Improper Payments
Agencies' Fiscal Year 2005 Reporting under the Improper Payments Information Act Remains Incomplete Gao ID: GAO-07-92 November 14, 2006Fiscal year 2005 marked the second year that executive agencies were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). As a steward of taxpayer dollars, the federal government is accountable for how its agencies and grantees spend billions of taxpayer dollars and is responsible for safeguarding those funds against improper payments. GAO was asked to determine the progress agencies have made in their improper payment reporting and the total amount of improper payments recouped through recovery auditing. To accomplish this, GAO reviewed improper payment information reported by 35 agencies in their fiscal year 2005 performance and accountability or annual reports.
While making progress, agencies' fiscal year 2005 reporting under IPIA does not yet reflect the full scope of improper payments across executive branch agencies. Major challenges remain in meeting the goals of the act and ultimately improving the integrity of payments. GAO found that these challenges continue to hinder full reporting of improper payment information because of the following three factors: (1) Existing reporting incomplete. Although 18 agencies collectively identified and estimated improper payments for 57 programs and activities totaling $38 billion, some agencies still had not instituted systematic methods of reviewing all programs, resulting in their identification of none or only a few programs as susceptible to significant improper payments. In many cases, these same agencies had well-known and documented financial management weaknesses as well as fraudulent, improper, and questionable payments. Further, improper payment estimates totaling about $389 million for 9 programs were not based on a valid statistical sampling methodology as required. Higher estimates would have been expected had the correct methods been used, given that total outlays for these 9 programs exceeded $58.2 billion. (2) Large programs still not included. Improper payment estimates for 10 risk-susceptible programs with outlays totaling over $234 billion still have not been provided. Most of these programs were subject to Office of Management and Budget (OMB) reporting requirements that preceded IPIA. (3) Threshold criteria limit reporting. The act includes broad criteria to identify risk-susceptible programs. OMB's implementing guidance includes more specific criteria that limit the disclosure and transparency of agencies' improper payments. With regard to agencies' recovery audit efforts, GAO found that the data reported may present an overly optimistic view of these efforts. While 21 agencies were required to report on their recovery audit efforts, GAO identified discrepancies in several agencies' information and found limited reviews over contract payments. For example, for fiscal year 2005, the National Aeronautics and Space Administration (NASA) reported that it had identified and recovered $617,442 in contract payments, a 100 percent recovery rate. Yet, the NASA Office of Inspector General reported it had identified over $515 million in questioned contract costs during fiscal year 2005, of which NASA management decided to pursue recovery of $51 million. Had this amount been compared to the $617,442 NASA actually recovered, its recovery rate would drop from the reported 100 percent to 1.2 percent. In addition, we noted that 5 of the 21 agencies did not review all of their agency components as part of their recovery audit efforts while 2 agencies reported that recovery auditing was not cost beneficial without reporting any details to support this determination.
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-07-92, Improper Payments: Agencies' Fiscal Year 2005 Reporting under the Improper Payments Information Act Remains Incomplete
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Report to Congressional Requesters:
November 2006:
Improper Payments:
Agencies' Fiscal Year 2005 Reporting under the Improper Payments
Information Act Remains Incomplete:
GAO-07-92:
GAO Highlights:
Highlights of GAO-07-92, a report to congressional requesters
Why GAO Did This Study:
Fiscal year 2005 marked the second year that executive agencies were
required to report improper payment information under the Improper
Payments Information Act of 2002 (IPIA). As a steward of taxpayer
dollars, the federal government is accountable for how its agencies and
grantees spend billions of taxpayer dollars and is responsible for
safeguarding those funds against improper payments.
GAO was asked to determine the progress agencies have made in their
improper payment reporting and the total amount of improper payments
recouped through recovery auditing. To accomplish this, GAO reviewed
improper payment information reported by 35 agencies in their fiscal
year 2005 performance and accountability or annual reports.
What GAO Found:
While making progress, agencies‘ fiscal year 2005 reporting under IPIA
does not yet reflect the full scope of improper payments across
executive branch agencies. Major challenges remain in meeting the goals
of the act and ultimately improving the integrity of payments. GAO
found that these challenges continue to hinder full reporting of
improper payment information because of the following three factors:
* Existing reporting incomplete. Although 18 agencies collectively
identified and estimated improper payments for 57 programs and
activities totaling $38 billion, some agencies still had not instituted
systematic methods of reviewing all programs, resulting in their
identification of none or only a few programs as susceptible to
significant improper payments. In many cases, these same agencies had
well-known and documented financial management weaknesses as well as
fraudulent, improper, and questionable payments. Further, improper
payment estimates totaling about $389 million for 9 programs were not
based on a valid statistical sampling methodology as required. Higher
estimates would have been expected had the correct methods been used,
given that total outlays for these 9 programs exceeded $58.2 billion.
* Large programs still not included. Improper payment estimates for 10
risk-susceptible programs with outlays totaling over $234 billion still
have not been provided. Most of these programs were subject to OMB
reporting requirements that preceded IPIA.
* Threshold criteria limit reporting. The act includes broad criteria
to identify risk-susceptible programs. OMB‘s implementing guidance
includes more specific criteria that limit the disclosure and
transparency of agencies‘ improper payments.
With regard to agencies‘ recovery audit efforts, GAO found that the
data reported may present an overly optimistic view of these efforts.
While 21 agencies were required to report on their recovery audit
efforts, GAO identified discrepancies in several agencies‘ information
and found limited reviews over contract payments. For example, for
fiscal year 2005, the National Aeronautics and Space Administration
(NASA) reported that it had identified and recovered $617,442 in
contract payments, a 100 percent recovery rate. Yet, the NASA Office of
Inspector General reported it had identified over $515 million in
questioned contract costs during fiscal year 2005, of which NASA
management decided to pursue recovery of $51 million. Had this amount
been compared to the $617,442 NASA actually recovered, its recovery
rate would drop from the reported 100 percent to 1.2 percent. In
addition, we noted that 5 of the 21 agencies did not review all of
their agency components as part of their recovery audit efforts while 2
agencies reported that recovery auditing was not cost beneficial
without reporting any details to support this determination.
What GAO Recommends:
GAO suggests that the Congress consider amending IPIA provisions to
define specific criteria agencies should use to ensure that the full
extent of improper payments is being captured. GAO also makes four
recommendations to the Office of Management and Budget (OMB) to
facilitate agencies‘ progress in ensuring accurate and complete
improper payments and recovery auditing reporting. OMB generally agreed
with GAO‘s recommendations and outlined actions planned and under way
for continued progress.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-92].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact McCoy Williams at (202)
512-9095 or williamsm1@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Improvements Needed in Agencies' Reporting of Improper Payment
Information:
Improper Payments Estimate Is Understated:
IPIA May Need to Be Amended to Ensure Agencies Fully Meet Its
Objectives:
Agencies' Reporting of Recovery Auditing Information Questionable:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Improper Payment Estimates Reported in Agency Fiscal Year
2004 and 2005 PARs or Annual Reports:
Appendix III: Outlays, Improper Payment Estimates, and Error Rates
Reported in Agency Fiscal Year 2005 PARs or Annual Reports:
Appendix IV: Comments from the Office of Management and Budget:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Agency Reporting of Risk Assessments Performed for All
Programs and Activities:
Table 2: Agency Improper Payment Estimate Reporting in Fiscal Year
2005:
Table 3: Agency Reporting of Certain Reporting Requirements for One or
More of Its Programs:
Table 4: Agency-Reported Statutory Barriers to Reducing Improper
Payments:
Table 5: Susceptible Programs That Did Not Report Improper Payment
Estimates and Target Dates for Estimates:
Table 6: Examples of Programs or Activities with Major Management
Challenges but Not Identified as Susceptible to Significant Improper
Payments:
Table 7: Agency Improper Payment Estimates Included in the
Governmentwide Total That Met One of the Two OMB Reporting Criteria:
Table 8: Improper Payment Amounts Recovered in Fiscal Year 2005:
Figures:
Figure 1: Required Steps to Identify, Estimate, Reduce, and Report
Improper Payment Information:
Figure 2: Improper Payments--Step 1:
Figure 3: Improper Payments--Step 2:
Figure 4: Improper Payments--Step 3:
Figure 5: Improper Payments--Step 4:
Abbreviations:
CDBG: Community Development Block Grant:
CMS: Centers for Medicare and Medicaid Services:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DOJ: Department of Justice:
DOT: Department of Transportation:
EITC: Earned Income Tax Credit:
FECA: Federal Employees' Compensation Act:
FEMA: Federal Emergency Management Agency:
FERS: Federal Employees Retirement System:
FSA: Federal Student Aid:
FUTA: Federal Unemployment Tax Act:
GSA: General Services Administration:
HHS: Department of Health and Human Services:
HUD: Department of Housing and Urban Development:
IHP: Individuals and Households Program:
IPIA: Improper Payments Information Act of 2002:
IRS: Internal Revenue Service:
NASA: National Aeronautics and Space Administration:
NDNH: National Directory of New Hires:
OCFO: Office of Chief Financial Officer:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
OPM: Office of Personnel Management:
PBM: pharmaceutical benefits manager:
PMA: President's Management Agenda:
RRB: Railroad Retirement Board:
SBA: Small Business Administration:
SSA: Social Security Administration:
SSI: Supplemental Security Income:
UI: Unemployment Insurance:
USDA: Department of Agriculture:
VA: Department of Veterans Affairs:
November 14, 2006:
Congressional Requesters:
Fiscal year 2005 marked the second year that federal executive branch
agencies were required to report improper payment information under the
Improper Payments Information Act of 2002 (IPIA).[Footnote 1] IPIA has
increased visibility over improper payments by requiring executive
agency heads, based on guidance from the Office of Management and
Budget (OMB),[Footnote 2] to identify programs and activities
susceptible to significant improper payments,[Footnote 3] estimate
amounts improperly paid, and report on the amounts of improper payments
and their actions to reduce them. As the steward of taxpayer dollars,
the federal government is accountable for how its agencies and grantees
spend hundreds of billions of taxpayer 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 long-standing, widespread, and significant problem in
the federal government.[Footnote 4] Yet, the extent of the problem
initially had been masked because only a limited number of agencies
reported their annual payment accuracy rates and estimated improper
payment amounts prior to the passage of IPIA.
As we reported in March 2005,[Footnote 5] regarding the first year
reporting under IPIA, the improper payment estimate of $45 billion did
not include any amounts for some of the highest risk programs, such as
Medicaid with outlays in excess of $175 billion for fiscal year 2004.
Further, we noted that some agencies still had not instituted
systematic methods of reviewing all programs and activities or had not
identified all programs susceptible to significant improper payments.
We concluded that the magnitude of the governmentwide improper payments
problem is still unknown because agencies have not yet prepared
improper payment estimates for all of their programs. In that report,
we made three recommendations to OMB to help ensure successful
implementation of IPIA requirements.
Because of the continued interest in addressing the governmentwide
improper payments issue, you asked us to determine (1) the extent to
which agencies have included required improper payment information in
their performance and accountability reports (PAR), (2) the annual
improper payment estimate reported by agencies for fiscal year 2005,
(3) whether the definition and types of improper payments included in
IPIA and OMB's implementing guidance provide adequate disclosure of the
extent of improper payments at the agencies, and (4) the reported
amount of improper payments recouped through recovery audits.
The scope of our review included the 35 federal agencies that the
Department of the Treasury (Treasury) determined to be significant to
the U.S. government's consolidated financial statements. We reviewed
improper payment information reported by the 35 agencies in their
fiscal year 2005 PARs or annual reports. We also reviewed OMB guidance
on implementation of IPIA and its report[Footnote 6] on the results of
agency-specific reports, significant findings, agency accomplishments,
and remaining challenges. We did not independently validate the data
that agencies reported in their PARs or annual reports or the data that
OMB reported. However, we are providing this agency-reported data as
descriptive information that will inform interested parties about the
magnitude of governmentwide improper payments and other improper
payments-related information. We believe the data to be sufficiently
reliable for this purpose. We conducted our work from April 2006
through September 2006 in accordance with generally accepted government
auditing standards. See appendix I for more details on our scope and
methodology.
Results in Brief:
Our review of agencies' reporting of selected improper payment
information identified that improvements are still needed to fully
address improper payments reporting requirements. For example, we found
agencies' reporting of improper payment information was incomplete and
the extent and level of detail of agencies' improper payment
information varied. Furthermore, the total improper payment estimate
does not include several large, risk-susceptible federal programs,
while other program estimates included in the total are not
statistically valid. In addition, we found that OMB's existing
threshold criteria to assess program susceptibility to significant
improper payments affect how agencies identify these programs, thus
limiting the disclosure and transparency of governmentwide improper
payments.
Generally, agencies must perform four key steps to address the improper
payment reporting requirements--perform a risk assessment, estimate
improper payments for risk-susceptible programs and activities,
implement a plan to reduce improper payments for programs with
estimates exceeding $10 million, and annually report improper payment
estimates and actions to reduce them. Of the 35 agencies in our review,
23 reported that they had performed risk assessments of all of their
programs and activities, while 12 had not. In addition, the adequacy of
some of these risk assessments was questionable. For example, the
auditors for the Departments of Justice (DOJ) and Homeland Security
(DHS) cited agency noncompliance with IPIA in their fiscal year 2005
annual audit reports, primarily caused by inadequate risk assessments.
A lack of detailed guidance may be a contributing factor to agencies'
inability to adequately assess their programs for risks. Specifically,
we found that OMB's implementing guidance does not include a
description of the common types of risk factors agencies should
consider when annually reviewing their programs, such as program
complexity, operational changes, findings from investigative reports,
and financial statement and performance audit reports. Agencies have
developed their own processes for conducting risk assessments, which
may not satisfactorily identify programs susceptible to improper
payments. For example, at the Department of Agriculture (USDA), its
auditors reported that the agency's risk assessments were not adequate
to estimate the agency's susceptibility to improper payments because
the Office of Chief Financial Officer's (OCFO) guidance was not
prescriptive and detailed enough to translate into meaningful results.
For fiscal year 2005, 18 agencies reported improper payment estimates
for 57 programs totaling in excess of $38 billion,[Footnote 7] which is
$7 billion less than the $45 billion reported for fiscal year
2004.[Footnote 8] Of the 18 agencies reporting improper payment
estimates, 14 agencies had one or more programs with improper payment
estimates exceeding $10 million, and thus were required to prepare and
implement a plan to reduce improper payments and report on actions
taken. Key elements that agencies are required to report on include
causes of improper payments and corrective actions, manager
accountability, and statutory barriers.[Footnote 9] Generally, agencies
reported this information for one or more of their programs in their
PARs. However, the extent and details of reporting varied. For example,
1 agency addressed the manager accountability reporting element in one
sentence while 2 other agencies provided information on how each
program manager was held accountable for each of their high- risk
programs identified.
Although the federal government continues to make progress in meeting
the requirements of IPIA, agencies' fiscal year 2005 reporting does not
yet reflect the full scope of improper payments across government.
Specifically, the $7 billion reported decrease in the total improper
payment estimate represents a reduction of 16 percent reported by
agencies in fiscal year 2004. On the surface, this would suggest that
significant progress has been made. Yet, we found that the reduced
estimate for improper payments for fiscal year 2005 may not represent
actual improvements in this area.
In fact, all indications are that the estimate should be markedly
higher because the total improper payment estimate does not include
certain factors that if included, would increase the estimate. For
example, agencies have not estimated improper payments for 10 risk-
susceptible programs with outlays totaling over $234 billion, even
though most of these programs had such reporting requirements predating
IPIA.[Footnote 10] In addition, we found that improper payment
estimates totaling about $389 million for 9 programs were not based on
a statistical sampling methodology.[Footnote 11] Given that total
outlays for these 9 programs exceeded $58.2 billion in fiscal year
2005, estimates for these programs would likely have been much greater
had statistically valid methods been used. Also, agency auditors have
reported major management challenges that highlight internal control
weaknesses that continue to plague programs susceptible to significant
improper payments. In some cases, agencies reported that their programs
were not susceptible to significant improper payments, despite the fact
that the auditor's reports in the same PARs identified major program
management challenges, including significant internal control
weaknesses.
Further, OMB's implementation[Footnote 12] of the act's broad criteria
to identify risk-susceptible programs limits the disclosure and
transparency of governmentwide improper payments. This limitation does
not further the objectives of IPIA, as programs that do not meet OMB's
criteria are excluded from agencies' improper payment reporting. For
example, one agency identified three programs with estimated improper
payments exceeding $10 million, but because the estimates did not
exceed 2.5 percent of program outlays, they were not included in the
governmentwide improper payment total. In addition, we note that the
definition of improper payments under IPIA excludes certain types of
payments required to be made under constitutional, statutory, or
judicial requirements, even though those payments are subsequently
determined to be incorrect. This includes payments that an agency must
make pursuant to a statute or court order that later are determined to
be overpayments. Yet, because agencies are not required to track,
monitor, and report on these types of overpayments, the governmentwide
magnitude of this issue is unknown.
Lastly, with regard to agencies' recovery audit efforts, the data
reported may not present an accurate view of the extent of these
efforts. While 21 agencies were required to report on their recovery
audit efforts, we identified discrepancies in several agencies'
information and found limited reviews over contract payments. For
example, for fiscal year 2005, the National Aeronautics and Space
Administration (NASA) reported that it had identified and recovered
$617,442 in contract payments, a reported 100 percent recovery rate.
Yet, the NASA Office of Inspector General (OIG) reported it had
identified over $515 million in questioned contract costs during fiscal
year 2005, of which NASA management decided to pursue recovery of $51
million. Had the $51 million amount been compared to the $617,442 NASA
actually recovered, its recovery rate would drop from the reported 100
percent to 1.2 percent. In addition, we noted that 5 of the 21 agencies
did not review all of their agency components as part of their recovery
audit efforts while 2 agencies reported that recovery auditing was not
cost beneficial without reporting any details to support this
determination.
This report includes one matter for congressional consideration and
four recommendations for executive action. Specifically, to ensure that
the full extent of improper payments is being captured, the Congress
should consider whether existing IPIA provisions should be amended to
define specific criteria, such as a dollar threshold, agencies should
use to identify which programs and activities are susceptible to
significant improper payments, thereby triggering improper payment
estimating and reporting requirements. In addition, to facilitate
agencies' progress in ensuring accurate and complete improper payments
and recovery auditing reporting, we recommend that OMB take several
actions regarding (1) risk assessment methodologies and the level of
detail necessary to meet the annual improper payment reporting
requirements, (2) statistically valid estimates, (3) extent of payments
agencies make under statute or judicial determinations that later are
determined to be overpayments, and (4) agencies' rationale that
recovery auditing is not cost beneficial.
