Financial Management

The federal government spends billions of dollars each year on grants, transfer payments, and the procurement of goods and services. In their fiscal year 1998 financial statements, nine federal agencies reported improper payments totaling $19.1 billion. GAO found that agencies are not performing comprehensive quality control reviews for certain programs to determine the propriety of program spending. As a result, the full extent of the problem--and possible solutions to it--is unknown. GAO believes that inadequate internal control and program design issues are the primary causes of improper payments for many federal programs. Economic and demographic projections suggest that federal outlays in certain programs will rise significantly. With billions of dollars at risk, agencies will need to continually and closely safeguard those resources entrusted to them and make it a priority to reduce fraud, waste, and abuse. A first step for some agencies will be to develop ways to identify, estimate, and report the nature and the extent of improper payments annually. Without this basic knowledge, agencies cannot be fully informed about the magnitude, trends, and types of payment errors being made within their programs.

GAO noted that: (1) in their FY 1998 financial reports, nine agencies collectively reported improper payment estimates of $19.1 billion; (2) these improper payment estimates relate to 17 major programs that expended approximately $870 billion; (3) the programs and related improper payment estimates include: (a) Medicare Fee-for-Service ($12.6 billion); (b) Supplemental Security Income ($1,648 million); (c) Food Stamps ($1,425 million); (d) Old Age and Survivors Insurance ($1,154 million); (e) disability insurance ($941 million); (f) housing subsidies ($857 million); and (g) veterans benefits, unemployment insurance, and others ($514 million); (4) also included are the Agency for International Development (AID), Medicaid, and the Federal Crop Insurance Corporation; (5) AID and the agencies administering these programs acknowledged making improper payments in their FY 1998 financial statement, but did not disclose specific dollar amounts; (6) improper payments are much greater than have been disclosed thus far in agency financial statements reports, as shown by GAO's prior audits and those of agency inspectors general; (7) agencies are not performing comprehensive quality control reviews--internal studies or reviews--for certain programs to determine the propriety of program expenditures; (8) as a result, the full extent of the problem--and possible solutions to it--is unknown; (9) comprehensive quality control reviews could also identify the causes of improper payments, which range from inadvertent errors to fraud and abuse; (10) working with the Office of Management and Budget (OMB), some agencies are taking steps to mitigate this risk by focusing attention on identifying, reporting, and reducing improper payments through the discipline of annual audited financial statements and the development of performance goals; (11) however, agencies responsible for 13 of the 17 programs having made improper payments--many of which GAO identified in its High-Risk and Performance and Accountability series issued earlier this year--did not include specific performance goals or strategies to comprehensively address these payments in their FY 2000 performance plans under the Results Act; and (12) as the federal budget grows, more taxpayer dollars are placed at risk, thus increasing the urgency for identifying and preventing these types of payments and providing complete accountability to taxpayers.

Recommendations

Our 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.

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