considering this budget
request, the Congress can help set priorities and expectations for
specific program outcomes.
The Congress also reviews the actions taken and regulations formulated
by departments and agencies to make certain that program officials
execute laws according to congressional intent. Therefore, it can
determine whether the public‘s needs are adequately served by federal
programs, and thus lead corrective action through legislation or
administrative changes. For example, in the Budget of the United States
Government, Fiscal Year 2003, the President proposes a legislative
change to allow IRS to match the income reported on student aid
applications with tax return data. According to the budget, this action
could help reduce improper payments in the Department of Education‘s
student aid programs, resulting in an estimated $138 million savings in
2003.
Congressional oversight committees investigate alleged instances of
poor administration and fraud, waste, and abuse that could result in
improper payments in federal programs. On July 9, 2002, the House of
Representatives passed the ’Improper Payments Information Act of 2002“
(H.R. 4878). This legislation is currently at the Senate for its
consideration. This bill requires more stringent requirements in the
areas of improper payment review and reporting than is currently
required by the President‘s Management Agenda, Fiscal Year 2002, and
OMB Circular A-11. Specifically, it requires that agency heads review
all programs and activities that they administer, identify those that
may be susceptible to improper payments, estimate the annual amount of
improper payments, and, where estimated improper payments exceed the
lesser of 1 percent of the total program budget or $1,000,000 annually,
report on actions the agency is taking to reduce improper payments. On
the other hand, the President‘s Management Agenda, Fiscal Year 2002,
and OMB Circular A-11 apply only to large-dollar programs.
Further, most federal agencies and programs are under regular and
frequent reauthorizations. As a consequence of these oversight efforts,
the Congress can abolish or curtail obsolete or ineffective programs by
cutting off or reducing funds. Conversely, the Congress may enhance
effective programs by increasing funds or reducing legislative barriers
to agency actions to better control improper payments.
Conclusions:
The extent of governmentwide improper payments is not known but is
likely to be billions of dollars more than the approximately $19
billion to Page 50 GAO-02-749 Improper Payments $20 billion reported
annually in agency financial statements over the past 3 years. Current
requirements and guidance do not require or offer a comprehensive
approach to measuring improper payments, developing and implementing
corrective actions, or reporting on the results of the actions taken.
Measuring improper payments and designing and implementing actions to
reduce or eliminate these payments are not simple tasks. However, as
evidenced by the actions taken by USDA, HUD, HHS, and SSA, federal
agencies can perform them and these actions can result in reductions in
improper payment rates. Determining payment error rates is important to
ensure program integrity. In addition, the administration and the
Congress have taken important steps to address improper payments. For
example, the President‘s Management Agenda, Fiscal Year 2002, and OMB‘s
revisions to Circular A-11 demonstrate the administration‘s interest in
and plans to address improper payments across the government. Both
documents call for OMB to work with agencies to establish goals and
action plans to reduce improper payments. The agenda and the revisions
to the circular are important first steps. The administration must now
take all necessary actions to ensure that federal agencies meet the
requirements set forth in those documents. In addition, through
legislation, the Congress has provided resources for anti-fraud and
abuse activities and agencies with the authority to impose penalties
and take actions to keep dishonest recipients from further program
participation. Legislative initiatives such as these are critical to
governmentwide actions to reduce improper payments and demonstrate that
the Congress is willing to take actions to address improper payments.
As stated in the Budget of the United States Government, Year 2003,
’The Administration cannot improve the federal government‘s performance
and accountability on its own. It is a shared responsibility that must
involve the Congress.“
Few agencies publicly report improper payment information such as
improper payment rates, causes, and strategies for better managing
their programs to reduce or eliminate these payments. This is evidenced
by the fact that publicly available documents such as annual agency
financial statements and the performance plans required by GPRA contain
minimal information on the extent of improper payments, the actions
taken by agencies to address them, and the impact or results of those
actions on improper payment levels. OMB Circular A-11 requires that 16
agencies report improper payment information, including error rates and
target rates for improvement, but that information is not publicly
reported and, therefore, the Congress, the public, and others with
oversight and monitoring interests cannot use this information to hold
agencies accountable for achieving target rates or otherwise
implementing specifically planned actions.
On a case-by-case basis, agencies‘ abilities to control improper
payments can be hindered by legislative, program design, and resource
barriers. These barriers can hamper the design and implementation of
actions to prevent, detect, and mitigate improper payments. Reducing or
eliminating some of these barriers may not be feasible without
legislative or program design changes that could significantly alter
federal program missions or the methods used to achieve the program
goals and objectives established by the Congress and the
administration. Yet it must be recognized that, barring actions in
these areas, these barriers will continue to restrict an agency‘s
ability to address all of its improper payment problems.