In commenting on a draft of this report, OMB generally agreed with our
recommendations and highlighted progress made in the second year of
governmentwide improper payments reporting, as well as initiatives
under way to measure improper payments in selected programs susceptible
to significant improper payments. For example, OMB reported that for
fiscal year 2005, agencies estimated improper payments for 17
additional programs and that this number will increase again by 10
programs for fiscal year 2006. OMB also stated that beginning in fiscal
year 2007, the Department of Health and Human Services (HHS) will begin
reporting component error rates for its Medicaid, Temporary Assistance
for Needy Families, and State Children's Health Insurance programs.
OMB's written comments are reprinted in appendix IV.
Background:
IPIA was passed in November 2002 with the major objective of enhancing
the accuracy and integrity of federal payments. IPIA requires executive
branch agency heads to review their programs and activities annually
and identify those that may be susceptible to significant improper
payments. For each program and activity agencies identify as
susceptible, the act requires them to estimate the annual amount of
improper payments and to submit those estimates to the Congress. The
act further requires that for programs for which estimated improper
payments exceed $10 million, agencies are to report annually to the
Congress on the actions they are taking to reduce those payments.
The act requires the Director of OMB to prescribe guidance for agencies
to use in implementing IPIA. OMB issued implementing guidance in May
2003, which requires the use of a systematic method for the annual
review and identification of programs and activities that are
susceptible to significant improper payments. The guidance defines
significant improper payments as those in any particular program that
exceed both 2.5 percent of program payments and $10 million
annually.[Footnote 13] It requires agencies to estimate improper
payments annually using statistically valid techniques for each
susceptible program or activity. For those agency programs determined
to be susceptible to significant improper payments and with estimated
annual improper payments greater than $10 million, IPIA and related OMB
guidance require each agency to annually report the results of its
efforts to reduce improper payments.
In addition, applicable agencies are required to report their efforts
to recoup contract-related improper payments under section 831 of the
National Defense Authorization Act for Fiscal Year 2002.[Footnote 14]
This legislation contains a provision that requires all executive
branch agencies entering into contracts with a cumulative total value
exceeding $500 million in a fiscal year to have cost-effective programs
for identifying errors in paying contractors and for recovering amounts
erroneously paid. The act further states that a required element of
such a program is the use of recovery audits and recovery activities.
The law authorizes federal agencies to retain recovered funds to cover
in-house administrative costs as well as to pay other contractors, such
as collection agencies. Agencies that are required to undertake
recovery audit programs were directed by OMB to provide annual reports
on their recovery audit efforts, along with improper payment reporting
details in an appendix to their PARs.
In August 2006, OMB revised its IPIA implementing guidance. The
revision consolidates into Appendix C of OMB Circular No. A-123,
Management's Responsibility for Internal Control,[Footnote 15] all
guidance for improper payments and recovery auditing
reporting.[Footnote 16] The revised guidance includes authorization for
risk assessments to be conducted less often than annually for programs
where improper payment baselines are already established, are in the
process of being measured, or are scheduled to be measured by an
established date. Although OMB kept its criteria for defining
significant improper payments as those exceeding both 2.5 percent of
program payments and $10 million, OMB added that it may determine on a
case-by-case basis that certain programs that do not meet the threshold
may be subject to the annual reporting requirement. Additionally, the
revised guidance allows agencies to use alternative sampling
methodologies[Footnote 17] and requires agencies to report on and
provide a justification for using these methodologies in their PARs.
This revised guidance is effective for agencies' fiscal year 2006
improper payment estimating and reporting in the PARs or annual
reports. For the purposes of evaluating agency reporting in this
report, we used the requirements from the OMB implementing guidance
effective for fiscal year 2005.
OMB has also established Eliminating Improper Payments as a new program-
specific initiative under the President's Management Agenda (PMA). This
separate PMA program initiative began in the first quarter of fiscal
year 2005. Previously, agency efforts related to improper payments were
tracked along with other financial management activities as part of the
Improving Financial Performance initiative of the PMA. The objective of
establishing a separate initiative for improper payments was to ensure
that agency managers are held accountable for meeting the goals of IPIA
and are therefore dedicating the necessary attention and resources to
meeting IPIA requirements. With this new initiative, 15
agencies[Footnote 18] are to measure their improper payments annually,
develop improvement targets and corrective actions, and track the
results annually to ensure the corrective actions are effective.
The fiscal year 2005 PARs, the second set of annual reports
representing the results of improper payments assessments for federal
executive branch agency programs, were due November 15, 2005. In our
December 2005 report[Footnote 19] on the U.S. government's consolidated
financial statements for the fiscal years ended September 30, 2005, and
2004, which includes our associated opinion on internal control, we
reported improper payments as a material weakness in internal control.
Specifically, we reported progress in implementing processes and
controls to identify, estimate, and reduce improper payments, but that
significant challenges remain to effectively achieve the goals of IPIA.
Improvements Needed in Agencies' Reporting of Improper Payment
Information:
Our review of agencies' reporting of select improper payment
information identified that improvements are still needed to fully
address improper payment reporting requirements. Of the 35 fiscal year
2005 agency PARs or annual reports included in our review, 23 agencies
reported they had performed risk assessments of all of their programs
and activities. However, the results of certain agencies' risk
assessments appear questionable. For example, agency management at DOJ
and DHS reported that based on their risk assessments, no risk-
susceptible programs were identified. Yet, these agencies' auditors
cited agency noncompliance with IPIA in their fiscal year 2005 annual
audit reports, primarily caused by inadequate risk assessments.
Eighteen of the 35 agencies reported improper payment estimates
totaling in excess of $38 billion for some or all of their high-risk
programs in fiscal year 2005. Of the 18 agencies, 14 reported having
one or more programs with improper payment estimates that exceeded $10
million, and thus were required to implement plans to reduce improper
payments and report on actions taken.[Footnote 20] Based on our review
of these key improper payment reporting requirements, we generally
found that the applicable agencies reported this information for one or
more of their programs in their PARs as required. However, the extent
and details of reporting varied among the agencies. For example, the
Office of Personnel Management (OPM) addressed the manager
accountability reporting requirement in one sentence for its risk-
susceptible programs, while USDA and the Department of Veterans Affairs
(VA) provided information on how each program manager was held
accountable for each high-risk program identified. Six different
agencies reported that the responsibility for improper payments is
included in management's performance plans; however, specific details
were not discussed.
IPIA and OMB's implementing guidance require agencies to annually
review and identify programs susceptible to significant improper
payments, estimate the amount of their improper payments, and report on
the amount of their improper payments and their actions to reduce
improper payments. OMB requires the results of these steps to be
reported in the agencies' PARs, in the Management Discussion and
Analysis section and as a separate appendix for each fiscal year ending
on or after September 30, 2004. Figure 1 provides an overview of the
four key steps OMB requires agencies to perform in meeting the improper
payment reporting requirements.
Figure 1: Required Steps to Identify, Estimate, Reduce, and Report
Improper Payment Information:
[See PDF for image] - graphic text:
Source: GAO.
[End of figure] - graphic text:
Agencies must estimate improper payments for each susceptible program
identified during the risk assessment process. In addition, agency
programs that were included in former section 57 of OMB Circular No. A-
11 must estimate improper payments even if the estimate does not exceed
$10 million and 2.5 percent of program payments. Further, some agency
programs voluntarily reported an improper payment estimate or other
improper payment information. When the program improper payment
estimates exceed $10 million, agencies are required to report on
various actions they are taking to reduce improper payments, such as
determining causes of improper payments and taking corrective actions
and ensuring manager accountability, and statutory barriers that limit
corrective actions to reduce improper payments. To address these three
reporting requirements, OMB requires agencies to report the following
information in their PARs:
* Causes of improper payments and corrective action. A discussion of
the causes of the improper payments identified, actions taken to
correct those causes, and results of the actions taken to address those
causes.
* Manager accountability. A description of the steps (including
timeline) the agency has taken and plans to take to ensure that agency
managers (including the agency head) are held accountable for reducing
and recovering erroneous payments.
* Statutory barriers. A description of any statutory or regulatory
barriers that may limit the agency's corrective actions in reducing
erroneous payments.
Results of Selected Agencies' Risk Assessments Appear Questionable:
Figure 2: Improper Payments--Step 1:
[See PDF for image]
Source: GAO.
[End of figure]
Of the 35 fiscal year 2005 agency PARs or annual reports included in
our review, 23, the same number of agencies that reported having risk
assessments in our prior year review, reported they had performed risk
assessments of all of their programs and activities. The remaining 12
agencies either did not report this information in their PARs or annual
reports, or included some improper payment details in their PARs, but
did not report assessing for the risk of improper payments for all of
their programs and activities. Table 1 indicates for each of the 35
whether the agency reported having assessed all programs and
activities.
Table 1: Agency Reporting of Risk Assessments Performed for All
Programs and Activities:
1;
Department or agency: Agency for International Development;
Agency reported it had assessed all programs and activities: [Empty].
2;
Department or agency: Department of Agriculture;
Agency reported it had assessed all programs and activities: X.
3;
Department or agency: Department of Commerce;
Agency reported it had assessed all programs and activities: X.
4;
Department or agency: Department of Defense;
Agency reported it had assessed all programs and activities: X.
5;
Department or agency: Department of Education;
Agency reported it had assessed all programs and activities: X.
6;
Department or agency: Department of Energy;
Agency reported it had assessed all programs and activities: X.
7;
Department or agency: Environmental Protection Agency
Agency reported it had assessed all programs and activities: [Empty].
8;
Department or agency: Export-Import Bank of the United States;
Agency reported it had assessed all programs and activities: [Empty].
9;
Department or agency: Farm Credit System Insurance Corporation;
Agency reported it had assessed all programs and activities: [Empty].
10;
Department or agency: Federal Communications Commission;
Agency reported it had assessed all programs and activities: X.
11;
Department or agency: Federal Deposit Insurance Corporation;
Agency reported it had assessed all programs and activities: [Empty].
12;
Department or agency: General Services Administration;
Agency reported it had assessed all programs and activities: X.
13;
Department or agency: Department of Health and Human Services;
Agency reported it had assessed all programs and activities: X.
14;
Department or agency: Department of Homeland Security;
Agency reported it had assessed all programs and activities: X.
15; Department or agency: Department of Housing and Urban Development;
Agency reported it had assessed all programs and activities: X.
16;
Department or agency: Department of the Interior;
Agency reported it had assessed all programs and activities: X.
17;
Department or agency: Department of Justice;
Agency reported it had assessed all programs and activities: [Empty].
18;
Department or agency: Department of Labor;
Agency reported it had assessed all programs and activities: X.
19; Department or agency: National Aeronautics and Space
Administration;
Agency reported it had assessed all programs and activities: X.
20;
Department or agency: National Credit Union Administration;
Agency reported it had assessed all programs and activities: [Empty].
21;
Department or agency: National Science Foundation;
Agency reported it had assessed all programs and activities: X.
22;
Department or agency: Nuclear Regulatory Commission;
Agency reported it had assessed all programs and activities: X.
23;
Department or agency: Office of Personnel Management;
Agency reported it had assessed all programs and activities: X.
24;
Department or agency: Pension Benefit Guaranty Corporation;
Agency reported it had assessed all programs and activities: [Empty].
25;
Department or agency: U.S. Postal Service;
Agency reported it had assessed all programs and activities: [Empty].
26;
Department or agency: Railroad Retirement Board;
Agency reported it had assessed all programs and activities: X.
27;
Department or agency: Securities and Exchange Commission;
Agency reported it had assessed all programs and activities: [Empty].
28;
Department or agency: Small Business Administration;
Agency reported it had assessed all programs and activities: X.
29;
Department or agency: Smithsonian Institution;
Agency reported it had assessed all programs and activities: [Empty].
30;
Department or agency: Social Security Administration;
Agency reported it had assessed all programs and activities: X.
31;
Department or agency: Department of State;
Agency reported it had assessed all programs and activities: X.
32;
Department or agency: Tennessee Valley Authority;
Agency reported it had assessed all programs and activities: [Empty].
33;
Department or agency: Department of Transportation;
Agency reported it had assessed all programs and activities: X.
34;
Department or agency: Department of the Treasury;
Agency reported it had assessed all programs and activities: X.
35;
Department or agency: Department of Veterans Affairs;
Agency reported it had assessed all programs and activities: X.
Total;
Agency reported it had assessed all programs and activities: 23.
Source: GAO analysis of cited agencies' fiscal year 2005 PARs and
annual reports.
[End of table]
The first step in OMB's implementing guidance requires agencies' use of
a systematic method, also known as a risk assessment, to annually
review and identify those programs and activities that are susceptible
to significant improper payments. Although OMB's guidance identifies
the scope of payments agencies are to review, such as federal awards
made by recipients and subrecipients subject to the Single Audit Act,
as amended,[Footnote 21] it does not provide agencies detailed
information on how to conduct a risk assessment in order to adequately
carry out their responsibilities to meet the requirements of the act.
Specifically, we found that OMB's guidance lacks a description of the
common types of risk factors agencies should consider when annually
reviewing their programs, such as program complexity; operational
changes; and findings from investigative, financial statement, and
performance audit reports. Developing such a framework would begin the
process to effectively identify and target high-risk areas within a
program and better position agencies as they determine which control
activities to implement to reduce risks and ultimately reduce fraud and
errors.
Risk assessment is a key step in gaining assurance that programs are
operating as intended and that they are achieving their expected
outcomes. Done properly, it entails a comprehensive review and analysis
of program operations to determine if 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 program levels.
The specific risk assessment methodology used can vary by organization
because of differences in missions and the methods used in assigning
risk levels. 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. Because governmental, economic, and operating
conditions continually change, risk assessments should be periodically
updated to identify and deal with any special risks prompted by such
changes.
Although 23 agencies reported meeting this requirement for all of their
programs and activities, other readily available information suggests
to us that the adequacy of agencies' risk assessments was questionable.
For example, auditors for DOJ and DHS cited agency noncompliance with
IPIA in their fiscal year 2005 annual audit reports, primarily caused
by inadequate risk assessments. The DOJ auditor stated that one agency
component had not established a program to assess, identify, and track
improper payments. The DHS auditors reported that the department did
not institute a systematic method of reviewing all programs and
identifying those it believed were susceptible to significant erroneous
payments. This was the second consecutive year that the auditor
reported IPIA noncompliance for DHS. Although the auditors identified
the agency's risk assessment methodology as inadequate, DHS again
reported in its PAR that it had assessed all of its programs for risk
and found none susceptible to significant improper payments.
However, existing significant financial management weaknesses at these
agencies highlight visible, well-known risks for improper payments. For
example, DHS continues to face significant financial management
weaknesses as illustrated by previous reviews of the Federal Emergency
Management Agency's (FEMA)--a DHS component--Individuals and Households
Program (IHP). In November 2005, DHS received a disclaimer of opinion
on its fiscal year 2005 balance sheet and its fiscal year 2004
consolidated financial statements,[Footnote 22] primarily because of
financial reporting problems. DHS's auditors cited 10 material
weaknesses;[Footnote 23] 2 other reportable conditions in internal
controls; and 7 instances of noncompliance with applicable laws and
regulations, 1 of those being noncompliance with IPIA, as mentioned
previously. The DHS OIG cited disaster response and recovery as one of
DHS's major management challenges for that year.
In May 2005, the DHS OIG reported[Footnote 24] weaknesses in DHS's IHP
program, including inspection and verification of losses reported by
individuals related to the 2004 hurricane season as well as eligibility
issues. Subsequently, in July 2005, the Senate Committee on Homeland
Security and Governmental Affairs released its investigation results of
FEMA's response to the 2004 Florida hurricanes, in particular,
Hurricane Frances, and found similar weaknesses in FEMA's IHP program.
In discussing its risk assessment methodology, DHS reported that FEMA's
IHP might be at high risk for issuing improper payments as a result of
the weaknesses identified in the DHS OIG report and performed a second
round of testing of its fiscal year 2004 disbursements. From its test
results, DHS concluded that its estimate of improper payments for the
IHP did not meet OMB's criteria of exceeding $10 million and 2.5
percent of program payments. DHS reported that IHP would receive closer
scrutiny and undergo an independent payment review in fiscal year 2006,
but that its sample payment testing did not show the program to be at
high risk for improper payments.
Our recent review of FEMA's IHP shows a dramatically different result.
In our June 2006 report,[Footnote 25] we estimated improper payments
related to FEMA's IHP of about $1 billion as of February 2006, related
to individual assistance payments in response to hurricanes Katrina and
Rita that occurred in 2005. This amount represents 16 percent of the
IHP payments. For example, we determined that millions of dollars in
expedited and housing assistance payments went to registrants who
provided the names and Social Security numbers of individuals
incarcerated in federal and state prisons during the hurricanes. In
addition, FEMA improperly paid individuals twice for their lodging--
paying both hotels and rental assistance. Also, FEMA could not
establish that 750 debit cards worth $1.5 million went to Hurricane
Katrina victims.
We noted risk assessment deficiencies at other agencies as well. The
USDA OIG reported[Footnote 26] that the agency's risk assessments were
not adequate to estimate the agencies' susceptibility to improper
payments because the guidance from the USDA's OCFO was not sufficiently
prescriptive and detailed to translate into meaningful results. As
such, the OIG recommended that USDA OCFO strengthen guidance over its
IPIA risk assessments to provide reasonable assurance that the
requirements of the act are met. Further, the OIG stated that USDA
should identify risk factors that are discrete to the program being
assessed and consider information from all sources, such as audit
reports. In another example, Treasury's OIG reported[Footnote 27] that
it planned to evaluate whether the agency's current process is
effectively identifying and reducing erroneous payments, which further
validates our concern that agencies' risk assessments may not be
appropriately identifying a complete universe of programs and
activities that are susceptible to significant improper payments.
In our previous report[Footnote 28] on agencies' fiscal year 2004
improper payment reporting, we recommended that OMB require those
agencies that did not address the IPIA requirements or did not perform
risk assessments of all of their programs and activities to establish
time frames and identify resources needed to perform risk assessments
and satisfy reporting requirements. We also recommended that OMB
develop a plan to address the resource needs of those agencies that did
not perform risk assessments or satisfy reporting requirements. In
response to our recommendations, OMB stated that pursuant to the PMA
initiative--Eliminating Improper Payments--federal agencies were
already required to submit relevant time frames and account for the
resources necessary to complete planned actions. Furthermore, OMB
stated that the remaining risk assessments to be completed, not covered
by the PMA initiative, correlated to programs with relatively small
outlays. As we stated in our March 2005 report, while we view the PMA
initiative as a positive action, it applies to only 15 agencies--the 14
agencies that were previously required to report improper payments
information under OMB Circular No. A-11 and DHS. However, this is not a
comprehensive list because it does not include the remaining executive
branch agencies covered under IPIA that are, to some extent, required
to address improper payments for their programs and activities. Thus,
agencies not included in the PMA initiative would not be required to
establish time frames and account for needed resources under that
effort. Therefore, we reaffirm our previous recommendations that OMB
require those agencies that did not address the IPIA requirements or
did not perform risk assessments for all of their programs and
activities to establish time frames and identify resources needed to
perform risk assessments and satisfy reporting requirements and that
OMB develop a plan to address the resource needs of those agencies that
did not perform risk assessments or satisfy reporting requirements.
Only a Limited Number of Agencies Are Estimating Improper Payments:
Figure 3: Improper Payments--Step 2:
[See PDF for image]
Source: GAO.
[End of figure]
Agencies must estimate improper payments for each risk-susceptible
program identified during the risk assessment process. Of the 35
agencies, 18 agencies accounting for 57 programs reported improper
payment estimates totaling in excess of $38 billion for some or all of
their high-risk programs. (See app. II for further details.) Included
in this estimate were 17 newly reported programs in 10 agencies,
totaling about $1.2 billion for fiscal year 2005.
The total improper payment estimate of $38 billion represents
approximately 2 percent of the total fiscal year 2005 government
outlays of $2.5 trillion. For the remaining 17 agencies that did not
report estimates, 8 said they did not have any programs susceptible to
significant improper payments, 8 were silent about whether they had
programs susceptible to significant improper payments, and the
remaining agency identified programs susceptible to significant
improper payments and said it planned to report an estimate by fiscal
year 2007. Further details are included in table 2.
Table 2: Agency Improper Payment Estimate Reporting in Fiscal Year
2005:
1;
Department or agency: Agency for International Development;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
2;
Department or agency: Department of Agriculture;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
3;
Department or agency: Department of Commerce;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
4;
Department or agency: Department of Defense;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
5;
Department or agency: Department of Education;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
6;
Department or agency: Department of Energy;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
7;
Department or agency: Environmental Protection Agency;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
8;
Department or agency: Export-Import Bank of the United States;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
9;
Department or agency: Farm Credit System Insurance Corporation;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
10;
Department or agency: Federal Communications Commission;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: X.
11;
Department or agency: Federal Deposit Insurance Corporation;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
12;
Department or agency: General Services Administration;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
13;
Department or agency: Department of Health and Human Services;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
14;
Department or agency: Department of Homeland Security;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
15;
Department or agency: Department of Housing and Urban Development;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
16;
Department or agency: Department of the Interior;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
17;
Department or agency: Department of Justice;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
18;
Department or agency: Department of Labor;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
19;
Department or agency: National Aeronautics and Space Administration;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
20;
Department or agency: National Credit Union Administration;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
21;
Department or agency: National Science Foundation;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
22;
Department or agency: Nuclear Regulatory Commission;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
23;
Department or agency: Office of Personnel Management;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
24;
Department or agency: Pension Benefit Guaranty Corporation;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
25;
Department or agency: U.S. Postal Service;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
26;
Department or agency: Railroad Retirement Board;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
27;
Department or agency: Securities and Exchange Commission;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: X;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
28;
Department or agency: Small Business Administration;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
29;
Department or agency: Smithsonian Institution;
Agency reported estimate for one or more programs: [Empty];
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: X;
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
30;
Department or agency: Social Security Administration;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
31;
Department or agency: Department of State;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
32;
Department or agency: Tennessee Valley Authority;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
33;
Department or agency: Department of Transportation;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
34;
Department or agency: Department of the Treasury;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
35;
Department or agency: Department of Veterans Affairs;
Agency reported estimate for one or more programs: X;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: [Empty];
Agency did not report estimate: Agency reported future date to report
estimate: [Empty].
Total;
Agency reported estimate for one or more programs: 18;
Agency did not report estimate: Agency reported that no programs were
susceptible to significant improper payments: 8;
Agency did not report estimate: Agency silent as to whether it had
programs susceptible to significant improper payments: 8;
Agency did not report estimate: Agency reported future date to report
estimate: 1.
Source: GAO analysis of cited agencies' fiscal year 2005 PARs and
annual reports.
[End of table]
Step 2 of OMB's guidance requires agencies to estimate the annual
amount of improper payments for those programs susceptible to
significant improper payments. Unless previously approved by OMB, this
estimate must be based on a statistically valid sampling
methodology[Footnote 29] and should include a gross total of both over-
and underpayments. In its Circular No. A-136, OMB encourages agencies
to break out over-and underpayments as part of its improper payment
reporting, if available. Of the 57 programs for which an estimate was
reported for fiscal year 2005, a breakout between over-and
underpayments was provided for 20 programs. This included 6 of the 7
largest programs that according to OMB, make up 95 percent of the
current total improper payment estimate.[Footnote 30] Treasury's Earned
Income Tax Credit (EITC) program, the second largest program
constituting the reported improper payment total, is the only program
of the 7 largest that did not do so. Of the 20 programs, 3 attributed
all their improper payments to overpayments. For example, the USDA's
Marketing Assistance Loan Program reported an improper payment estimate
of about $45 million. USDA reported that the entire estimate resulted
from overpayments made. For more details related to over-and
underpayment estimates, see appendix III.
We also found that agencies' auditors identified challenges with
certain program's improper payment estimates. USDA's OIG reported that
it considers USDA's efforts to develop supportable methodologies to
detect and estimate the extent of improper payments as a major
challenge because of the number and complexity of USDA programs and
activities that are subject to IPIA. In another example, agency
auditors for the Department of Education (Education) raised concerns
about the methodology Education used to estimate improper payments for
its Federal Student Aid (FSA) program. The auditors reported that the
methodology used did not provide a true reflection of the magnitude of
improper payments in the student loan programs. Specifically, FSA's
estimate is primarily based on actual questioned costs from OIG audits,
does not extrapolate questioned costs associated with compliance
violations identified through OIG audits, and does not take into
account restitutions and penalties resulting from OIG investigations.
To address improper payment estimating challenges, it will be critical
that agencies follow existing OMB guidance to use a statistically valid
sampling methodology.
The Extent and Level of Detail Related to Selected Reporting
Requirements Varied:
Figure 4: Improper Payments--Step 3:
[See PDF for image]
Source: GAO.
[End of figure]
As previously mentioned, 18 of the 35 agencies reported over $38
billion of improper payments. Of the 18 agencies, 14 reported improper
payment estimates that exceeded $10 million[Footnote 31] for one or
more programs, and therefore were required to implement plans to reduce
improper payments under step 3 of OMB's guidance.
Figure 5: Improper Payments--Step 4:
[See PDF for image] - graphic text:
Source: GAO.
[End of figure] - graphic text:
Based on these plans, under step 4 of OMB's implementing guidance
agencies are required to report on various elements, such as a
description of (1) the steps (including time line) the agency has taken
and plans to take to ensure that agency managers (including the agency
head) are held accountable for reducing and recovering erroneous
payments and (2) any statutory or regulatory barriers that may limit
the agency's corrective actions in reducing improper payments and any
statutory or regulatory barriers that may limit the agencies'
corrective actions in reducing improper payments. In addition, the 14
agencies with estimated improper payments greater than $10 million were
required to report in their PARs or annual reports on the above
elements as well as other areas, such as the causes of the improper
payments, actions taken to correct those causes, and the results of
those actions and additional reporting requirements. Generally, these
agencies reported on their actions to address the additional reporting
requirements in their PARs; however, the extent and details of
reporting varied among agencies. Although not all of the agencies in
table 3 provided meaningful descriptions for each of the additional
reporting requirements, our table acknowledges all agencies that at
least mentioned these reporting elements as part of their improper
payment reporting. The results of agencies' reporting on these key
elements are discussed in more detail in the following sections.
Table 3: Agency Reporting of Certain Reporting Requirements for One or
More of Its Programs:
1;
Department or agency: Department of Agriculture;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
2;
Department or agency: Department of Defense;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
3;
Department or agency: Department of Education;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
4;
Department or agency: Department of Energy;
Agency reported on causes and corrective actions: [Empty];
Agency reported on manager accountability: [Empty];
Agency reported on statutory barriers: [Empty].
5;
Department or agency: Department of Health and Human Services;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
6;
Department or agency: Department of Housing and Urban Development;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: [Empty].
7;
Department or agency: Department of Labor;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
8;
Department or agency: Office of Personnel Management;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
9;
Department or agency: Railroad Retirement Board;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: [Empty].
10;
Department or agency: Small Business Administration;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: [Empty].
11;
Department or agency: Social Security Administration;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
12;
Department or agency: Tennessee Valley Authority;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: [Empty].
13;
Department or agency: Department of the Treasury;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
14;
Department or agency: Department of Veterans Affairs;
Agency reported on causes and corrective actions: X;
Agency reported on manager accountability: X;
Agency reported on statutory barriers: X.
Total;
Agency reported on causes and corrective actions: 13;
Agency reported on manager accountability: 13;
Agency reported on statutory barriers: 9.
Source: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports.
[End of table]
Causes of Improper Payments and Corrective Action Plans:
Table 3 shows that 13 of the 14 agencies required to report on the
causes of program improper payments and any associated corrective
actions did so. Looking at this from a qualitative perspective, we
noted that some agencies provided few details on the causes and
corrective actions taken, while others provided detailed descriptions
at the program level. For example, the Department of Labor (Labor)
reported that the causes of improper payments for its Unemployment
Insurance program resulted from claimants who continue to claim
benefits despite having returned to work as well as coding errors that
identify why the claimant separated from work. In contrast, the Small
Business Administration (SBA) reported that it was planning to identify
and track reasons for improper payments for one of its high-risk
programs, but had not yet done so. Similarly, HHS did not list causes
of improper payments for several of its risk-susceptible programs,
although it provided detailed corrective actions for reducing improper
payments. When no causes are reported, they sometimes can be inferred
based on the descriptions of the corrective actions. However, without
fully knowing what causes improper payments, it may be difficult for
the agency to determine what types of internal control need to be
implemented or changed and if the corrective actions in place will be
effective in reducing improper payments. As agencies identify causes of
improper payments, they can implement control activities to address
identified risk areas and help ensure that management's decisions and
plans are carried out and program objectives are met.
Manager Accountability:
All but 1 of the 14 agencies also reported on efforts related to
assigning and holding managers accountable for reducing improper
payments. The remaining agency did not address this reporting
requirement in its PAR. Generally, improper payments result from a lack
of or inadequate system of internal control, but some result from
program design issues. A key component of internal control is the
control environment. A strong control environment is fundamental in
creating a culture of accountability by establishing a positive and
supportive attitude toward improvement and the achievement of
established program outcomes, including protecting taxpayer interests
in program integrity.
Similar to agencies' reporting on causes and corrections, we also found
that agencies' reporting on the manager accountability requirement
varied. For example, OPM addressed the manager accountability reporting
requirement in one sentence for its risk-susceptible programs while
USDA and VA provided information on how each program manager was held
accountable for the high-risk programs identified. Furthermore, six
different agencies reported that the responsibility for improper
payments is included in management's performance plans; however,
specific details were not disclosed. For example, the Railroad
Retirement Board (RRB) reported that agency managers' performance plans
are linked to RRB's strategic goals of paying benefits accurately and
timely and providing prudent stewardship over the trust funds.
Statutory or Regulatory Barriers:
Of the 14 agencies required to report on any statutory or
regulatory[Footnote 32] barriers, 9 agencies identified such barriers
that may limit corrective actions to reduce improper payments. The
remaining 5 agencies[Footnote 33] were silent as to whether any
statutory or regulatory barriers existed or reported that no barriers
had been identified. Agencies cited various barriers that restrict
their ability to better manage their programs against improper
payments. We classified the reported barriers into five categories: (1)
data matching, (2) contractual requirements, (3) state-administered
program structure, (4) recovery auditing, and (5) other. We also
identified agencies that reported barriers that were not related to a
statute or regulation. Table 4 summarizes the statutory barriers
agencies reported and, when provided, the legislation or regulation
citation related to the barriers.
Table 4: Agency-Reported Statutory Barriers to Reducing Improper
Payments:
Agency: Department of Agriculture;
Type of barrier(s): Data matching, state-administered program
structure, recovery auditing;
Agency reported law or regulation related to barrier(s): Finality Rule-
Department of Agriculture Reorganization Act of 1994, Section 281,
generally precludes the use of recovery auditing techniques to recover
payments considered final pursuant to 7 U.S.C. 7001(a).[A];
Farm Security and Rural Investment Act of 2002, Section 1502(d)(2),
requires the agency to use standards applied under an earlier law,
thereby limiting the agency from developing a definition for a
particular type of dairy producers.[A].
Agency: Department of Defense;
Type of barrier(s): Contractual requirements;
Agency reported law or regulation related to barrier(s): The Department
of Defense's Retired and Annuitant Pay Service Contract, when awarded,
did not include the goals or mandates of IPIA. Any additional work or
changes to meet the goals of IPIA would need a contract modification
and be subject to Subpart 43.1 of the Federal Acquisition
Regulation.[B].
Agency: Department of Education;
Type of barrier(s): Data matching;
Agency reported law or regulation related to barrier(s): Section 6103
of the Internal Revenue Code concerning confidentiality of the tax
return information precludes data matching.[C].
Agency: Department of Health and Human Services;
Type of barrier(s): State-administered program structure, other;
Agency reported law or regulation related to barrier(s): Temporary
Assistance for Needy Families legislation, including funding for Child
Care Programs, specifically prohibits HHS from regulating the conduct
of states, unless expressly provided. Requiring states to identify and
report improper payments is not expressly required.[D].
Agency: Department of Labor;
Type of barrier(s): Data matching, state- administered program
structure, recovery auditing;
Agency reported law or regulation related to barrier(s): Section
3304(a)(4) of the Federal Unemployment Tax Act (FUTA) requires that
moneys in the unemployment fund only be withdrawn for benefit payments,
precluding the availability of money in the fund to be used for
recovery auditing techniques.[ A].
Agency: Office of Personnel Management;
Type of barrier(s): Contractual requirements, recovery auditing, other;
Agency reported law or regulation related to barrier(s): 5 U.S.C. §
8452 and 5 C.F.R. 844 Subpart C contain the Federal Employees
Retirement System (FERS) disability offset provision which mandates
that FERS benefits be reduced if the annuitant also receives Social
Security benefits. However, the FERS benefits cannot be reduced until
Social Security Administration starts paying the disability benefits so
that OPM can reduce the FERS benefits to their proper level.[C];
Generally, the Right to Financial Privacy Act (12 U.S.C. §. 3401-3422)
requires financial institutions to obtain permission from their
customers to disclose financial information. This requirement in effect
bars OPM from obtaining posthumous payments information, preventing
recovery of improper payments.[C];
OIG lacks statutory or regulatory audit rights and only has limited
audit rights in contracts entered into with pharmaceutical benefits
managers.[B].
Agency: Social Security Administration;
Type of barrier(s): Other;
Agency reported law or regulation related to barrier(s): Not cited.[B].
Agency: Department of the Treasury;
Type of barrier(s): Other;
Agency reported law or regulation related to barrier(s): IRS Tax
Code.[E].
Agency: Department of Veterans Affairs;
Type of barrier(s): Other;
Agency reported law or regulation related to barrier(s): 38 U.S.C.
5112(b)(4)(A)[C] prohibits adjustments to benefit payments until the
first of the month after the change in a beneficiary's income. Thus,
this creates an overpayment until the benefit payment is adjusted for
the change in income;
38 U.S.C. 501(a) and 38 C.F.R. 3.103[C] preclude VA from changing
benefit payments when it determines that an adjustment or termination
of benefits is needed. VA must continue to make benefit payments based
on existing information until a claimant's due process has taken place,
which requires giving the claimant 60 days to submit evidence for a
claim. This, therefore, usually means VA must continue payment for
approximately 90 days after discovery because any adjustments occur the
first of the next month.
Sources: GAO analysis of cited agencies' fiscal year 2005 PARs or
annual reports and OMB.
Note: We did not verify whether the legal citation reported actually
results in a barrier.
[A] Agency provided specific legislative citation in its PAR.
[B] Agency did not provide a legislative citation in its PAR or to OMB.
[C] Specific legal citation provided by OMB.
[D] General legal citation provided by OMB.
[E] Agency only provided a general citation in its PAR.
[End of table]
Only two of the nine agencies mentioning statutory barriers cited the
specific law or regulation related to a corresponding barrier in their
PARs. The remaining seven agencies described the barrier but did not
provide a specific law or regulation in their PARs. For three of these
seven agencies, we were able to obtain specific legislative citations
for some of the agency-reported barriers from OMB, and included these
in table 4. The remaining four agencies did not provide specific
legislative citations in their PARs, nor did the agencies provide them
when we followed up with OMB. The lack of transparency in agencies'
reporting of specific legislative or regulatory barriers impedes the
Congress's ability to use its authorization, appropriation, and
oversight responsibility to help agencies meet performance goals. The
Congress can review the actions taken and regulations formulated by
departments and agencies to make certain that program officials
appropriately execute the laws. If agencies provide the required
information, the Congress can determine whether the public's needs are
adequately served by federal programs, and thus take corrective action
through legislative changes.
As we previously reported,[Footnote 34] it should be recognized that
many of these barriers exist as a result of decisions to ensure
beneficiary privacy and other data safeguards and the inherent nature
of some federal programs. 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. Accordingly, federal agencies, the administration, the
Congress, and the public must recognize that some level of improper
payments will occur because of these public policy decisions.