As we noted in our report on strategies for managing improper payments,
significant progress in minimizing improper payments can only occur as
a collaborative governmentwide effort. The government‘s reduction of
improper payments will only be achieved as a result of the design,
development, and implementation of better internal controls. These
efforts will require strong support and active involvement from agency
management, the administration, and the Congress. Once committed to a
plan of action, all parties must remain involved and committed to the
end goals and their support must be transparent to all. Agency
management, the administration, and the Congress must work together to
identify and implement effective controls to reduce improper payments.
The mechanisms already exist for this to happen. Agency experts in
financial matters, information systems, and general management issues;
governmentwide councils under OMB‘s direction; and the Congress each
provide valuable resources that could be useful in addressing the
government‘s improper payment problems. Individually, each can have an
impact; collectively, they can achieve more by sharing experiences and
practices and working together to address improper payment problems.
Recommendations for Executive Action:
CFO Act Agencies:
The head of each CFO Act agency should assign responsibility to a
senior official, such as the COO or the CFO, for establishing policies
and procedures for assessing agency and program risks of improper
payments, taking actions to reduce those payments, and reporting the
results of the actions to agency management for oversight and other
actions as deemed appropriate. These responsibilities should include,
but not be limited to:
* developing detailed action plans to determine the nature and extent
of possible improper payments for all agency programs and/or activities
spending federal funds;
* identifying cost-effective control activities to address the
identified risk areas;
* assigning responsibility for specific areas of improper payment-
related activities to appropriate program or activity officials;
* establishing improper payment goals or targets and measuring
performance against those goals to determine progress made and areas
needing additional actions;
* developing procedures for working with OMB and the Congress to
address barriers encountered that inhibit actions to reduce improper
payments; and:
* periodically reporting, through publicly available documents, to the
agency head, OMB, and the Congress on the progress made in achieving
improper payment reduction targets and future action plans for
controlling improper payments.
Office of Management and Budget:
We recommend that the Director of OMB take the following actions.
* Develop, as a result of interactions with agency officials and
through participation on interagency groups, information on lessons
learned and best practices that federal agencies have used to address
their improper payment problems. Once developed, OMB should issue
specific guidance, as we have previously recommended, to agencies that
provides a comprehensive approach to reducing improper payments,
including providing the transparency in reporting that is crucial to
addressing this problem.
* Work with agency officials to provide all reasonable assistance in
implementing the corrective action plans developed to reduce improper
payments.
* Work with agency officials to identify and help eliminate or reduce,
to the extent practicable, the barriers that restrict agency actions to
reduce improper payments. OMB should work with the agencies in clearly
defining and evaluating these barriers and in assisting agencies in
eliminating them.
* Work with the Congress to identify and develop actions to reduce or
eliminate, to the extent practical, barriers that hinder agency actions
to reduce improper payments.
* Require federal agencies to report the information called for by OMB
Circular A-11 on improper payments in a specific, publicly available
document such as annual performance reports, annual agency financial
statements, or other annual report. All agencies should report this
information in the same document to facilitate oversight and monitoring
by interested parties including the Congress and the public.
Matters for Congressional Consideration:
The Congress should consider using available improper payment
information to engage agencies in discussions about progress that is
being made, additional steps planned, and actions the Congress can take
to help reduce improper payments. When, based on these discussions, the
congressional actions necessary to eliminate barriers to agency
corrective action are identified, the Congress should consider taking
the legislative and oversight actions necessary to provide the agencies
and the administration with tools needed to reduce improper payments,
both at the agency and governmentwide levels.
Agency Comments and Our Evaluation:
In commenting on this report, HHS, HUD, SSA, and OMB noted that they
had actions in progress or that were completed that addressed our
recommendations or that agency units supported the essence of the
topics covered by the report. Each of these organizations and USDA also
provided technical comments and other editorial suggestions for our
consideration. We considered all comments and made changes to the
report, as appropriate. HHS, HUD, and SSA provided written comments to
our draft report. USDA provided comments via e-mail and OMB provided
its comments orally. (The written comments from HHS, HUD, and SSA are
reprinted in appendixes IV through VI, respectively.)