Data matching. Three agencies reported barriers that prevented data
matching with other agencies' computer databases to reduce improper
payments. For example, Education reported that requirements in the
Internal Revenue Code precluded data matching, but that a database
match with the Internal Revenue Service (IRS) would likely improve the
accuracy of Pell Grant awards. In addition, it would eliminate the need
for schools to rely on paper copies of tax returns submitted by
applicants, which are used to verify applicants' adjusted gross income
and taxes paid. Currently, the schools have limited assurance that the
tax returns submitted by the applicants contain the same information
that is filed with IRS. However, Education's proposal to amend the
Internal Revenue Code to permit a 100 percent database match has not
yet been enacted, and Education is uncertain whether or when such
legislation may be enacted. As a further illustration, Labor reported
that for its Federal Employees' Compensation Act (FECA)
program,[Footnote 35] legislation does not currently permit FECA to
verify employment earnings with the Social Security Administration
(SSA) without the claimant's written permission. Compensation benefits
may be overpaid if an employee has unreported earnings and does not
grant Labor permission to verify earnings with SSA.
Contractual requirements. Two agencies reported contractual
requirements as a barrier to reducing improper payments. For example,
OPM reported that its OIG has begun an initiative to audit
pharmaceutical benefits managers (PBM). However, in some cases, the OIG
has only limited audit rights based on the carrier's contracts with the
PBMs. To mitigate this, OPM is in the process of revising the Federal
Employees Health Benefits Acquisition Regulations to require carriers
to provide the OIG complete audit rights in all contracts entered into
with PBMs.
State-administered program structure. Three agencies reported barriers
resulting from the state-administered structure of their programs. For
example, Labor reported that by statute, states administer the
Unemployment Insurance (UI) program and set operational priorities.
Therefore, the agency reported it has limited ability to ensure that
the states pursue improper payment reduction activities. In another
example, HHS stated that for Medicaid and the State Children's Health
Insurance Program, its ability to minimize improper payments was
limited in the absence of statutory authority to hold states
accountable for meeting targets for the reduction and recovery of
improper payments.
State-administered programs 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, states may have little incentive to ensure that the right
amounts go to the right individuals.
Recovery auditing. Three agencies reported that their ability to reduce
improper payments through recovery auditing techniques was barred by
statute. For example, USDA reported that Section 281 of the Department
of Agriculture Reorganization Act of 1994 precluded the use of recovery
auditing techniques because Section 281 provides that 90 days after the
decision of a state, county, or an area committee is final, no action
may be taken to recover the amounts found to have been disbursed as a
result of the decision in error unless the participant had reason to
believe that the decision was erroneous. In another example, Labor
stated that Section 3304(a)(4) of the FUTA, which states that moneys in
the fund can only be used for benefit payments, precludes using the
funding for recovery auditing techniques.
Other. Five agencies reported statutory or regulatory barriers that we
categorized as other. For example, VA reported that under current
legislation, adjustments to payments are effective the first of the
month following the month of the change in income or net worth.
Additionally, benefits are paid on a prospective basis based on the
beneficiary's estimate of anticipated income. Thus, VA stated that an
award adjustment because of changes in income is always after the fact
and creates an overpayment. Despite this, VA believes this legislation
should not be changed since the program meets the requirement to
provide income support for current needs. As a second example, OPM
stated that if an applicant receives FERS and Social Security
disability benefits, then the FERS benefits are statutorily required to
be reduced.[Footnote 36] However, OPM cannot reduce the applicant's
FERS benefits until it knows the amount of Social Security disability
benefits that the applicant receives from SSA. Typically, the applicant
receives FERS benefits first and does not start receiving SSA
disability benefits until several months later. As a result, OPM makes
FERS benefit overpayments to the applicant knowing that it will have to
subsequently reduce the FERS benefits to the proper level when SSA
starts paying the disability benefits.
During our analysis, we also identified two additional agencies that
reported barriers in their improper payment information, but these
barriers did not result from existing statutory requirements. For
example, USDA reported that its program administration of the Food and
Nutrition Service is highly decentralized and can involve a myriad of
governmental and nongovernmental organizations. This decentralization
is a hindrance to the development of robust accountability processes.
As another example, Treasury reported several barriers to reducing
overpayments in the EITC program, including high program turnover and
unscrupulous tax preparers.
For the nine agencies that reported statutory or regulatory barriers,
five agencies discussed in their PARs actions that they were taking to
mitigate the effects of the barriers identified. For example, USDA
reported that its Rural Housing Service agency is seeking to overcome a
data-matching barrier through legislation that would permit access to
HHS's National Directory of New Hires (NDNH) data to allow management
agents to use the data to collect and verify the tenant's income
documentation. As a second example, Labor reported that Section
3304(a)(4) of FUTA and Section 303(a)(4) of the Social Security Act
require that moneys deposited into the UI program must be used for
benefits and are precluded from being used for prevention, detection,
and recovery of improper payments. Labor has proposed legislation with
its fiscal year 2006 budget that would relax the "withdrawal standard"
barrier to provide additional funding for recovery initiatives.
We also noted that according to OMB's annual improper payments report
that six agencies requested legislative intervention in their fiscal
year 2007 budget submissions to facilitate better measurement,
detection, and elimination of improper payments. For five of these
agencies, the legislative intervention addressed some barrier reported
in their PARs. For example, Labor proposed a legislative change related
to overpayment recoveries in its UI program. According to OMB, the
legislative changes provide financial incentives to states to more
aggressively pursue benefit overpayments, enlist debt collection
agencies, impose penalties for fraud, charge employers when their
actions lead to overpayments, and collect delinquent overpayments
through garnishment of tax refunds. OMB also noted that these proposed
legislative changes would further improve the accuracy of the hiring
data in the NDNH by including the actual start work date, thereby
improving the detection of potential improper payments. OMB reported
that this proposal is projected to save $1.2 billion over 10 years.
Improper Payments Estimate Is Understated:
The total improper payment estimate of about $38 billion represents
almost a $7 billion, or 16 percent, decrease from the $45 billion of
improper payments reported by agencies in fiscal year 2004.[Footnote
37] On the surface, this would suggest that significant progress has
been made. However, this is not the case because the reported $7
billion reduction in the total improper payments estimate may not
reflect improved accountability or strengthened internal controls. As
we previously reported in March and April 2006,[Footnote 38] this
estimate reduction is primarily attributable to a decrease in HHS's
Medicare program improper payment estimate. This decrease mainly
resulted from a change to Medicare's estimating methodology rather than
from improved payment controls. Regardless of whether prior year
estimates were reliable, the reported reduction is unlikely to
represent a measurable improvement in internal control and
accountability given that HHS's OIG continued to cite the integrity of
Medicare payments as a top management challenge in HHS's fiscal year
2005 PAR. As discussed previously, other agency auditors have reported
major management challenges that highlight internal control weaknesses
that continue to plague programs susceptible to significant improper
payments. In some cases, agencies reported that their programs were not
susceptible to significant improper payments, despite the fact that the
auditor's reports in the same PARs identified major management
challenges, including significant internal control weaknesses, for some
of the agencies' programs.
Also, the total improper payment estimate does not include certain
factors that if resolved, would materially increase reports of
estimated improper payments. For example, 10 risk-susceptible programs
with outlays totaling over $234 billion for fiscal year 2005 did not
estimate improper payments, even though OMB required most of these
programs to report selected improper payment information several years
before IPIA became effective. In addition, we found six agencies that
did not use statistical sampling for 9 programs to estimate improper
payment amounts. Because nonstatistical sampling methods were used,
such as results from Single Audit Act[Footnote 39] reports and internal
performance reviews, the $389 million reported represents only the
known improper payment amounts reported by agencies. Given that total
outlays for these 9 programs exceeded $58.2 billion in fiscal year
2005, the improper payment estimate for these programs would likely
have been much greater had statistically valid methods been used. We
also found instances where agencies estimated improper payments for
only one component of the risk-susceptible program. Using these types
of methodologies results in estimates that may be significantly
understated.
Some Agencies Continue to Lack Improper Payment Estimates for
Susceptible Programs:
The fiscal year 2005 governmentwide improper payments estimate of $38
billion did not include any amounts for 10 programs, with fiscal year
2005 outlays totaling over $234 billion. OMB had specifically required
7 of these programs to report selected improper payment information for
several years before IPIA reporting requirements became effective.
After passage of IPIA, OMB's implementing guidance required that these
programs continue to report improper payment information under IPIA.
The remaining 3 risk-susceptible programs, with no previous reporting
requirement, provided target dates for estimating improper payments. As
shown in table 5, the fiscal year 2005 improper payment estimate does
not include one of the largest federal programs determined to be
susceptible to risk, HHS's Medicaid program, with outlays exceeding
$181 billion annually.
Table 5: Susceptible Programs That Did Not Report Improper Payment
Estimates and Target Dates for Estimates:
Dollars in billions.
Agency/program: Department of Agriculture--School Programs;
Fiscal year 2005: outlays: $8.2;
Target date for improper payment estimates: 2007;
Previously required to estimate: X.
Agency/program: Federal Communications Commission--Universal Service
Fund's Schools and Libraries;
Fiscal year 2005: outlays: 1.7;
Target date for improper payment estimates: 2007;
Previously required to estimate: [Empty].
Agency/program: Federal Communications Commission--High Cost Support
Program;
Fiscal year 2005: outlays: 3.8;
Target date for improper payment estimates: 2007;
Previously required to estimate: [Empty].
Agency/program: Department of Health and Human Services--State
Children's Insurance Program;
Fiscal year 2005: outlays: 5.1;
Target date for improper payment estimates: 2008;
Previously required to estimate: X.
Agency/program: Department of Agriculture--Women, Infants, and
Children;
Fiscal year 2005: outlays: 4.8;
Target date for improper payment estimates: 2008;
Previously required to estimate: X.
Agency/program: Department of Health and Human Services--Medicaid;
Fiscal year 2005: outlays: 181.7; [Empty]; Target date for improper
payment estimates: 2008; Previously required to estimate: X.
Department of Agriculture--Child and Adult Care Food Program;
Fiscal year 2005: outlays: 2.1;
Target date for improper payment estimates: 2010;
Previously required to estimate: [Empty].
Agency/program: Department of Health and Human Services--Child Care and
Development Fund;
Fiscal year 2005: outlays: 4.9;
Target date for improper payment estimates: Did not report target date;
Previously required to estimate: X.
Agency/program: Department of Health and Human Services--Temporary
Assistance for Needy Families;
Fiscal year 2005: outlays: 17.4;
Target date for improper payment estimates: Did not report target date;
Previously required to estimate: X.
Agency/program: Department of Housing and Urban Development--Community
Development Block Grant;
Fiscal year 2005: outlays: 5.0;
Target date for improper payment estimates: Did not report target date;
Previously required to estimate: X.
Total;
Fiscal year 2005: outlays: $234.7;
Target date for improper payment estimates: [Empty];
Previously required to estimate: 7.
Sources: OMB and cited agencies' fiscal year 2005 PARs.
[End of table]
Of these 10 programs, 7 reported that they would be able to estimate
and report on improper payments sometime within the next 3 fiscal
years, but could not do so for fiscal year 2005. For the remaining 3
programs, the agencies did not estimate improper payment amounts in
their fiscal year 2005 PARs and were silent about whether they would
report estimates in the future. As a result, improper payments for
these programs susceptible to risk will not be known for at least
several years, even though 7 of these programs had been required to
report this information since 2002, with their fiscal year 2003 budget
submissions under previous OMB Circular No. A-11 requirements.
OMB reported that some of the agencies were unable to determine the
rate or amount of improper payments because of measurement challenges
or time and resource constraints, which OMB expects to be resolved in
future reporting years. For example, since fiscal year 2002, HHS has
conducted pilots at the state level to further its progress toward
reporting a national improper payments estimate for its Medicaid
program. Each state is responsible for designing and overseeing its own
Medicaid program within the federal government structure. This type of
program structure presents challenges for implementing a methodology to
estimate improper payments as HHS must work with states to obtain
applicable documentation used in the calculation. An additional
challenge HHS and other agencies with state-administered programs face
is the ability to hold states accountable for meeting targets to reduce
and recover improper payments in the absence of specific statutory
authority.
Of the three programs that did not report a target date for estimating,
the Department of Housing and Urban Development's (HUD) Community
Development Block Grant (CDBG) program was the only one that did not
report any actions under way to begin estimating improper payments. In
its fiscal year 2005 PAR, HUD reported that based on completed testing
of fiscal year 2003 payments, this program is below OMB's threshold
criteria--exceeding $10 million and 2.5 percent of program payments--
for significant improper payments and, therefore, was removed from
HUD's at-risk inventory. HUD stated that this program was not subject
to retesting unless there was a significant change in the nature of
activity or internal control structure.
We have several problems with HUD's position. The CDBG program was
subject to the previous OMB Circular No. A-11 requirements and thus was
required by OMB's guidance to continue to report improper payment
information under IPIA, regardless of the agency-determined risk level,
which based on other known information may not reflect actual risk.
During a June 2006 hearing[Footnote 40] on the CDBG program, HUD's OIG
reported on numerous instances of fraudulent, improper, and abusive use
of program funds identified over a 2-½-year period based on 35 audits.
The HUD OIG reported that its office has recovered over $120 million in
program funds, identified over $100 million in questioned costs,
indicted 159 individuals, initiated administrative actions against 143
individuals, and took 5 civil actions and 39 personnel actions. As
evidenced by the HUD OIG reviews, the CDBG program may be at risk of
significant improper payments.
Certain Methodologies Used to Estimate Improper Payments Do Not Result
in Accurate Estimates:
The total executive branch-wide improper payment estimate may also be
understated because of nonstatistical sampling methodologies agencies
used to estimate improper payments in its programs. OMB's implementing
guidance requires that agencies use a statistical sample to estimate
improper payments. With statistical sampling, sample results can be
generalized to the entire population from which the sample was taken.
From our review, we found six agencies that did not use statistical
sampling to estimate improper payments totaling approximately $389
million for nine programs with outlays exceeding $58 billion.
For example, Labor analyzed fiscal year 2003 single audits to identify
questioned costs for its Workforce Investment Act[Footnote 41] program,
which, in turn, were used as a proxy for reporting its improper payment
estimate. Specifically, the improper payment rate was determined by
calculating the projected questioned costs and dividing this total
amount by the corresponding outlays. We do not believe this is a
reasonable proxy for improper payment levels because single audits, by
themselves, may lack the level of detail necessary for achieving IPIA
compliance. Specifically, single audits generally focus on the largest
dollars in an auditee's portfolio. Thus, all programs identified as
susceptible to improper payments at the federal level may not receive
extensive coverage under a single audit. Consequently, both the depth
and level of detail of single audit results are, generally,
insufficient to identify improper payments, estimate improper payments,
or both.
We also found instances where agencies estimated improper payments for
only one component of the risk-susceptible program. For example, HHS's
Medicare program is the largest program constituting the total improper
payment estimate, with an estimate of $12.1 billion for fiscal year
2005. However, this estimate represents payment errors only for its fee-
for-service program component. HHS has not yet begun to estimate
improper payments for its managed care component, with outlays totaling
about $52 billion, or 15 percent of Medicare program outlays. In its
fiscal year 2005 financial report, HHS's Centers for Medicare and
Medicaid Services (CMS) identified bringing the Medicare managed care
component into compliance with IPIA as a key challenge in the coming
years. In addition, CMS's external auditors identified Medicare's
managed care benefits payment cycle as a material weakness in its
report on internal controls. Specifically, the auditor found that
existing CMS policies and procedures are not sufficient to adequately
reduce the risk of material benefit payment errors from occurring or
not being detected and corrected in a timely manner.
In addition, the Department of Transportation (DOT) reported zero
improper payments based on its testing of four state-administered grant
programs with outlays totaling $42.1 billion in fiscal year 2005. (See
app. II.) DOT stated that none of these programs exceeded OMB's
reporting criteria. However, DOT's test procedures only applied to
payments made by DOT to grantee entities. Test procedures did not
address subsequent "flow down" payments made at the grantee level,
where the risk of improper payments is at its greatest. As such, the
DOT OIG reported in the agency's fiscal year 2005 PAR that detecting
improper payments and stopping wasteful spending by grantees is a top
management challenge for the agency. DOT stated that it had actions
under way to implement an improper payment methodology for its grant
programs and plans to implement nationwide testing beginning in fiscal
year 2007.
Reduction in Improper Payment Estimate May Not Be a Result of Improved
Accountability and Enhanced Internal Controls:
The reported $7 billion decrease in the governmentwide estimate is
primarily attributable to a decrease in Medicare's estimate.[Footnote
42] However, we found that this decrease was mainly a result of an
improvement made to Medicare's estimating methodology rather than to
improved payment controls. When providers do not submit documentation
to justify payments received, these payments were counted by HHS as
erroneous for purposes of calculating an annual improper payment
estimate for the Medicare program. However, the decreased error rates
achieved this year because of increased efforts to obtain provider
documentation are not directly comparable to those reported in prior
years before the new procedures were implemented.
Based on our review, the Medicare improper payment estimate decrease
was principally caused by increased efforts to educate health care
providers about its Medicare error rate testing program and the
importance of responding to its requests for medical records to perform
detailed statistical reviews of Medicare payments. HHS reported that
these more intensive efforts had dramatically reduced the number of "no
documentation" errors in its medical reviews. HHS reported marked
reductions in its error rate attributable to fewer cases of (1)
nonresponses to requests for medical records and (2) insufficient
documentation submitted by the provider. We noted that these
improvements partially resulted from HHS extending the time that
providers have for responding to documentation requests from 55 days to
90 days.
These changes primarily affected HHS's processes related to its efforts
to perform detailed statistical reviews for the purposes of calculating
an annual improper payment estimate for the Medicare program. While
this may represent a refinement in the program's improper payment
estimate, the reported reduction may not reflect improved
accountability over program dollars. Therefore, the federal
government's progress in reducing improper payments may be exaggerated
because the reported improper payments decrease in the Medicare program
accounts for the bulk of the overall reduction in the governmentwide
improper payments estimate.
Our work did not include an overall assessment of HHS's estimating
methodology. However, we noted that the changes made for the fiscal
year 2005 estimate were not related to improvements in prepayment
validation processes, and we did not find any evidence that HHS had
significantly enhanced its preventive controls in the Medicare payment
process to prevent future improper payments. Further, we also found
that HHS's OIG continues to cite the integrity of Medicare payments as
a top management challenge. In addition, health care fraud schemes
continue to hamper HHS's efforts to improve accountability. For
example, in May 2006, DOJ reported[Footnote 43] that a businessman
pleaded guilty to conspiracy to defraud Medicare of $40 million in
fraudulent billings over a 16-month period. The fraud scheme included
billing Medicare for motorized wheelchairs that were either not
required by the Medicare beneficiary, not delivered, or both.
Other agency auditors have also reported major management challenges
related to agencies' internal control weaknesses that continue to
plague programs susceptible to significant improper payments. For
example, SBA's auditors reported that for the 7(a) Business Loan
program, SBA did not consistently identify instances of noncompliance
with its own requirements, resulting in improper payments. In some
cases, agencies reported that they had determined that programs were
not susceptible to significant improper payments despite the fact that
the auditor's reports in the same PARs identified management
challenges, or material weaknesses within the programs. For example,
the Department of the Interior's OIG reported that the agency's grant
programs lacked proper management, creating accountability and
stewardship deficiencies, as well problems related to data reliability,
training, and ensuring that funds were spent appropriately. Likewise,
the General Services Administration's (GSA) OIG reported several issues
related to the agency's contract management practices, such as
unauthorized personnel issuing task orders, not inspecting completed
work projects prior to payment, not ensuring services were rendered
prior to payment, and paying invoices that often lacked supporting
documentation.
Table 6 provides four other examples of agencies' major management
challenges, as reported in the fiscal year 2005 PARs, in specific
agency programs or activities. None of the programs listed in table 6
have been identified by agencies as susceptible to significant improper
payments, and thus are not included in the total improper payment
estimate. These examples raise further questions about the adequacy of
agencies' risk assessments to identify susceptible programs, and
whether agencies considered major management challenges identified by
the OIG as part of their risk assessment process.
Table 6: Examples of Programs or Activities with Major Management
Challenges but Not Identified as Susceptible to Significant Improper
Payments:
Department or agency: Department of the Interior;
Program or activity: Workers' Compensation;
Description of major management challenge identified by the OIG:
* Inefficient and ineffective management led to increases in annual
costs. At best, program is managed inconsistently, and at worst, is
subject to abuse by managers seeking an easy way to deal with problem
employees;
* Program is understaffed, employees lack training, and there is no
uniform process for ensuring that costs are accurate. Also, there is an
overwhelming lack of awareness that workers' compensation fraud exists.
Department or agency: General Services Administration;
Program or activity: Contract Management;
Description of major management challenge identified by the OIG:
* GSA disbursed almost $19 billion in contract payments for fiscal year
2005. Certain trends identified in recent years that cause concern
related to contract management include;
* limited project oversight and, at times, completed work projects not
inspected prior to payment;
* payments made for services not provided; and;
* invoices approved for payment, but lacked supporting documentation.
Department or agency: Department of Justice;
Program or activity: Grant Programs;
Description of major management challenge identified by the OIG:
* Long-standing challenge to effectively manage grant programs, which
totaled more than $3.5 billion in fiscal year 2005. Grantees have
received unclear, untimely, and ambiguous guidance to carry out program
objectives;
* The myriad of policy guidance is often confusing and contradictory,
increasing the risk that grantees will be less likely to satisfy their
fiduciary responsibility to safeguard grant funds and ensure funds are
used solely for the purposes for which they were awarded.
Department or agency: Social Security Administration;
Program or activity: School Attendance;
Description of major management challenge identified by the OIG:
* Agency disbursed about $70 million in incorrect payments to 32,839
students. The OIG recommended, and SSA agreed, to ensure that the
overpayments are established and that subsequent collection activities
are initiated for those payments.
Source: GAO analysis of agencies' fiscal year 2005 PARs.
[End of table]
IPIA May Need to Be Amended to Ensure Agencies Fully Meet Its
Objectives:
IPIA includes broad criteria that agencies should use to annually
assess what programs and activities are at risk of having improper
payments. However, OMB has prescribed more specific criteria in its
implementing guidance that in practice have the effect of limiting the
disclosure and transparency of governmentwide improper payments. This
limitation appears contrary to the objective of IPIA, which, among
other things, was created to facilitate the Congress's understanding of
the nature and extent of the governmentwide improper payment problem
and hold agencies accountable for improved management over federal
funds. An amendment to the act could clarify the criteria that agencies
should use to identify which programs and activities are susceptible to
significant improper payments to ensure agencies meet the intent of the
act. In addition, we note that the definition of improper payments
under IPIA excludes certain types of payments that are required to be
made under constitutional, statutory, or judicial requirements, even
though those payments are subsequently determined to be incorrect. This
includes payments that an agency is required to make under statute or
court order that later are determined to be overpayments. Because
agencies are not required to track, monitor, and report on a
governmentwide basis these types of overpayments, the magnitude of this
issue is unknown.
Identification Threshold Limits Agency Reporting on Susceptible
Programs:
For purposes of assessing what programs and activities are at risk of
improper payments, IPIA states that agency heads must review their
agencies' programs and activities to determine those that are
susceptible to significant improper payments. The law does not define
susceptibility. In its implementing guidance, OMB directed that a
program or activity is susceptible to significant improper payments if
it meets two criteria--potential improper payments exceeding $10
million and 2.5 percent of program payments. Therefore, both criteria
must be met for an agency to subject the program to the later steps
requiring the agency to estimate improper payments and address the
various improper payment reporting requirements.
As stated earlier in this report, the information developed during a
risk assessment forms the foundation 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. Thus, these assessment criteria affect how
agencies identify, estimate, report on, and reduce those programs
susceptible to significant improper payments. For example, of the 23
agencies that reported assessing all programs and activities, we found
that 6 agencies limited their risk assessment reviews to only those
programs that would likely meet OMB's definition of programs
susceptible to significant improper payments. Two of these 6 agencies
reported that they did not perform a comprehensive risk assessment for
those programs with outlays of less than $10 million because the
programs would not have exceeded both of OMB's threshold criteria. The
remaining 4 agencies did not perform a comprehensive risk assessment of
programs with outlays ranging from $40 million to $200 million,
generally citing the threshold criteria as the reason for their
exclusion.
We also noted instances where agencies with large program outlays
reported that their programs or activities were not susceptible to
significant improper payments because the improper payment estimates
only exceeded one of OMB's criteria for reporting improper payment
information, another example of how OMB's criteria could materially
affect the extent to which agencies report improper payment information
in their PARs. From our review of the 57 agency programs and activities
that were included in the total $38 billion improper payment estimate,
we identified 20 programs or activities that reported improper payment
estimates exceeding $10 million, but not 2.5 percent of program
outlays. We also identified 1 program that reported an error rate
exceeding 2.5 percent of program outlays, but not $10 million. See
table 7 for additional details.
Table 7: Agency Improper Payment Estimates Included in the
Governmentwide Total That Met One of the Two OMB Reporting Criteria:
1;
Department or agency: Department of Agriculture;
Program or activity: Marketing Assistance Loan Program (previously
Commodity Loan Programs);
Program outlays (in millions): $6,400.0;
Fiscal year 2005 improper payment estimate (in millions): $45;
Fiscal year 2005 improper payment error rate (percentage): 0.70;
Previous OMB Circular No. A-11 reporting requirements: X.
2;
Department or agency: Department of Agriculture;
Program or activity: Federal Crop Insurance Corporation;
Program outlays (in millions): 3,170.0;
Fiscal year 2005 improper payment estimate (in millions): 28;
Fiscal year 2005 improper payment error rate (percentage): 0.89;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
3;
Department or agency: Department of Agriculture;
Program or activity: Farm Security and Rural Investment;
Program outlays (in millions): 1,027.0;
Fiscal year 2005 improper payment estimate (in millions): 16;
Fiscal year 2005 improper payment error rate (percentage): 1.55;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
4;
Department or agency: Department of Defense;
Program or activity: Military Retirement Fund;
Program outlays (in millions): 35,700.0;
Fiscal year 2005 improper payment estimate (in millions): 49.3;
Fiscal year 2005 improper payment error rate (percentage): 0.14;
Previous OMB Circular No. A-11 reporting requirements: ; X.
5;
Department or agency: Department of Defense;
Program or activity: Military Health Benefits;
Program outlays (in millions): 7,500.0;
Fiscal year 2005 improper payment estimate (in millions): 150;
Fiscal year 2005 improper payment error rate (percentage): 2.00;
Previous OMB Circular No. A-11 reporting requirements: X.
6; Department or agency: Department of Defense;
Program or activity: Military Pay;
Program outlays (in millions): 69,100.0;
Fiscal year 2005 improper payment estimate (in millions): 432;
Fiscal year 2005 improper payment error rate (percentage): 0.63;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
7;
Department or agency: Department of Education;
Program or activity: Student Financial Assistance--Federal Family
Education Loan;
Program outlays (in millions): 10,085.0;
Fiscal year 2005 improper payment estimate (in millions): 16;
Fiscal year 2005 improper payment error rate (percentage): 0.16;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
8;
Department or agency: Department of Education;
Program or activity: Title I;
Program outlays (in millions): 12,520.0;
Fiscal year 2005 improper payment estimate (in millions): 149;
Fiscal year 2005 improper payment error rate (percentage): 1.19;
Previous OMB Circular No. A-11 reporting requirements: X.
9;
Department or agency: Department of Energy;
Program or activity: Payment programs;
Program outlays (in millions): 24,114.0;
Fiscal year 2005 improper payment estimate (in millions): 14.5;
Fiscal year 2005 improper payment error rate (percentage): 0.06;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
10;
Department or agency: Department of Health and Human Services;
Program or activity: Head Start;
Program outlays (in millions): 6,865.0;
Fiscal year 2005 improper payment estimate (in millions): 110;
Fiscal year 2005 improper payment error rate (percentage): 1.60;
Previous OMB Circular No. A-11 reporting requirements: X.
11;
Department or agency: Office of Personnel Management;
Program or activity: Retirement Program (Civil Service Retirement
System and Federal Employees Retirement System);
Program outlays (in millions): 54,800.0;
Fiscal year 2005 improper payment estimate (in millions): 152.2;
Fiscal year 2005 improper payment error rate (percentage): 0.28;
Previous OMB Circular No. A-11 reporting requirements: X.
12;
Department or agency: Office of Personnel Management;
Program or activity: Federal Employees Health Benefits Program;
Program outlays (in millions): 29,400.0;
Fiscal year 2005 improper payment estimate (in millions): 196.5;
Fiscal year 2005 improper payment error rate (percentage): 0.67;
Previous OMB Circular No. A-11 reporting requirements: X.
13;
Department or agency: Railroad Retirement Board;
Program or activity: Retirement and Survivors Benefits;
Program outlays (in millions): 9,185.4;
Fiscal year 2005 improper payment estimate (in millions): 150.6;
Fiscal year 2005 improper payment error rate (percentage): 1.64;
Previous OMB Circular No. A-11 reporting requirements: X.
14;
Department or agency: Small Business Administration;
Program or activity: Small Business Investment Companies;
Program outlays (in millions): 1,568.2;
Fiscal year 2005 improper payment estimate (in millions): 10.5;
Fiscal year 2005 improper payment error rate (percentage): 0.67;
Previous OMB Circular No. A-11 reporting requirements: X.
15;
Department or agency: Social Security Administration;
Program or activity: Old Age and Survivors' Insurance;
Program outlays (in millions): 493,300.0;
Fiscal year 2005 improper payment estimate (in millions): 3,681.0;
Fiscal year 2005 improper payment error rate (percentage): 0.74;
Previous OMB Circular No. A-11 reporting requirements: X.
16;
Department or agency: Social Security Administration;
Program or activity: Disability Insurance[A];
Program outlays (in millions): [Empty];
Fiscal year 2005 improper payment estimate (in millions): [Empty];
Fiscal year 2005 improper payment error rate (percentage): [Empty];
Previous OMB Circular No. A-11 reporting requirements: X.
17;
Department or agency: Department of State;
Program or activity: International Information Program-U.S. Speaker and
Specialist Program;
Program outlays (in millions): 41.0;
Fiscal year 2005 improper payment estimate (in millions): 1.9;
Fiscal year 2005 improper payment error rate (percentage): 4.63;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
18;
Department or agency: Tennessee Valley Authority;
Program or activity: Payment programs;
Program outlays (in millions): 7,080.0;
Fiscal year 2005 improper payment estimate (in millions): 36.3;
Fiscal year 2005 improper payment error rate (percentage): 0.05;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
19;
Department or agency: Department of Veterans Affairs;
Program or activity: Compensation;
Program outlays (in millions): 28,960.0;
Fiscal year 2005 improper payment estimate (in millions): 322.9;
Fiscal year 2005 improper payment error rate (percentage): 1.12;
Previous OMB Circular No. A-11 reporting requirements: ; X.
20;
Department or agency: Department of Veterans Affairs;
Program or activity: Dependency and Indemnity Compensation[A];
Program outlays (in millions): [Empty];
Fiscal year 2005 improper payment estimate (in millions): [Empty];
Fiscal year 2005 improper payment error rate (percentage): [Empty];
Previous OMB Circular No. A-11 reporting requirements: X.
21;
Department or agency: Department of Veterans Affairs;
Program or activity: Education programs;
Program outlays (in millions): 2,661.0;
Fiscal year 2005 improper payment estimate (in millions): 64;
Fiscal year 2005 improper payment error rate (percentage): 2.40;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Total;
Program or activity: [Empty];
Program outlays (in millions): $803,476.6;
Fiscal year 2005 improper payment estimate (in millions): $5,625.7;
Fiscal year 2005 improper payment error rate (percentage): [Empty];
Previous OMB Circular No. A-11 reporting requirements: 13.
Source: GAO analysis of fiscal year 2005 PARs and annual reports.
[A] Agency combined with the above program.
[End of table]
As table 7 shows, we identified, in total, 21 programs or activities
with improper payment estimates exceeding $5.6 billion that meet only
one of OMB's reporting criteria. Most of these program estimates
greatly exceeded $10 million and, without certain stipulations, could
have avoided reporting improper payment information under OMB's
reporting criteria. However, OMB has required that 13 of these 21
programs estimate improper payments regardless of dollar amount or
error rate, because they had previous reporting requirements under OMB
Circular No. A-11.[Footnote 44] Nonetheless, if the Circular No. A-11
requirements did not apply or agencies decided not to voluntarily
report on their improper payment estimates that were under OMB's
reporting threshold, OMB's definition of significant improper payments
could potentially mask the full scope of improper payments.
In addition to our analytical reviews above, we also found specific
instances where OMB's definition of significant improper payments
limits agencies' reporting. Although we do not know the extent of
improper payments that are not reported, a limited number of agencies
voluntarily provided information in their PARs that allowed us to
determine the amount of improper payments for certain programs and
activities that were excluded from the total improper payments estimate
of $38 billion for fiscal year 2005. For example, Education identified
three programs with estimated improper payments exceeding $10 million
for each program, which totaled about $155 million in improper
payments. In light of OMB's criteria, because these estimates did not
exceed 2.5 percent of program outlays, they were not included in the
agency's total improper payment estimate. In another example, the
Department of Defense (DOD) OIG reported[Footnote 45] it had identified
about $23 million in improper payments related to the procurement of
fuel at the Defense Energy Support Center during fiscal year 2005. DOD
did not report this information in its PAR since the improper fuel
payments did not exceed 2.5 percent of program payments.
As these examples illustrate, OMB's current criteria for identifying
risk-susceptible programs limit the disclosure of valuable information
that the Congress, the public, and others with oversight and monitoring
interests need to hold agencies accountable for reporting and reducing
improper payments. Thus, amending existing IPIA provisions to define
risk-susceptible programs and activities, such as the use of a specific
dollar threshold, would allow for more complete disclosure and
transparency of govermentwide improper payment reporting and, in turn,
would require OMB to revise its implementing guidance to reflect such
amendments as well as align existing guidance with the intent of the
act.
IPIA Definition of Improper Payments Excludes Certain Payments from
Reporting:
IPIA defines an improper payment as a payment that should not have been
made or that was made in an incorrect amount (including overpayments
and underpayments) under statutory, contractual, administrative, or
other legally applicable requirements. This includes any payment to an
ineligible recipient, any payment for an ineligible service, any
duplicate payment, any payment for services not received, and any
payment that does not account for credit for applicable discounts.
On August 28, 2003, OMB advised SSA on improper payment reporting.
Under this advice, SSA was allowed to exclude from its estimate of
improper payments those payments that it made following constitutional,
statutory, or judicial requirements, even though those payments were
subsequently determined to be incorrect. These payments were deemed by
OMB to be "unavoidable" improper payments,[Footnote 46] as there are no
administrative changes SSA could implement that would eliminate such
payments, nor would SSA be likely to receive other relief from such
requirements.
As we previously reported,[Footnote 47] although the definition of
improper payments does not use the terms avoidable[Footnote 48] or
unavoidable, we agree with OMB that a payment that was made because of
a legal requirement to make the payment subject to subsequent
determinations that the payment is not due should not be included in an
agency's estimate of its improper payments. We agree with OMB's
conclusion not because it is an "unavoidable" payment but rather
because it does not meet the definition of an improper payment under
the act.[Footnote 49]
In its Supplemental Security Income (SSI) program, SSA disburses
disability payments to recipients at the beginning of the month based
on the income and asset levels recipients expect to maintain during the
month.[Footnote 50] If SSA initially determines that an overpayment
occurred, court decisions[Footnote 51] and language in the Social
Security Act allow individuals to continue receiving the same amount of
SSI 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 52]
In this example, SSA, because of the statutory requirement, must make
the payment. The statute requires SSA to make the payment until
applicable due process requirements result in a determination that the
person is ineligible; therefore, the mandatory payments whether
subsequently deemed to be correct or incorrect, have not been made to
an ineligible recipient at the time they were made. Accordingly, the
facts would not support inclusion of these overpayments as improper
payments as defined under IPIA. However, if as a result of the due
process procedures, it is subsequently determined that the recipient is
no longer eligible for benefits and SSA makes a payment subsequent to
these procedures, that amount would be an improper payment.
Yet, we would not go so far as to conclude that any payment that is
unavoidable should not be included as an improper payment under IPIA.