In oral comments, OMB generally agreed with the report‘s findings. OMB
also stated that it believes its current focus on improper payments
will address the majority of the concerns the report raises. OMB
considers the recommendations in the report to already be in place,
since the President has made addressing and reducing improper payments
a priority in his management agenda and the Chief Financial Officers
Council has established an Erroneous Payments Committee to address the
problem. The President‘s focus on improper payments, OMB‘s leadership
in this area, and the administration‘s efforts to date are positive
steps to ultimately addressing the serious problems in this area. At
the same time, agencies still face significant challenges in
identifying and measuring their improper payments, setting performance
goals, implementing corrective actions, and reporting the results
against the goals. Fully implementing our recommendations will be
important to addressing the underlying internal control problems
agencies face in reducing improper payments.
In written comments (reprinted in app. IV) HHS stated that CMS is
already implementing the recommendations of the report and is in the
process of designating a senior official to oversee the identification,
correction, and reporting of improper payments, as we recommended.
Furthermore, CMS has undertaken a number of efforts to better manage
all of its financial management systems. The comments also suggested
technical revisions and clarifications, which we considered and
included in the report, where appropriate.
HUD generally agreed with the report‘s conclusions and recommendations.
Its comments (reprinted in app. V) stated that strengthening management
controls and reducing improper payments are priorities for HUD‘s
administration. HUD further indicated, that, as acknowledged in the
draft report, it has already initiated corrective actions to strengthen
management controls and reduce improper payments in the rental housing
assistance program area. Its comments also identified several revisions
and technical or editorial issues. We considered these issues and
included them in the report, as appropriate.
SSA‘s comments (reprinted in app. VI) stated that each of its
components, directly or indirectly, supports the essence of the topic
of our report” reducing improper payments. Its efforts involve
collaboration between SSA components, data match partners, OMB, and the
Congress. The comments also noted that the Deputy Commissioner of SSA
(Chief Operating Officer) has overall responsibility for addressing the
responsibilities outlined in our recommendations to the federal
agencies. They also provided information on the improper payment
efforts of SSA units other than those included in our review and
provided suggested revisions and clarifications to the report. We
considered these suggestions and included them in the report, as
appropriate.
USDA responded via e-mail. The comments provided several editorial
and/or clarification points which we considered and included in the
report, as appropriate.
We are sending copies of this report to the Chairman, Senate Committee
on Governmental Affairs, and the Chairmen and Ranking Minority Members
of the House Committee on Government Reform, Senate Committee on the
Budget, and House Committee on the Budget. We will also send copies to
the Director of the Office of Management and Budget and the heads of
the CFO agencies and components required to prepare financial
statements and their respective agency CFOs and OIGs. Copies will also
be made available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov.
This report was prepared under the direction of Sally E. Thompson,
Director, Financial Management and Assurance, who may be reached at
(202) 512-9450 or by e-mail at thompsons@gao.gov if you or your staff
have any questions. Staff contacts and other key contributors to this
report are listed in appendix VII.
Sincerely Yours,
Signed by:
Sally E. Thompson:
Director:
Financial Management and Assurance:
Appendix I:
Programs for Which Erroneous Payment Information Is Required per OMB
Circular A-11:
Department of Agriculture:
Food Stamps:
Commodity Loan Program:
National School Lunch and Breakfast Women, Infants, and Children:
Department of Transportation:
Airport Improvement Program:
Highway Planning and Construction:
Federal Transit – Capital Investment Grants:
Federal Transit – Formula Grants:
Department of Defense:
Military Retirement:
Military Health Benefits:
Department of Veterans Affairs:
Compensation:
Dependency and Indemnity Compensation Pension:
Insurance Programs:
Department of Education:
Student Financial Assistance:
Title I:
Special Education – Grants to States:
Vocational Rehabilitation Grants to States:
Agency for International Development:
Environmental Protection Agency:
Clean Water State Revolving Funds:
Drinking Water State Revolving Funds:
National Science Foundation:
Research and Education:
Grants and Cooperative Agreements:
Department of Health and Human Services:
Head Start:
Medicare:
Medicaid:
TANF:
Foster Care – Title IV-E:
Child Support Enforcement:
State Children‘s Health Insurance Program:
Child Care and Development Fund:
Office of Personnel Management:
Retirement Program (Civil Service Retirement System and Federal
Employees‘ Retirement System):
Federal Employees Health Benefits Program:
Federal Employees‘ Group Life Insurance:
Department of Housing and Urban Development:
Low Income Public Housing:
Section 8 Tenant Based:
Section 8 Project Based:
Community Development Block Grants:
(Entitlement Grants, States/Small Cities)
Railroad Retirement Board[A]:
Retirement and Survivors Benefits:
Railroad Unemployment Insurance Benefits:
Small Business Administration:
(7a) Business Loan Program:
(504) Certified Development Companies:
Disaster Assistance:
Small Business Investment Companies:
Department of Labor:
Unemployment Insurance:
Federal Employee Compensation Act:
Workforce Investment Act:
Department of the Treasury:
Earned Income Tax Credit:
Social Security Administration:
Old Age and Survivors‘ Insurance:
Disability Insurance:
Supplemental Security Income:
[A] Not a CFO Act agency.