Rather, the exclusion of payments should be made individually on a fact-
specific basis using the definition provided in IPIA. In addition, we
believe that agencies should track and monitor these types of payments
as part of their debt collection efforts and have the ability to
readily report this type of information upon request. OMB currently
does not require SSA to report in its PAR details relating to these
types of overpayments, nor does OMB require governmentwide reporting of
these types of overpayments, thus the magnitude of this issue is
unknown. Having agencies annually report on these types of overpayments
would provide Congress, agency management, and other decision maker's
valuable information with which to determine the extent of these types
of overpayments and to make policy decisions, if needed, to
appropriately address this issue.
Agencies' Reporting of Recovery Auditing Information Questionable:
We noted discrepancies in selected agencies' reporting of recovery
audit information and limited reviews over contract payments. As a
result, reporting for recovery auditing information may not represent
an accurate view of the extent of agencies' efforts. From our review of
agencies' PARs and discussions with OMB, we determined that 21 agencies
reported entering into contracts with a total value in excess of $500
million and, thus were subject to recovery auditing requirements under
section 831 of the National Defense Authorization Act for Fiscal Year
2002. Generally, these agencies reported on their recovery auditing
efforts, such as the amount identified for recovery and the amount
recovered. However, we noted a few instances where the agency amount of
contract costs identified for recovery was considerably lower than the
corresponding OIG amount identified from current year audit reviews.
These discrepancies raise questions as to whether the agency amount
identified for recovery should have been much higher, thereby
significantly decreasing the reported agency-specific and overall
governmentwide high rate of recovery. We also noted that 5 of the 21
agencies did not review all of their agency components as part of their
recovery audit efforts, and 2 agencies reported that recovery auditing
was not cost beneficial.
Section 831 of the National Defense Authorization Act provides an
impetus for applicable agencies to systematically identify and recover
contract overpayments. The law authorizes federal agencies to retain
recovered funds to cover in-house administrative costs as well as to
pay contractors, such as collection agencies. Any residual recoveries,
net of these program costs, are to be credited back to the original
appropriation from which the improper payment was made, subject to
restrictions as described in legislation. As we previously
testified,[Footnote 53] with the passage of this law, the Congress has
provided agencies a much-needed incentive for identifying and
recovering their improper payments that slip through agency prepayment
controls.
Recovery auditing is a method that agencies can use to recoup detected
improper payments. Recovery auditing is a detective control to help
determine whether contractor costs were proper. Specifically, it
focuses on the identification of erroneous invoices, discounts offered
but not received, improper late penalty payments, incorrect shipping
costs, and multiple payments for single invoices. Recovery auditing can
be conducted in-house or contracted out to recovery audit firms. The
techniques used in recovery auditing offer the opportunity for
identifying weaknesses in agency internal controls, which can be
modified or upgraded to be more effective in preventing improper
payments before they occur for subsequent contract outlays.
Nonetheless, effective internal control calls for a sound, ongoing
invoice review and approval process as the first line of defense in
preventing unallowable contract costs. Given the large volume and
complexity of federal payments and historically low recovery rates for
certain programs, it is much more 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. Without strong preventive controls, agencies' internal
control activities over payments to contractors will not be effective
in reducing the risk of improper payments.
For fiscal year 2005, OMB expanded the type of recovery auditing
information that agencies are to report in their annual PARs. Prior to
fiscal year 2005, agencies were only required to report on the amount
of recoveries expected, the actions taken to recover them, and the
business process changes and internal controls instituted or
strengthened to prevent further occurrences. In addition, OMB was not
reporting on a governmentwide basis agencies' recovery audit activities
in its annual report on agencies' efforts to improve the accuracy and
integrity of federal payments. In fiscal year 2005, OMB required
applicable agencies to discuss any contract types excluded from review
and justification for doing so. In addition, agencies were required to
report, in a standard table format, various amounts related to
contracts subject to review and actually reviewed, contract amounts
identified for recovery and actually recovered, and prior year amounts.
As shown in table 8, 21 agencies reported over $340 billion as amounts
subject to review for fiscal year 2005, while the contract amounts
reviewed totaled over $287 billion. In addition, the 21 agencies
reported identifying about $557 million in contracts for recovery,
which represented less than two-tenths of a percentage of the $287
billion amount reviewed. Of the $557 million identified, agencies
reported recovering $467 million in improper payments, an 84 percent
recovery rate. However, we found two instances where the agency amount
of contract costs identified for recovery was considerably lower than
the corresponding OIG amount identified from current year audit
reviews. These discrepancies raise questions as to whether the agency
amount identified for recovery should have been much higher, thereby
significantly decreasing the agency-specific and overall high rate of
recovery.
Table 8: Improper Payment Amounts Recovered in Fiscal Year 2005:
1;
Department or agency: Agency for International Development;
Agency reported amount subject to review for fiscal year 2005
reporting: $13,000,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: $13,000,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
$5,900,000;
Agency reported amount recovered in fiscal year 2005: $5,782,000.
2;
Department or agency: Department of Agriculture;
Agency reported amount subject to review for fiscal year 2005
reporting: 4,965,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 2,428,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
333,000;
Agency reported amount recovered in fiscal year 2005: 189,000.
3;
Department or agency: Department of Commerce[A,B];
Agency reported amount subject to review for fiscal year 2005
reporting: Did not report;
Agency reported actual amount reviewed and reported in fiscal year
2005: Did not report;
Agency reported amount identified for recovery in fiscal year 2005:
96,354;
Agency reported amount recovered in fiscal year 2005: 84,551.
4;
Department or agency: Department of Defense;
Agency reported amount subject to review for fiscal year 2005
reporting: 222,800,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 222,800,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
473,000,000;
Agency reported amount recovered in fiscal year 2005: 418,500,000.
5;
Department or agency: Department of Education[B];
Agency reported amount subject to review for fiscal year 2005
reporting: Did not report;
Agency reported actual amount reviewed and reported in fiscal year
2005: Did not report;
Agency reported amount identified for recovery in fiscal year 2005:
274,367[C];
Agency reported amount recovered in fiscal year 2005: 112,506[C].
6;
Department or agency: Department of Energy;
Agency reported amount subject to review for fiscal year 2005
reporting: 11,387,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 11,387,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
10,600,000;
Agency reported amount recovered in fiscal year 2005: 9,500,000.
7;
Department or agency: Environmental Protection Agency;
Agency reported amount subject to review for fiscal year 2005
reporting: 6,460,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 175,600,000;
Agency reported amount identified for recovery in fiscal year 2005:
130,000;
Agency reported amount recovered in fiscal year 2005: 130,000.
8;
Department or agency: General Services Administration;
Agency reported amount subject to review for fiscal year 2005
reporting: 1,625,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 1,625,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
26,638,654;
Agency reported amount recovered in fiscal year 2005: 8,317,187.
9;
Department or agency: Department of Health and Human Services;
Agency reported amount subject to review for fiscal year 2005
reporting: 12,600,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 11,100,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
2,100,000[D];
Agency reported amount recovered in fiscal year 2005: 14,430.
10;
Department or agency: Department of Homeland Security;
Agency reported amount subject to review for fiscal year 2005
reporting: 3,232,300,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 3,232,300,000;
Agency reported amount identified for recovery in fiscal year 2005:
2,191,000;
Agency reported amount recovered in fiscal year 2005: 1,207,000.
11;
Department or agency: Department of Housing and Urban Development[B,E];
Agency reported amount subject to review for fiscal year 2005
reporting: 2,270,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 206,600,000;
Agency reported amount identified for recovery in fiscal year 2005:
0[F];
Agency reported amount recovered in fiscal year 2005: 0[F].
12;
Department or agency: Department of the Interior[B];
Agency reported amount subject to review for fiscal year 2005
reporting: 4,790,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 4,790,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
1,548,620;
Agency reported amount recovered in fiscal year 2005: 195,479.
13;
Department or agency: Department of Justice;
Agency reported amount subject to review for fiscal year 2005
reporting: 6,667,804,071;
Agency reported actual amount reviewed and reported in fiscal year
2005: 4,606,639,213;
Agency reported amount identified for recovery in fiscal year 2005:
1,044,320;
Agency reported amount recovered in fiscal year 2005: 765,086.
14;
Department or agency: Department of Labor[B,E];
Agency reported amount subject to review for fiscal year 2005
reporting: Did not report;
Agency reported actual amount reviewed and reported in fiscal year
2005: Did not report;
Agency reported amount identified for recovery in fiscal year 2005: Did
not report;
Agency reported amount recovered in fiscal year 2005: Did not report.
15;
Department or agency: National Aeronautics and Space Administration[B];
Agency reported amount subject to review for fiscal year 2005
reporting: Did not report;
Agency reported actual amount reviewed and reported in fiscal year
2005: 82,542,704;
Agency reported amount identified for recovery in fiscal year 2005:
617,442;
Agency reported amount recovered in fiscal year 2005: 617,442.
16;
Department or agency: Social Security Administration;
Agency reported amount subject to review for fiscal year 2005
reporting: 1,160,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 61,000,000;
Agency reported amount identified for recovery in fiscal year 2005:
317,000;
Agency reported amount recovered in fiscal year 2005: 50,000.
17;
Department or agency: Department of State[G];
Agency reported amount subject to review for fiscal year 2005
reporting: 30,600,000,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: Did not report;
Agency reported amount identified for recovery in fiscal year 2005:
5,350,000;
Agency reported amount recovered in fiscal year 2005: 5,190,000.
18;
Department or agency: Tennessee Valley Authority;
Agency reported amount subject to review for fiscal year 2005
reporting: 5,557,600,558;
Agency reported actual amount reviewed and reported in fiscal year
2005: 38,491,498;
Agency reported amount identified for recovery in fiscal year 2005:
909,573;
Agency reported amount recovered in fiscal year 2005: 443,763.
19;
Department or agency: Department of Transportation;
Agency reported amount subject to review for fiscal year 2005
reporting: 3,064,875,000;
Agency reported actual amount reviewed and reported in fiscal year
2005: 2,587,772,000;
Agency reported amount identified for recovery in fiscal year 2005:
2,663,984;
Agency reported amount recovered in fiscal year 2005: 2,663,984.
20;
Department or agency: Department of the Treasury;
Agency reported amount subject to review for fiscal year 2005
reporting: 4,941,295,411;
Agency reported actual amount reviewed and reported in fiscal year
2005: 3,851,985,924;
Agency reported amount identified for recovery in fiscal year 2005:
428,977;
Agency reported amount recovered in fiscal year 2005: 364,680.
21;
Department or agency: Department of Veterans Affairs;
Agency reported amount subject to review for fiscal year 2005
reporting: 5,368,316,378;
Agency reported actual amount reviewed and reported in fiscal year
2005: 5,368,316,378;
Agency reported amount identified for recovery in fiscal year 2005:
23,001,137;
Agency reported amount recovered in fiscal year 2005: 12,957,264.
Total;
Agency reported amount subject to review for fiscal year 2005
reporting: $340,489,191,418;
Agency reported actual amount reviewed and reported in fiscal year
2005: $287,341,247,717;
Agency reported amount identified for recovery in fiscal year 2005:
$557,144,428;
Agency reported amount recovered in fiscal year 2005: $467,084,372.
Sources: OMB and cited agencies' fiscal year 2005 PARs.
[A] Department of Commerce (Commerce) reported that the results of its
recovery audit revealed no significant improper payments or internal
control deficiencies. However, according to OMB, subsequent to its PAR
issuance, Commerce reported that based on its final recovery auditing
report, the amount identified for recovery totaled $96,354 and the
amount actually recovered totaled $84,551 for fiscal year 2005.
[B] Commerce, Education, HUD, Interior, Labor, and NASA did not report
on the required reporting elements nor did they follow the required
format included in OMB's guidance.
[C] Subsequent to its PAR issuance, Education reported to OMB that as
of December 14, 2005, $274,387 had been identified for recovery, and
the amount collected totaled $112,506 based on its review of payments
made over a 5-year period, with a collection threshold of $50.
[D] HHS reported that of the $2.1 million identified as potential
improper payments, $1.3 million was determined to be related to
payments that were either voided, subsequently credited, or both.
[E] HUD and Labor reported that recovery auditing efforts were not cost
beneficial.
[F] For fiscal year 2005, HUD reported reviewing about $207 million in
contract payments, but identified no improper payments for recovery.
[G] For the amount reviewed column, the Department of State reported
the number of contract payments reviewed instead of the contract dollar
amount reviewed.
[End of table]
For example, for fiscal year 2005, NASA reported in its PAR that it had
identified and recovered $617,442 in contract payments, a 100 percent
recovery rate. Yet, the NASA OIG reported[Footnote 54] it had
identified over $515 million in questioned contract costs during fiscal
year 2005. Of this amount, NASA management decided that $51 million in
contract costs should be pursued for recovery. When comparing the $51
million in questioned contract costs identified for recovery to the
$617,442 NASA actually recovered, the recovery rate decreases from the
reported 100 percent recovery rate to a 1.2 percent rate.[Footnote 55]
In another example, DOD reported in its PAR that it had identified for
recovery $473 million and recovered about $419 million in contract
payments, an 89 percent recovery rate. However, the DOD OIG
reported[Footnote 56] it had identified over $2 billion in questioned
contract costs as of September 30, 2005. When comparing the $2 billion
in questioned contract costs[Footnote 57] to the $419 million DOD
actually recovered, the recovery rate significantly decreases from a
reported 89 percent recovery rate to 21 percent.
These two discrepancies alone significantly decrease OMB's reported
overall recovery rate of 84 percent to a 22 percent recovery rate.
Other factors would also suggest the recovery rate is indeed much
lower. We noted other instances where OIG-reported questioned costs
exceeded agency contract amounts identified for recovery. Because these
costs were not specifically identified as contractor costs versus other
payment types, we were unable to determine how much of the OIG-
identified questioned costs related to contract costs.
In addition, another factor that may call into question the reported
high recovery rate is that 5 of the 21 agencies did not review all of
their agency components as part of their recovery audit efforts, and 2
agencies[Footnote 58] reported that recovery auditing was not cost
beneficial. For example, HUD determined that based on its review of
$206.6 million in contract payments, none were found to be improper.
Thus, HUD determined that pursuit of an ongoing recovery auditing
program was not cost beneficial or necessary. Because section 831 of
the National Defense Authorization Act requires agencies to carry out a
cost-effective program for identifying errors made in paying
contractors and for recovering amounts erroneously paid to contractors,
agencies have determined that they may opt out of conducting a recovery
audit if it is not deemed to be cost beneficial. However, neither of
the two agencies that determined it was not cost beneficial to conduct
a recovery audit provided support in their fiscal year 2005 PARs for
this determination.
Conclusions:
Improper payments are a serious problem. Agencies are working on this
issue at different paces, and OMB has provided important leadership.
Because the extent of the problem remains significantly understated,
the level of effort necessary to address the full extent of improper
payments is as yet unknown. We recognize that measuring improper
payments and designing and implementing actions to reduce them are not
simple tasks and will not be easily accomplished. The ultimate success
of the executive branch's effort to reduce improper payments depends,
in part, on each agency's continuing diligence and commitment to
meeting the requirements of IPIA and the related OMB guidance. Full and
reasonable disclosure of the extent of the problem could be enhanced by
modifying the act's underlying criteria used to identify which programs
and activities are susceptible to significant improper payments. OMB's
implementing guidance can also be strengthened in several key areas. In
this regard, in addition to the recommendations in this report, we
reiterate that OMB require those agencies that did not address the IPIA
requirements or did not perform risk assessments of all of their
programs and activities to establish time frames and identify resources
needed to perform risk assessments and satisfy reporting requirements.
We also reiterate that OMB develop a plan to address the resource needs
of those agencies that did not perform risk assessments or satisfy
reporting requirements. With the ongoing imbalance between revenues and
outlays across the federal government, and the Congress's and the
American public's increasing demands for accountability over taxpayer
funds, identifying, reducing, and recovering improper payments become
even more critical. Fulfilling the requirements of IPIA will require
sustained attention to implementation on the part of OMB and the
agencies, as well as continued congressional oversight to monitor
whether desired results are being achieved.
Matter for Congressional Consideration:
To help ensure the complete disclosure and transparency of
governmentwide improper payments, the Congress should consider amending
existing IPIA provisions to define specific criteria, such as a dollar
threshold, agencies should use to identify which programs and
activities are susceptible to significant improper payments.
Recommendations for Executive Action:
We are making four recommendations to OMB to help further the progress
toward meeting the goals of IPIA and ensuring the integrity of
payments. Specifically, we recommend that the Director, Office of
Management and Budget,
* expand OMB's IPIA implementing guidance to describe in greater
detail:
- factors that agencies should consider when conducting their annual
risk assessments, such as program complexity, operational changes,
findings from investigative reports, and financial statement and
performance audit reports, and:
- factors agencies should use when reporting improper payments in their
PARs, such as (1) provide a baseline of what agencies should include
when reporting on causes, corrective actions, and manager
accountability and (2) require that applicable agencies cite the
specific law or regulation in their PARs when describing statutory
barriers that may limit the agencies' corrective actions for reducing
improper payments;
* enforce existing guidance requiring agencies to use a statistically
valid sampling methodology to calculate improper payment estimates;
* gather from agencies the dollar amount of payments that agencies make
under statute or judicial determinations that later are determined to
be overpayments in order for OMB to assess and determine the magnitude
of the issue and whether additional reporting is warranted; and:
* modify existing guidance to require those agencies stating that
recovery auditing over contract payments is not cost beneficial to
include their rationale for this determination.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from OMB, and
have reprinted them in appendix IV. OMB generally agreed with our
recommendations and also agreed with our assessment that challenges
remain in meeting the goals of IPIA. In its comments, OMB emphasized
that progress in estimating and reporting improper payments had been
made by agencies in fiscal year 2005 and highlighted initiatives
underway to measure improper payments in other programs susceptible to
significant improper payments. OMB pointed out that agencies estimated
improper payments for 17 additional programs for fiscal year 2005, and
that this number will increase by 10 programs for fiscal year 2006. OMB
also said that beginning with fiscal year 2007, it expects HHS to begin
reporting component error rates for its Medicaid, Temporary Assistance
for Needy Families, and State Children's Health Insurance programs.
OMB stated that there has been substantial progress in that 85 percent
of the cost for the programs identified as high risk ($1.3 trillion of
the $1.5 trillion) reported an error measurement rate for fiscal year
2005. While we agree with OMB that there has been progress, as
discussed in this report, we continue to question the validity of
certain agencies' risk assessment methodologies used to identify,
estimate, and report improper payments for all risk susceptible
programs and are concerned with how OMB defines high risk programs for
purposes of agencies' improper payment reporting. OMB's definition of
programs susceptible to significant improper payments covers only those
agencies with programs that exceed the criteria of 2.5 percent of
program outlays and $10 million to estimate improper payments. Our
continuing concern with OMB's criteria relates to those agencies with
large program outlays that have improper payment estimates that exceed
the $10 million threshold but not the 2.5 percent of program payments
threshold. Applying the 2.5 percent threshold criteria to large
programs could exclude potentially billions of dollars of improper
payments from being reported.
According to OMB, the rationale for its threshold criteria is to ensure
that agencies focus their resources on programs with the highest levels
of risk for improper payments. OMB commented that going forward, it is
now requiring agencies to track any programs that exceed the $10
million threshold, but have an error rate of less than 2.5 percent. OMB
stated that this tracking facilitates a framework that would
appropriately mitigate the risk that high risk programs will be left
out of IPIA reporting activities. We view this as a positive step.
Although OMB's recently revised implementing guidance was outside the
scope of this review, our preliminary assessment found no mention of
this tracking requirement. The guidance does state that OMB may
determine on a case-by-case basis that certain programs that do not
meet the threshold requirements may still be subject to the annual PAR
improper payment reporting requirement. In light of OMB's stated
intention to require agencies to track such programs, we believe it is
key that the revised implementing guidance clearly reflects this
tracking requirement and that agencies be required to publicly report
this information as part of their annual improper payments reporting.
Visibility of this type of information would help facilitate the
Congress's understanding of the nature and extent of the governmentwide
improper payments problem. To this end, we included a matter for
congressional consideration to amend IPIA to eliminate any
uncertainties regarding the identification of programs and activities
that are susceptible to significant improper payments.
In its comments, OMB also mentioned that alternative sampling
methodologies for deriving program component error rates are acceptable
interim error measurements for select programs until comprehensive
statistical estimates are completed. We would consider this a pragmatic
approach for working with agencies to determine and implement
appropriate and evolving methodologies for improving the sophistication
of improper payment estimates for these programs. Realistically,
larger, complex agency programs may require additional time to plan and
implement actions to fully measure their improper payments, such as the
programs cited by OMB as using alternative methodologies--Earned Income
Tax Credit and National School Lunch and Breakfast--as well as
initiating reporting of component error rates in the future--Medicaid,
Temporary Assistance for Needy Families, and State Children's Health
Insurance Program. It will be important that agencies make good use of
this additional time. OMB had specifically required a number of
agencies just now starting to report or planning to do so shortly, to
report selected improper payment information since 2002, several years
before the legislative reporting requirements in IPIA became effective.
Until agencies begin to fully measure and report improper payments for
these large programs, the extent of the problem and level of effort
necessary to control these losses are as yet unknown.
We are sending copies of this report to the Director, Office of
Management and Budget; appropriate congressional committees; and other
interested parties. We will also make copies available to others upon
request. In addition, the report is available at no charge on GAO's Web
site at [Hyperlink, http://www.gao.gov].
Please contact me at (202) 512-9095 or williamsm1@gao.gov if you or
your staffs have any questions about this report. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Major contributors to this report are
listed in appendix V.
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
List of Requesters:
The Honorable Tom Coburn:
Chairman:
The Honorable Tom Carper:
Ranking Minority Member:
Subcommittee on Federal Financial Management, Government Information,
and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Tom Davis:
Chairman:
Committee on Government Reform:
House of Representatives:
The Honorable Todd Platts:
Chairman:
Subcommittee on Government Management, Finance and Accountability:
Committee on Government Reform:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to determine (1) the extent to which
agencies have included required improper payment information in their
performance and accountability reports (PAR), (2) the annual improper
payment estimate reported by agencies for fiscal year 2005, (3) whether
the definition and types of improper payments reported in the Improper
Payments Information Act of 2002 (IPIA) and the Office of Management
and Budget's (OMB) implementing guidance provide adequate disclosure of
the extent of improper payments at the agencies, and (4) the reported
amount of improper payments recouped through recovery audits. The scope
of our review included the 35 federal agencies[Footnote 59] that the
Department of the Treasury determined to be significant to the U.S.
government's consolidated financial statements.
To address the above objectives, we reviewed improper payment
information reported by the 35 agencies in their fiscal year 2005 PARs
or annual reports. We further reviewed and analyzed the provisions of
IPIA and OMB's implementing guidance, as well as OMB's annual
report[Footnote 60] on the results of agency-specific reports,
significant findings, agency accomplishments, and remaining challenges.
We contacted OMB officials for clarification of reported information as
needed. We also reviewed office of inspector general (OIG) reports,
prior GAO reports, and other publicly available documents for reported
improper payments information, including identifying agency reported
improper or potentially fraudulent payments related to hurricanes
Katrina and Rita. In addition, we utilized the results from our recent
testimonies[Footnote 61] on agencies challenges' in meeting IPIA
reporting requirements.
As part of our review and analysis of agencies' reported improper
payment information in their fiscal year 2005 PARs or annual reports,
we:
* determined whether agencies' had reviewed all programs and activities
for risk-susceptible programs and reviewed details of agencies' risk-
assessment methodologies when reported;
* identified program improper payment estimates, including error
amounts and error rates, a breakdown of overpayments and underpayments,
and program outlays;
* identified agencies' sampling methodologies used to estimate program
improper payments;
* determined the extent and level of detail agencies reported on key
improper payment reporting elements, including manager accountability,
causes of improper payments, corrective actions, and statutory
barriers;
* conducted an analysis of OMB's assessment criteria--exceeding $10
million in improper payments and 2.5 percent of program outlays--to
identify programs that met only one of OMB's criteria and thus would
not be required to estimate and report improper payment information
based on these criteria alone;
* analyzed OIG-reported major management challenges for various
programs and activities; and:
* analyzed the amount of improper payments recouped through agencies'
recovery audit activities.
We did not independently validate the data that agencies reported in
their PARs or annual reports or the data that OMB reported. We are
providing the agency-reported data as descriptive information that will
inform interested parties about the magnitude of governmentwide
improper payments and other related information. We believe the data to
be sufficiently reliable for that purpose. We requested comments on a
draft of this report from the Director of the Office of Management and
Budget or his designee. Written comments were received from the
Controller, OMB, dated October 26, 2006. OMB's comments are reprinted
in appendix IV. We conducted our work from April 2006 through September
2006 in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II: Improper Payment Estimates Reported in Agency Fiscal Year
2004 and 2005 PARs or Annual Reports:
Dollars in millions.
1;
Department or agency: Agency for International Development;
Program or activity: All programs and activities;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 0.0[A];
2005 Error rate: 0.0[A];
Previous OMB Circular No. A-11 reporting requirements: [Empty].
2;
Department or agency: Department of Agriculture;
Program or activity: Marketing Assistance Loan Program (previously
Commodity Loan Programs);
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 45.0;
2005 Error rate: 0.7;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Agriculture;
Program or activity: Food Stamp Program;
2004 Total estimate: $1,400.0[B];
2004 Error rate: 6.6[B];
2005 Total estimate: 1,432.0;
2005 Error rate: 5.9;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Agriculture;
Program or activity: School Programs[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Agriculture;
Program or activity: Women, Infants, and Children[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Agriculture;
Program or activity: Child and Adult Care Food Program[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [empty].
Department or agency: Department of Agriculture;
Program or activity: Wildland Fire Suppression Management;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 73.0;
2005 Error rate: 3.7;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Agriculture;
Program or activity: Rental Assistance Program;
2004 Total estimate: 20.0[B];
2004 Error rate: 2.6[B];
2005 Total estimate: 27.0;
2005 Error rate: 3.2;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Agriculture;
Program or activity: Federal Crop Insurance Corporation;
2004 Total estimate: 125.0;
2004 Error rate: 5.0;
2005 Total estimate: 28.0;
2005 Error rate: 0.9;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Agriculture;
Program or activity: Farm Security and Rural Investment;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 16.0;
2005 Error rate: 1.6;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Agriculture;
Program or activity: Milk Income Loss Contract Program;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 0.2;
2005 Error rate: 0.1;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Agriculture;
Program or activity: Loan Deficiency Payments;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 5.0;
2005 Error rate: 1.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
3;
Department or agency: Department of Commerce;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
4;
Department or agency: Department of Defense;
Program or activity: Military Retirement Fund;
2004 Total estimate: 66.0[B];
2004 Error rate: 0.2[B];
2005 Total estimate: 49.3;
2005 Error rate: 0.1;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Defense;
Program or activity: Military Health Benefits;
2004 Total estimate: 99.6[B];
2004 Error rate: 1.3[B];
2005 Total estimate: 150.0;
2005 Error rate: 2.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Defense;
Program or activity: Military Pay;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 432.0;
2005 Error rate: 0.6;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
5;
Department or agency: Department of Education;
Program or activity: Student Financial Assistance--Pell Grants[E];
2004 Total estimate: 571.0[B];
2004 Error rate: 4.5[B];
2005 Total estimate: 617.0;
2005 Error rate: 4.5;
Previous OMB Circular No. A- 11 reporting requirements: X.
Department or agency: Department of Education;
Program or activity: Student Financial Assistance--Federal Family
Education Loan[E];
2004 Total estimate: 10.0[B];
2004 Error rate: 0.2[B];
2005 Total estimate: 16.0;
2005 Error rate: 0.2;
Previous OMB Circular No. A- 11 reporting requirements: [Empty].
Department or agency: Department of Education;
Program or activity: Title I;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 149.0;
2005 Error rate: 1.2;
Previous OMB Circular No. A- 11 reporting requirements: X.
6;
Department or agency: Department of Energy;
Program or activity: Payment programs;
2004 Total estimate: 20.3;
2004 Error rate: 0.1;
2005 Total estimate: 14.5;
2005 Error rate: 0.1;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
7;
Department or agency: Environmental Protection Agency;
Program or activity: Clean Water State Revolving Funds;
2004 Total estimate: 10.3;
2004 Error rate: 0.5;
2005 Total estimate: 3.1;
2005 Error rate: 0.2;
Previous OMB Circular No. A- 11 reporting requirements: X.
Department or agency: Environmental Protection Agency;
Program or activity: Drinking Water State Revolving Funds;
2004 Total estimate: 0.0[F];
2004 Error rate: 0.0[F];
2005 Total estimate: 0.0[F];
2005 Error rate: 0.0[F];
Previous OMB Circular No. A-11 reporting requirements: X.
8;
Department or agency: Export-Import Bank of the United States[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A- 11 reporting requirements: [Empty].
9;
Department or agency: Farm Credit System Insurance Corporation[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
10;
Department or agency: Federal Communications Commission;
Program or activity: Universal Service Fund's Schools and Libraries[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Federal Communications Commission;
Program or activity: High Cost Support Program[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
11;
Department or agency: Federal Deposit Insurance Corporation[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
12;
Department or agency: General Services Administration;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
13;
Department or agency: Department of Health and Human Services;
Program or activity: Medicaid[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: Medicare;
2004 Total estimate: 21,700.0;
2004 Error rate: 10.1;
2005 Total estimate: 12,100.0;
2005 Error rate: 5.2;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: Head Start;
2004 Total estimate: 255.0;
2004 Error rate: 3.9;
2005 Total estimate: 110.0;
2005 Error rate: 1.6;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: Temporary Assistance for Needy Families[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: Foster Care--Title IV-E;
2004 Total estimate: 186.0[B];
2004 Error rate: 10.3[B];
2005 Total estimate: 182.0;
2005 Error rate: 10.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: State Children's Insurance Program[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Health and Human Services;
Program or activity: Child Care and Development Fund[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
14;
Department or agency: Department of Homeland Security;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
15;
Department or agency: Department of Housing and Urban Development;
Program or activity: Low Income Public Housing;
2004 Total estimate: 356.0;
2004 Error rate: 10.4;
2005 Total estimate: 326.0[H];
2005 Error rate: 5.6;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Housing and Urban Development;
Program or activity: Section 8-Tenant Based;
2004 Total estimate: 840.0;
2004 Error rate: 6.3;
2005 Total estimate: 551.0[H];
2005 Error rate: 0.0[F];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Housing and Urban Development;
Program or activity: Section 8-Project Based;
2004 Total estimate: 511.0;
2004 Error rate: 6.6;
2005 Total estimate: 324.0[H];
2005 Error rate: 0.0[F];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Housing and Urban Development;
Program or activity: Community Development Block Grant (Entitlement
Grants, States/Small Cities)[C];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Housing and Urban Development;
Program or activity: Federal Housing Administration's Single Family
Acquired Asset Management System;
2004 Total estimate: 26.1;
2004 Error rate: 6.8;
2005 Total estimate: 2.2;
2005 Error rate: 0.6;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Housing and Urban Development;
Program or activity: Public Housing Capital Fund;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 133.5;
2005 Error rate: 5.1;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
16;
Department or agency: Department of the Interior;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
17;
Department or agency: Department of Justice;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
18;
Department or agency: Department of Labor;
Program or activity: Unemployment Insurance;
2004 Total estimate: 3,861.0;
2004 Error rate: 10.3;
2005 Total estimate: 3,267.0;
2005 Error rate: 10.1;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Labor;
Program or activity: Federal Employees' Compensation Act;
2004 Total estimate: 6.4;
2004 Error rate: 0.3;
2005 Total estimate: 3.3;
2005 Error rate: 0.1;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Labor;
Program or activity: Workforce Investment Act;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 7.9;
2005 Error rate: 0.2;
Previous OMB Circular No. A-11 reporting requirements: X.
19;
Department or agency: National Aeronautics and Space Administration;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
20;
Department or agency: National Credit Union Administration[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A- 11 reporting requirements: [Empty].
21;
Department or agency: National Science Foundation;
Program or activity: Research and Education Grants and Cooperative
Agreements;
2004 Total estimate: 4.4;
2004 Error rate: 0.1;
2005 Total estimate: 1.1;
2005 Error rate: 0.0[I];
Previous OMB Circular No. A-11 reporting requirements: X.
22;
Department or agency: Nuclear Regulatory Commission;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
23;
Department or agency: Office of Personnel Management;
Program or activity: Retirement Program (Civil Service Retirement
System and Federal Employees Retirement System);
2004 Total estimate: 197.7;
2004 Error rate: 0.4;
2005 Total estimate: 152.2;
2005 Error rate: 0.3;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Office of Personnel Management;
Program or activity: Federal Employees Health Benefits Program;
2004 Total estimate: 86.1;
2004 Error rate: 0.3;
2005 Total estimate: 196.5;
2005 Error rate: 0.7;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Office of Personnel Management;
Program or activity: Federal Employees Group Life Insurance;
2004 Total estimate: 2.1;
2004 Error rate: 0.2;
2005 Total estimate: 2.0;
2005 Error rate: 0.2;
Previous OMB Circular No. A-11 reporting requirements: X.
24;
Department or agency: Pension Benefit Guaranty Corporation[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
25;
Department or agency: U.S. Postal Service[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
26;
Department or agency: Railroad Retirement Board;
Program or activity: Retirement and Survivors Benefits;
2004 Total estimate: 147.9[B];
2004 Error rate: 1.6[B];
2005 Total estimate: 150.6;
2005 Error rate: 1.6;
Previous OMB Circular No. A- 11 reporting requirements: X.
Department or agency: Railroad Retirement Board;
Program or activity: Railroad Unemployment Insurance Benefits;
2004 Total estimate: 2.6[B];
2004 Error rate: 2.1[B];
2005 Total estimate: 2.3;
2005 Error rate: 2.1;
Previous OMB Circular No. A-11 reporting requirements: X.
27;
Department or agency: Securities and Exchange Commission;
Program or activity: All programs and activities[D];
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
28;
Department or agency: Small Business Administration;
Program or activity: 7(a) Business Loan Program;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 31.4;
2005 Error rate: 5.2; Previous OMB Circular No. A-11 reporting
requirements: X.
Department or agency: Small Business Administration;
Program or activity: 504 Certified Development Companies;
2004 Total estimate: 0.0[A];
2004 Error rate: 0.0[A];
2005 Total estimate: 0.0[A];
2005 Error rate: 0.0[A];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Small Business Administration;
Program or activity: Disaster Assistance;
2004 Total estimate: 1.1;
2004 Error rate: 0.1;
2005 Total estimate: 1.6;
2005 Error rate: 0.1;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Small Business Administration;
Program or activity: Small Business Investment Companies;
2004 Total estimate: 129.0;
2004 Error rate: 4.7;
2005 Total estimate: 10.5;
2005 Error rate: 0.7;
Previous OMB Circular No. A-11 reporting requirements: X.
29;
Department or agency: Smithsonian Institution[G];
Program or activity: All programs and activities;
2004 Total estimate: 0.0;
2004 Error rate: 0.0;
2005 Total estimate: 0.0;
2005 Error rate: 0.0;
Previous OMB Circular No. A- 11 reporting requirements: [Empty].
30;
Department or agency: Social Security Administration;
Program or activity: Old Age and Survivors' Insurance;
2004 Total estimate: 1,707.0;
2004 Error rate: 0.3;
2005 Total estimate: 3,681.0;
2005 Error rate: 0.7;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Social Security Administration;
Program or activity: Disability Insurance;
2004 Total estimate: 0.0[F];
2004 Error rate: 0.0[F];
2005 Total estimate: 0.0[F];
2005 Error rate: 0.0[F];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Social Security Administration;
Program or activity: Supplemental Security Income Program;
2004 Total estimate: 2,639.0;
2004 Error rate: 7.3;
2005 Total estimate: 2,910.0;
2005 Error rate: 7.7;
Previous OMB Circular No. A-11 reporting requirements: X.