[End of table]
Appendix II: Federal Agencies and Components Required to Prepare
Financial Statements under the CFO Act and OMB Guidance:
Department of Agriculture:
Food and Nutrition Service:
Forest Service:
Rural Development Mission Area:
Department of Commerce:
Department of Defense:
Department of Army General Funds:
Department of Navy General Funds:
Department of Air Force General Funds:
Military Retirement Trust Funds:
U.S. Army Corps of Engineers Civil Works Program:
Department of Army Working Capital Fund:
Department of Navy Working Capital Fund:
Department of Air Force Working Capital Fund:
Department of Education:
Department of Energy:
Department of Health and Human Services:
Centers for Medicare and Medicaid Services:
Department of Housing and Urban Development:
Department of the Interior:
Department of Justice:
Department of Labor:
Department of State:
Department of Transportation:
Federal Aviation Administration:
Highway Trust Fund:
Department of the Treasury:
Bureau of Alcohol, Tobacco and Firearms:
Internal Revenue Service:
United States Customs Service:
Department of Veterans Affairs:
Agency for International Development:
Environmental Protection Agency:
Federal Emergency Management Agency:
General Services Administration:
National Aeronautics and Space Administration:
National Science Foundation:
Nuclear Regulatory Commission
Office of Personnel Management:
Civil Service Retirement and Disability Fund:
Federal Employees Health Benefits Program:
Federal Employees Life Insurance Program:
Small Business Administration:
Social Security Administration:
[End of section]
Appendix III: GAO Products Addressing Agency Key Outcomes and Major
Management Challenges:
The following lists the GAO products that addressed the status of CFO
Act agency actions to achieve key outcomes and address major management
challenges.
U.S. General Accounting Office. U.S. Agency for International
Development: Status of Achieving Key Outcomes and Addressing Major
Management Challenges. GAO-01-721. Washington, D.C.: August 17, 2001.
U.S. General Accounting Office. Department of Agriculture: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-761. Washington, D.C.: August 23, 2001.
U.S. General Accounting Office. Department of Commerce: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-793. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Department of Defense: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-783. Washington, D.C.: June 25, 2001.
U.S. General Accounting Office. Department of Education: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-827. Washington, D.C.: June 29, 2001.
U.S. General Accounting Office. Department of Energy: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-823. Washington, D.C.: June 29, 2001.
U.S. General Accounting Office. Environmental Protection Agency: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-774. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Federal Emergency Management Agency:
Status of Achieving Key Outcomes and Addressing Major Management
Challenges. GAO-01-832. Washington, D.C.: July 9, 2001.
U.S. General Accounting Office. General Services Administration: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-931. Washington, D.C.: August 3, 2001.
U.S. General Accounting Office. Health and Human Services: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-748. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Department of Housing and Urban
Development: Status of Achieving Key Outcomes and Addressing Major
Management Challenges. GAO-01-833. Washington, D.C.: July 6, 2001.
U.S. General Accounting Office. Department of the Interior: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-759. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Department of Justice: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-729. Washington, D.C.: June 26, 2001.
U.S. General Accounting Office. Department of Labor: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01- 779. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. NASA: Status of Achieving Key Outcomes
and Addressing Major Management Challenges. GAO-01-868. Washington,
D.C.: July 31, 2001.
U.S. General Accounting Office. National Science Foundation: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-758. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Nuclear Regulatory Commission: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-760. Washington, D.C.: June 29, 2001.
U.S. General Accounting Office. Office of Personnel Management: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-884. Washington, D.C.: July 9, 2001.
U.S. General Accounting Office. Small Business Administration: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-792. Washington, D.C.: June 22, 2001.
U.S. General Accounting Office. Social Security Administration: Status
of Achieving Key Outcomes and Addressing Major Management Challenges.
GAO-01-778. Washington, D.C.: June 15, 2001.
U.S. General Accounting Office. Department of State: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
02- 42. Washington, D.C.: December 7, 2001.
U.S. General Accounting Office. Department of Transportation: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-834. Washington, D.C.: June 22, 2001.
U.S. General Accounting Office. Department of the Treasury: Status of
Achieving Key Outcomes and Addressing Major Management Challenges. GAO-
01-712. Washington, D.C. June 15, 2001.
U.S. General Accounting Office. Veterans Affairs: Status of Achieving
Key Outcomes and Addressing Major Management Challenges. GAO-01-752.
Washington, D.C. June 15, 2001.
[End of section]
Appendix IV: Comments from the Department of Health and Human Services:
Department of Health and Human Services:
Office of Inspector General:
Washington D.C. 20201:
Ms. Sally E. Thompson:
Director, FInancial Management and Assurance:
United States General Accounting Office:
Washington, D.C. 20548:
Dear Ms. Thompson:
Enclosed are the Department's comments on your draft report entitled
"Financial Management: Unified Approach Needed to Better Manage the
Government's Improper Payments Problems." The comments represent the
tentative position of the Department and are subject to reevaluation
when the final version of this report is received.
The Department also provided several technical comments directly to
your staff.
The Department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Signed by:
Janet Rehnquist:
Inspector General:
Enclosure:
The Office of Inspector General (OIG) is transmitting the Department's
response to this draft report in our capacity as the Department's
designated focal point and coordinator for General Accounting reports.
The OIG has not conducted an independent assessment of these comments
and therefore expresses no opinion on them.
Comments of the Department of Health and Human Services on the General
Accounting Office's Draft Report, "Financial Management: Unified
Approach Needed to Better Manage the Government's Improper Payments
Problems" (GAO-02-749):
The Department of Health and Human Services (HHS) appreciates the
opportunity to commend on this draft report and concurs with all the
findings in the report.
General Comments:
The Centers for Medicare and Medicaid Services (CMS) have been
undertaking a number of efforts to better manage all of its financial
management systems. The CMS has begun of the implementation of the
Healthcare Integrated General Ledger Accounting System (HIGLAS), which
will eventually replace the 53 different systems now in use by the
private insurance companies, that process and pay for nearly 3 million
Medicare claims every day. In addition, CMS has developed and its in
the process of implementing the Comprehensive Error Rate Testing
Program and the Payment Error Prevention Program, which will assist CMS
management in identifying and managing improper payments.
In addition, the rate of improper Medicare payments continued to
decline in 2001. The improper payment rate, which estimates the portion
of Medicare fee-for-service payments that do not comply with MEdicare
laws and regulations, was 6.3 percent in fiscal year 1996, the first
year HHS' Office of Inspector General calculated the rate.
The CMS is already implementing the recommendations of the report and
is in the process of designating a senior official for oversight of
identification, correction of and reporting of improper overpayment, as
GAO recommended.
[End of section]
Appendix V: Comments from the Department of Health and Human Services:
U.S. Department of Housing and Urban Development:
Washington D.C. 20410-0100:
Office of the Chief Financial Officer:
June 28, 2002:
Ms. Sally E. Thompson:
Director, Financial Management and Assurance:
441 G. Street, NW:
Washington, DC 20548:
Dear Ms. Thompson:
Thank you for the opportunity to review and comment on the U.S. General
Accounting Office's (GAO) draft report entitled Financial Management:
Unified Approach Needed to Better Manage the Government's Improper
Payments Problems (GAO-02-749). The U.S. Department of Housing and
Urban Development (HUD) generally agrees with the GAO's conclusions and
recommendations for consideration by the CFO Act Agencies, the Office
of Management and Budget, and the Congress. Strengthening management
controls and reducing improper payments are priorities for HUD's new
administration.
As indicated in the draft report, HUD has already initiated corrective
actions to strengthen management controls and reduce improper payments
in the rental housing assistance programs area, our largest
appropriated activity. The goal of reducing improper rental assistance
payments 50 percent by 2005 is included in the President's mAnagement
Agenda and HUD's Fiscal YEar (FY) 2003 Annual Performance Plan, along
with HUD's plans and interim annual goals for attaining that overall
goal. While the stated scope of the GAO review focused on the content
of agencies' FY 2002 Annual Performance Plan, we are enclosing relevant
excerpts from our FY 2003 Annual Performance Plan, which was published
in April 2002, is the first Annual Performance Plan to fully reflect
the goals and plans of HUD's new administration.
The following are our comments or requested revisions on technical or
editorial issues for the GAO's consideration in completing the final
report.
1. On page 9, the last sentence of the second paragraph of the
Background section should be corrected to clarify the intended meaning.
2. On page 16, it is requested that the table be revised as follows to
more clealy and correctly reflect the nature of HUD's evolving
development and reporting of improper payment estimates in the
footnotes to its consolidated financial statements for FYs 1999, 2000
and 2001.
[See PDF for image]
3. On page 15, it is requested that a footnote be added to the row on
HUD's rental housing subsidy programs stating: "In fiscal year 2000,
HUD expanded the scope of its error estimation to include subsidy
determination errors by its administrative intermediaries, in addition
to the impacts of tenant underreporting of income, and further
perfected its methodology with a combined estimate of both types of
errors in FY 2001."
4. On page 39, we request that the last sentence before the Risk
Assessment section be deleted as it does not correctly reflect the role
of REAC. We suggest the following sentence be added in its place: "The
RHIIP advisory group has taken steps to increase HUD's income data
matching authority and utilization. This will enable "upfront" income
data sharing to avoid subsidy errors attributed to unreported and
underreported income sources."
Again, the Department appreciates the opportunity to comment on this
draft report before publication. If you have any questions, please
contact James M. Martin, Assistance Chief Financial Officer for
Financial Management, at (202) 708-0638.
Sincerely,
Signed Angela M. Antonelli:
Chief Financial Officer:
Enclosure:
Appendix VI: Comments from the Social Security Administration:
Social Security:
Office of the Commissioner:
Social Security Administration:
Washington D.C. 20254:
July 3, 2002:
Ms. Sally E. Thompson:
Director, Financial Management and Assurance:
U.S. General Accounting Office:
Washington. D.C. 20548:
Dear Ms. Thompson:
Thank you for the opportunity to review and comment on the draft
report, "Financial Management: Unified Approach Needed to Better Manage
the Government's Improper Payments Problems" (GAO-02-749). Our comments
on the report are enclosed. If you have any questions, please have your
staff contact Mark Welch at (410) 965-0374.
Sincerely,
Signed by:
Jo Anne B. Barnhart:
Commissioner:
Enclosure:
Comments of the Social Security Administration (SSA) on the General
Accounting Office's (GAO) Draft Report, "Financial Management: Unified
Approach Needed to Better Manage the Government's Improper Payments
Problem" (GAO-08-749):
Thank you for the opportunity to provide comments on this GAO draft
report. We appreciate that SSA acknowledged for being in the forefront
of reporting on and addressing improper payments. We also appreciate
GAO's presentation of factors that go beyond agency control that can
cause improper payments.
Although the dollar amount of the improper payments in Social Security
programs contained in this report appear large, we think it is
important to represent them in some context with the size of the
outlays involved and the accuracy rates achieved for the programs.
Specifically, total outlays for the OASI program for FY2000 were $353.4
billion and $33.1 billion foe the SSI program. The OASI accuracy rate
for FY 2000 was 99.9 percent and the SSI accuracy rate was 94.7
percent.
GAO Recommendation:
The head of each Chief Financial Officers (CFO) Act agency should
assign responsibility to a senior official, such as the Chief Operating
Office or the CFO, for establishing policies and procedures for
assessing agency and program risks to improper payments, taking actions
to reduce those payments, reporting the results of the actions to upper-
level agency management for oversight and other actions as deemed
appropriate. These responsibilities should include, but not be limited
to:
* Developing detailed action plans to determine the nature and extent
of the possible improper payments for all agency programs and/or
activities spending federal funds;
* Identifying cost-effective control activities to address the
identified risk areas;
* assigning responsibility for specific areas of improper payment-
related activities appropriate program or activity officials;
* Establishing improper payment goals or targets and measuring
performances against those goals to determine progress made and areas
needing additional actions;
* Developing procedures for working with the Office of Management and
Budget (OMB) and the Congress to address barriers encountered that
inhibit actions to reduce improper payments; and:
* Periodically reporting, through publicly available documents, to the
agency head, OMB, and the Congress on the progress made in achieving
improper payment reduction targets and future action plans for
controlling improper payments.
SSA Comment:
At SSA, every component, directly or indirectly, supports the essence
of the topic of the GAO report- reducing improper payments. This
collaborative effort involves SSA components, data match partners, OMV
and Congress. The Deputy Commissioner of SSA (Chief Operating Officer)
has overall responsibility for addressing the responsibilities outlined
on page 69 of the report. Three Deputy Commissioner-level components
have the lead in addressing specific portions. The responsibilities of
the Deputy Commissioner and the component leads are:
* Deputy Commissioner of SSA-- oversees the Agency's efforts to
identify and reduce sources of improper payments. One specific example
is the Agency's SSI Corrective Action Plan, which outlines our efforts
to better manage the SSI program and remove the SSI program from the
GAO's "high risk" designation. The Deputy Commissioner had the lead
responsibility for the development of the Plan and is responsible for
its implementation. The Commissioner and the Deputy have met with the
Comprotoller General about the Plan and the initiatives we plan to
pursue to improve prevention of overpayments, increase overpayment
detection and increase collection of debt.
* Office of Disability and Income Support Programs (ODISP)-- establish
the operational policies and procedures of the Agency to minimize the
occurrence of improper payments. ODISP is also the lead component for
establishing and maintaining data match agreements with outside
entities.
* Office of Operations--implements the operational policies and
procedures set by ODISP. The Office of Operations provides valuable
input into policy and procedures development to ensure the efficacy in
reducing improper payments.
* Office of Finance, Assessment and Management (OFAM)--measures the
accuracy of program payments through the stewardship studies. OFAM also
reports on the level of improper payments outside the Agency through
the budget submission process and the Annual Performance and
Accountability Report.
Additional Comments"
Table 1 on page 16 of the report is entitled "Improper Payments
Reported by Federal Agencies and Components in Their Fiscal YEars 1999,
2000, and 2001 Financial Statements." For SSA, the Old-Age and
Survivors Insurance (OASI) and Disability Insurance (DI) "improper
payments" totals shown appear to be taken from the "Net Accounts
Receivable" amounts found in the "Balance Sheet by Major Program"
included in the SSA Performance and Accountability Report (PAR) for
these fiscal years, It is important to note that the amounts included
in "accounts receivable" are not synonymous with the definition of
"improper payments" cited on page of the GAO report report and in the
middle paragraph on page 9 of the report. Although the accounts
receivable represent overpayments (monies overpaid that are due SSA),
many if these overpayments were not improperly made in that SSA was
required by law/regulation, or by Federal Court decision, to make the
payment. Examples include but are not limited to: (1) DI overpayments
that result from disability cessations where SSA was required to
continue payments during the appeals process, (2) Supplemental Security
Income program (SSI) payments issued while people pursue their appeal
rights under the Goldberg/Kelly court decision, and (3) cases in which
an individual alleging noon-receipt for benefit payments cashes both
the original and subsequently issues replacement benefit checks.
The Table 1 dollar amounts relating to the SSA DI and OASI programs for
FY 2001 are reversed. The correct amounts are $1,313 million for DI and
$1,339 for OAISI.
GAO reviewed agencies' FY 2001 and FY 2002 annual plans and the Budget
of the United States Government for FY 2003 to assess the extent to
which information on agencies' improper payments was included. On page
26 of the report, GAO states its intent to review GY 2003 annual
performance plans to assess the progress agencies have made in
addressing improper payments. We expect that GAO's subsequent report
will show improvement at SSA.
We suggest that GAO's subsequent report also include a review of
agencies' annual performance reports, the vehicles for reporting actual
performance in meeting agency performance goals, and which also
describe goals, measures, strategies, and procedures to validate
performance data related to improper payments. This expanded, updated
review will enable GAO to more filly evaluate agencies' progress in
addressing erroneous payment problems.
The explanation at the top of page 52 GAO draft report about how income
affects the monthly amount for SSI benefits is incomplete. We believe
this explanation should include a discussion of how retrospective
monthly accounting works, including mention that once the individual or
couple is determined to be eligible based on income received in the
current month, the amount of payment is generally based on countable
income received in the second month before the current month.
On page 61 of GAO's report, Table 3 lists agencies participating in
councils. Under the last column, "President's Council on Integrity and
Efficiency," there is no check for SSA. Since SSA's Office of the
Inspector General is a member of this council, we suggest that this
information be added to GAO's chart.
[End of section]
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Tom Broderick, (202) 512-8705:
Barbara House, (213) 830-1107:
Acknowledgments:
In addition to those named above, the following individuals made
important contributions to this report: David Elder, Bonnie McEwan, and
Tarunkant Mithani.
Footnotes:
[1] U.S. General Accounting Office, Financial Management: Improper
Payments Reported in Fiscal Year 2000 Financial Statements, GAO-02-131R
(Washington, D.C.: Nov. 2, 2001); U.S. General Accounting Office,
Financial Management: Billions in Improper Payments Continue to Require
Attention, GAO-01-44 (Washington, D.C.: Oct. 27, 2000); and U.S.
General Accounting Office, Financial Management: Increased Attention
Needed to Prevent Billions in Improper Payments, GAO/AIMD-00-10
(Washington, D.C.: Oct. 29, 1999).
[2] U.S. General Accounting Office, Strategies to Manage Improper
Payments: Learning From Public and Private Sector Organizations, GAO-02-
69G (Washington, D.C.: Oct. 2001).
[3] U.S. General Accounting Office, Financial Management: Billions in
Improper Payments Continue to Require Attention, GAO-01-44 (Washington,
D.C.: Oct. 27, 2000).
[4] U.S. General Accounting Office, Financial Management: Improper
Payments Reported in Fiscal Year 2000 Financial Statements, GAO-02-131R
(Washington, D.C.: Nov. 2, 2001).
[5] In an August 17, 2001, memorandum to Circular A-11, Preparing and
Submitting Budget Estimates, OMB encourages agencies to report improper
payments through other venues such as agency performance reports,
annual financial statements, or regularly issued standalone program
reports.
[6] Senator Fred Thompson, Committee on Governmental Affairs, United
States Senate, Government at the Brink, Volume I, Urgent Federal
Government Management Problems Facing the Bush Administration
(Washington, D.C.: June 2001).
[7] Executive Office of the President, Office of Management and Budget,
The President‘s Management Agenda, Fiscal Year 2002 (Washington, D.C.:
Aug. 2001).
[8] U.S. General Accounting Office, Financial Audit: IRS‘ Fiscal Year
2000 Financial Statements, GAO-01-394 (Washington, D.C.: Mar. 1, 2001).
[9] The EITC is a refundable tax credit available to low-income working
taxpayers.
[10] Because of the similarity of OMB‘s definition of erroneous
payments with our definition of improper payments, we consider
erroneous payments and improper payments as synonymous terms.
[11] One of these agencies, the Railroad Retirement Board, is not a CFO
Act agency and is consequently outside the scope of our work.
[12] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
01-263 (Washington, D.C.: Jan. 2001); U.S. General Accounting Office,
Major Management Challenges and Program Risks: Department of the
Treasury, GAO-01-254 (Washington, D.C.: Jan. 2001); and U.S. General
Accounting Office, Financial Audit: IRS‘ Fiscal Year 2000 Financial
Statements, GAO-01-394 (Washington, D.C.: Mar. 1, 2001).
[13] U.S. General Accounting Office, Financial Audit: IRS‘s Fiscal
Years 2001 and 2000 Financial Statements, GAO-02-414 (Washington, D.C.:
Feb. 27, 2002).
[14] Department of the Treasury, Internal Revenue Service, Compliance
Estimates for Earned Income Tax Credit Claimed on 1999 Returns, Feb.
28, 2002.
[15] Effective July 1, 2001, the Health Care Financing Administration
became CMS. CMS is responsible for managing and operating the Medicare
and Medicaid programs and, consequently, for safeguarding the programs‘
financial resources against improper payments.
[17] Authorized sanctions include civil fines of up to $10,000 and
disqualification of future benefits for a period of up to 5 years.
[18] Data mining involves specialized software programs that analyze
large volumes of claims data to identify potential overpayments. These
programs typically contain algorithms to identify billing errors and
abusive practices. Data warehouses store historical and current data
and consist of tables of information that are logically grouped
together. They allow program and financial data from different
nonintegrated systems throughout an organization to be captured and
placed in a single database where users can query the system for
information.
[19] U.S. General Accounting Office, Food Stamp Program: Program
Integrity and Participation Challenges, GAO-01-881T (Washington, D.C.:
June 27, 2001).
[20] P.L. 107-171; Section 4118. Reform of the Quality Control (QC)
system provision that made substantial changes to the QC system that
measures states‘ payment accuracy in issuing food stamp benefits.
[21] Department of Health and Human Services, Office of Inspector
General, Improper Fiscal Year 2001 Medicare Fee-for-Service Payments, A-
17-01-02002 (Washington, D.C.; Feb. 15, 2002).
[22] Pursuant to Section 453(i)(3), (42 U.S. Code, Section 553(i)(3))
the Treasury Department has routing access to this data for limited
purposes, including administration of the EITC and employment
verification.
[23] Cardinale v. Mathews, 399 F. Supp. 1163 (D.D.C. 1975), and
Goldberg v. Kelly, 397 U.S. 254 (1970).
[24] Social Security Act, 42 USC §§ 423(g) (2) and 404 (2002).
[25] All councils can select additional members, as designated.
[26] Other members of the CFO Council are the Controller of the Office
of Federal Financial Management, OMB, and the Fiscal Assistant
Secretary of the Treasury.
[27] Other members of the PCIE are the Controller of the Office of
Federal Financial Management of OMB, the Vice Chairperson of the
Executive Council on Integrity and Efficiency, the Associate Deputy
Director for Investigations of the Federal Bureau of Investigation, the
Director of the Office of Government Ethics, the Special Counsel of the
U.S. Office of Special Counsel, and the Deputy Director of OPM.
[28] Office of Management and Budget, Testimony before the Subcommittee
on Government Management, Information and Technology, Committee on
Government Reform, U.S. House of Representatives (Washington, D.C.:
Apr. 7, 2000).
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