31;
Department or agency: Department of State;
Program or activity: International Narcotic and Law Enforcement Affairs-
Narcotics Program;
2004 Total estimate: 1.7;
2004 Error rate: 0.9;
2005 Total estimate: 0.6;
2005 Error rate: 0.0[I];
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of State;
Program or activity: International Information Program-U.S. Speaker and
Specialist Program;
2004 Total estimate: 1.4;
2004 Error rate: 81.2;
2005 Total estimate: 1.9;
2005 Error rate: 81.2;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of State;
Program or activity: Vendor payments;
2004 Total estimate: 0.8;
2004 Error rate: 2.0;
2005 Total estimate: 0.4;
2005 Error rate: 0.0[I];
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of State;
Program or activity: Structures and Equipment;
2004 Total estimate: 0.3[B];
2004 Error rate: 4.0[B];
2005 Total estimate: 0.2;
2005 Error rate: 0.0[I];
Previous OMB Circular No. A-11 reporting requirements: [Empty].
32;
Department or agency: Tennessee Valley Authority;
Program or activity: Payment programs;
2004 Total estimate: 8.1;
2004 Error rate: 0.0[I];
2005 Total estimate: 36.3;
2005 Error rate: 0.5;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
33;
Department or agency: Department of Transportation;
Program or activity: Airport Improvement Program;
2004 Total estimate: 0.0[J];
2004 Error rate: 0.0[J];
2005 Total estimate: 0.0[J];
2005 Error rate: 0.0[J];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Transportation;
Program or activity: Highway Planning and Construction;
2004 Total estimate: 0.0[J];
2004 Error rate: 0.0[J];
2005 Total estimate: 0.0[J];
2005 Error rate: 0.0[J];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Transportation;
Program or activity: Federal Transit-- Capital Investment Grants;
2004 Total estimate: 0.0[J];
2004 Error rate: 0.0[J];
2005 Total estimate: 0.0[J];
2005 Error rate: 0.0[J];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Transportation;
Program or activity: Federal Transit-- Formula Grants;
2004 Total estimate: 0.0[J];
2004 Error rate: 0.0[J];
2005 Total estimate: 0.0[J];
2005 Error rate: 0.0[J];
Previous OMB Circular No. A-11 reporting requirements: X.
34;
Department or agency: Department of the Treasury;
Program or activity: Earned Income Tax Credit;
2004 Total estimate: 10,300.0[B];
2004 Error rate: 25.5[ B];
2005 Total estimate: 10,500.0;
2005 Error rate: 25.5;
Previous OMB Circular No. A-11 reporting requirements: X.
35;
Department or agency: Department of Veterans Affairs;
Program or activity: Compensation;
2004 Total estimate: 302.4[B];
2004 Error rate: 1.2[B];
2005 Total estimate: 322.9;
2005 Error rate: 1.1;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Veterans Affairs;
Program or activity: Dependency and Indemnity Compensation;
2004 Total estimate: 0.0[F];
2004 Error rate: 0.0[F];
2005 Total estimate: 0.0[F];
2005 Error rate: 0.0[F];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Veterans Affairs;
Program or activity: Education programs;
2004 Total estimate: 70.0[B];
2004 Error rate: 3.0[B];
2005 Total estimate: 64.0;
2005 Error rate: 2.4;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Veterans Affairs;
Program or activity: Pension;
2004 Total estimate: 280.7[B];
2004 Error rate: 8.3[B];
2005 Total estimate: 261.0;
2005 Error rate: 7.9;
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Veterans Affairs;
Program or activity: Insurance programs;
2004 Total estimate: 0.3[B];
2004 Error rate: 0.0[B,I];
2005 Total estimate: 0.3;
2005 Error rate: 0.0[I];
Previous OMB Circular No. A-11 reporting requirements: X.
Department or agency: Department of Veterans Affairs;
Program or activity: Loan Guaranty;
2004 Total estimate: 6.3;
2004 Error rate: 0.5;
2005 Total estimate: 4.2;
2005 Error rate: 0.4;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Department or agency: Department of Veterans Affairs;
Program or activity: Vocational Rehabilitation;
2004 Total estimate: 9.5;
2004 Error rate: 1.7;
2005 Total estimate: 9.8;
2005 Error rate: 1.6;
Previous OMB Circular No. A-11 reporting requirements: [Empty].
Total;
Program or activity: [Empty];
2004 Total estimate: $45,962.1;
2004 Error rate: [Empty];
2005 Total estimate: $38,404.8;
2005 Error rate: [Empty];
Previous OMB Circular No. A-11 reporting requirements: 46.
Source: GAO analysis of cited agencies' fiscal year 2005 PARs or annual
reports.
[A] Agency did not report an annual improper payment estimate or error
rate.
[B] Fiscal year 2004 estimates or error rates were updated to the
revised estimates reported in the fiscal year 2005 PARs.
[C] See table 5 of this report.
[D] Agency reported that it had no programs or activities susceptible
to significant improper payments.
[E] Student Financial Assistance--Pell Grants and Federal Family
Education Loan are combined together as Student Financial Assistance in
OMB Circular No. A-11, former section 57.
[F] Agency combined with the above program.
[G] Agency did not address improper payments or IPIA requirements in
its fiscal year 2005 PAR or annual report.
[H] An additional $266 million of improper payments exist for these
three programs. In its PAR, the Department of Housing and Urban
Development (HUD) did not provide a breakout of this amount among the
three programs.
[I] Agency reported error rate was less than 1 percent or reported
error rate rounded to zero for purposes of this report.
[J] Agency reported that the annual improper payment amount or error
rate was zero.
[End of table]
[End of section]
Appendix III: Outlays, Improper Payment Estimates, and Error Rates
Reported in Agency Fiscal Year 2005 PARs or Annual Reports:
Dollars in millions.
1;
Department or agency: Agency for International Development;
Program or activity: All programs and activities;
Program outlays: $8,275.5[A];
Total: estimate: 0.0[B];
Error rate: 0.0[B];
Overpayment: Estimate: 0.0[B];
Overpayment: Error rate: 0.0[B];
Underpayment: Estimate: 0.0[B];
Underpayment: Error rate: 0.0[B].
2;
Department or agency: Department of Agriculture;
Program or activity: Marketing Assistance Loan Program (previously
Commodity Loan Programs);
Program outlays: 6,400.0;
Total: estimate: 45.0;
Error rate: 0.7;
Overpayment: Estimate: 45.0;
Overpayment: Error rate: 0.7;
Underpayment: Estimate: 0.0[C];
Underpayment: Error rate: 0.0[C].
Department or agency: Department of Agriculture;
Program or activity: Food Stamp Program;
Program outlays: 24,358.0;
Total: estimate: 1,432.0[D];
Error rate: 5.9;
Overpayment: Estimate: 1,091.2;
Overpayment: Error rate: 4.5;
Underpayment: Estimate: 341.0;
Underpayment: Error rate: 1.4.
Department or agency: Department of Agriculture;
Program or activity: School Programs[E];
Program outlays: 8,187.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Agriculture;
Program or activity: Women, Infants, and Children[E];
Program outlays: 4,812.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Agriculture;
Program or activity: Child and Adult Care Food Program[E];
Program outlays: 2,061.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Agriculture;
Program or activity: Wildland Fire Suppression Management;
Program outlays: 1,980.0;
Total: estimate: 73.0[D];
Error rate: 3.7;
Overpayment: Estimate: 55.2;
Overpayment: Error rate: 2.8;
Underpayment: Estimate: 18.0;
Underpayment: Error rate: 0.9.
Department or agency: Department of Agriculture;
Program or activity: Rental Assistance Program;
Program outlays: 846.0;
Total: estimate: 27.0;
Error rate: 3.2;
Overpayment: Estimate: 17.5;
Overpayment: Error rate: 2.1;
Underpayment: Estimate: 9.5;
Underpayment: Error rate: 1.1.
Department or agency: Department of Agriculture;
Program or activity: Federal Crop Insurance Corporation;
Program outlays: 3,170.0;
Total: estimate: 28.0[F];
Error rate: 0.9[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Agriculture;
Program or activity: Farm Security and Rural Investment;
Program outlays: 1,027.0;
Total: estimate: 16.0[D];
Error rate: 1.6;
Overpayment: Estimate: 14.8;
Overpayment: Error rate: 1.4;
Underpayment: Estimate: 1.1;
Underpayment: Error rate: 0.1.
Department or agency: Department of Agriculture;
Program or activity: Milk Income Loss Contract Program;
Program outlays: 245.0;
Total: estimate: 0.2;
Error rate: 0.1;
Overpayment: Estimate: 0.2;
Overpayment: Error rate: 0.1;
Underpayment: Estimate: 0.0[C];
Underpayment: Error rate: 0.0[C].
Department or agency: Department of Agriculture;
Program or activity: Loan Deficiency Payments;
Program outlays: 453.0;
Total: estimate: 5.0;
Error rate: 1.0;
Overpayment: Estimate: 5.0;
Overpayment: Error rate: 1.0;
Underpayment: Estimate: 0.0[C];
Underpayment: Error rate: 0.0[C].
3;
Department or agency: Department of Commerce;
Program or activity: All programs and activities[G];
Program outlays: 9,126.8[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
4;
Department or agency: Department of Defense;
Program or activity: Military Retirement Fund;
Program outlays: 35,700.0;
Total: estimate: 49.3[F];
Error rate: 0.1[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Defense;
Program or activity: Military Health Benefits;
Program outlays: 7,500.0;
Total: estimate: 150.0[F];
Error rate: 2.0[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Defense;
Program or activity: Military Pay;
Program outlays: 69,100.0;
Total: estimate: 432.0[F];
Error rate: 0.6[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
5;
Department or agency: Department of Education;
Program or activity: Student Financial Assistance--Pell Grants[H];
Program outlays: 12,602.0;
Total: estimate: 617.0[F];
Error rate: 4.5[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Education;
Program or activity: Student Financial Assistance--Federal Family
Education Loan[H];
Program outlays: 10,085.0;
Total: estimate: 16.0[F];
Error rate: 0.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Education;
Program or activity: Title I;
Program outlays: 12,520.0;
Total: estimate: 149.0[F];
Error rate: 1.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
6;
Department or agency: Department of Energy;
Program or activity: Payment programs;
Program outlays: 24,114.0;
Total: estimate: 14.5[F];
Error rate: 0.1[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
7;
Department or agency: Environmental Protection Agency;
Program or activity: Clean Water State Revolving Funds;
Program outlays: 1,900.0;
Total: estimate: 3.1[F];
Error rate: 0.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Environmental Protection Agency;
Program or activity: Drinking Water State Revolving Fund;
Program outlays: 0.0[I];
Total: estimate: 0.0[I];
Error rate: 0.0[I];
Overpayment: Estimate: 0.0[I];
Overpayment: Error rate: 0.0[I];
Underpayment: Estimate: 0.0[I];
Underpayment: Error rate: 0.0[I].
8;
Department or agency: Export-Import Bank of the United States[J];
Program or activity: All programs and activities;
Program outlays: 1,329.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
9;
Department or agency: Farm Credit System Insurance Corporation[J];
Program or activity: All programs and activities;
Program outlays: 40.0[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
10;
Department or agency: Federal Communications Commission;
Program or activity: Universal Service Fund's Schools and Libraries[E];
Program outlays: 1,700.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Federal Communications Commission;
Program or activity: High Cost Support Program[E];
Program outlays: 3,800.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
11;
Department or agency: Federal Deposit Insurance Corporation[J];
Program or activity: All programs and activities;
Program outlays: 2,206.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
12;
Department or agency: General Services Administration;
Program or activity: All programs and activities[G];
Program outlays: 20,274.0[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
13;
Department or agency: Department of Health and Human Services;
Program or activity: Medicaid[E];
Program outlays: 181,719.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Health and Human Services;
Program or activity: Medicare;
Program outlays: 234,100.0;
Total: estimate: 12,100.0;
Error rate: 5.2;
Overpayment: Estimate: 11,200.0;
Overpayment: Error rate: 4.8;
Underpayment: Estimate: 900.0;
Underpayment: Error rate: 0.4.
Department or agency: Department of Health and Human Services;
Program or activity: Head Start;
Program outlays: 6,865.0;
Total: estimate: 110.0[F];
Error rate: 1.6[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Health and Human Services;
Program or activity: Temporary Assistance for Needy Families[E];
Program outlays: 17,401.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Health and Human Services;
Program or activity: Foster Care--Title IV-E;
Program outlays: 1,816.0;
Total: estimate: 182.0[F];
Error rate: 10.0[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Health and Human Services;
Program or activity: State Children's Insurance Program[E];
Program outlays: 5,129.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Health and Human Services;
Program or activity: Child Care and Development Fund[E];
Program outlays: 4,901.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
14;
Department or agency: Department of Homeland Security;
Program or activity: All programs and activities[G];
Program outlays: 53,175.0[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
15;
Department or agency: Department of Housing and Urban Development;
Program or activity: Low Income Public Housing;
Program outlays: 26,069.0;
Total: estimate: 326.0[L];
Error rate: 5.6;
Overpayment: Estimate: 173.2;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 68.9;
Underpayment: Error rate: 0.0.
Department or agency: Department of Housing and Urban Development;
Program or activity: Section 8-Tenant Based;
Program outlays: 0.0[I];
Total: estimate: 551.0[L];
Error rate: 0.0[I];
Overpayment: Estimate: 366.5;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 154.7;
Underpayment: Error rate: 0.0.
Department or agency: Department of Housing and Urban Development;
Program or activity: Section 8-Project Based;
Program outlays: 0.0[I];
Total: estimate: 324.0[L];
Error rate: 0.0[I];
Overpayment: Estimate: 141.8;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 82.8;
Underpayment: Error rate: 0.0.
Department or agency: Department of Housing and Urban Development;
Program or activity: Community Development Block Grant (Entitlement
Grants, States/Small Cities)[E];
Program outlays: 4,987.0;
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Housing and Urban Development;
Program or activity: Federal Housing Administration's Single Family
Acquired Asset Management System;
Program outlays: 366.7;
Total: estimate: 2.2[F];
Error rate: 0.6[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Housing and Urban Development;
Program or activity: Public Housing Capital Fund;
Program outlays: 2,600.0;
Total: estimate: 133.5;
Error rate: 5.1;
Overpayment: Estimate: 118.1;
Overpayment: Error rate: 4.5;
Underpayment: Estimate: 15.4;
Underpayment: Error rate: 0.6.
16;
Department or agency: Department of the Interior;
Program or activity: All programs and activities[G];
Program outlays: 19,794.3[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
17;
Department or agency: Department of Justice;
Program or activity: All programs and activities[G];
Program outlays: 29,244.2[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
18;
Department or agency: Department of Labor;
Program or activity: Unemployment Insurance;
Program outlays: 32,248.0;
Total: estimate: 3,267.0;
Error rate: 10.1;
Overpayment: Estimate: 3,051.0;
Overpayment: Error rate: 9.5;
Underpayment: Estimate: 216.0;
Underpayment: Error rate: 0.7.
Department or agency: Department of Labor;
Program or activity: Federal Employees' Compensation Act;
Program outlays: 2,519.0;
Total: estimate: 3.3[F];
Error rate: 0.1[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Labor;
Program or activity: Workforce Investment Act;
Program outlays: 3,743.0;
Total: estimate: 7.9[F];
Error rate: 0.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
19;
Department or agency: National Aeronautics and Space Administration;
Program or activity: All programs and activities[G];
Program outlays: 16,472.0[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
20;
Department or agency: National Credit Union Administration[J];
Program or activity: All programs and activities;
Program outlays: 159.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
21;
Department or agency: National Science Foundation;
Program or activity: Research and Education Grants and Cooperative
Agreements;
Program outlays: 4,215.0;
Total: estimate: 1.1;
Error rate: 0.0[F,M];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
22;
Department or agency: Nuclear Regulatory Commission;
Program or activity: All programs and activities[G];
Program outlays: 651.4[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
23;
Department or agency: Office of Personnel Management;
Program or activity: Retirement Program (Civil Service Retirement
System and Federal Employees Retirement System);
Program outlays: 54,800.0;
Total: estimate: 152.2;
Error rate: 0.3;
Overpayment: Estimate: 147.1;
Overpayment: Error rate: 0.3;
Underpayment: Estimate: 5.1;
Underpayment: Error rate: 0.0[M].
Department or agency: Office of Personnel Management;
Program or activity: Federal Employees Health Benefits Program;
Program outlays: 29,400.0;
Total: estimate: 196.5;
Error rate: 0.7;
Overpayment: Estimate: 190.9;
Overpayment: Error rate: 0.7;
Underpayment: Estimate: 5.6;
Underpayment: Error rate: 0.0[M].
Department or agency: Office of Personnel Management;
Program or activity: Federal Employees Group Life Insurance;
Program outlays: 1,200.0;
Total: estimate: 2.0;
Error rate: 0.2;
Overpayment: Estimate: 0.7;
Overpayment: Error rate: 0.1;
Underpayment: Estimate: 1.3;
Underpayment: Error rate: 0.1.
24;
Department or agency: Pension Benefit Guaranty Corporation[J];
Program or activity: All programs and activities;
Program outlays: 5,489.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
25;
Department or agency: U.S. Postal Service[J];
Program or activity: All programs and activities;
Program outlays: 72,619.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
26;
Department or agency: Railroad Retirement Board;
Program or activity: Retirement and Survivors Benefits;
Program outlays: 9,185.4;
Total: estimate: 150.6[F];
Error rate: 1.6[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Railroad Retirement Board;
Program or activity: Railroad Unemployment Insurance Benefits;
Program outlays: 110.8;
Total: estimate: 2.3[F];
Error rate: 2.1[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
27;
Department or agency: Securities and Exchange Commission;
Program or activity: All programs and activities[G];
Program outlays: 866.7[A];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
28;
Department or agency: Small Business Administration;
Program or activity: 7(a) Business Loan Program;
Program outlays: 605.1;
Total: estimate: 31.4[F];
Error rate: 5.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Small Business Administration;
Program or activity: 504 Certified Development Companies;
Program outlays: 117.6;
Total: estimate: 0.0[B];
Error rate: 0.0[B];
Overpayment: Estimate: 0.0[B];
Overpayment: Error rate: 0.0[B];
Underpayment: Estimate: 0.0[B];
Underpayment: Error rate: 0.0[B].
Department or agency: Small Business Administration;
Program or activity: Disaster Assistance;
Program outlays: 2,230.5;
Total: estimate: 1.6[F];
Error rate: 0.1[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Small Business Administration;
Program or activity: Small Business Investment Companies;
Program outlays: 1,568.2;
Total: estimate: 10.5[F];
Error rate: 0.7[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
29;
Department or agency: Smithsonian Institution[J];
Program or activity: All programs and activities;
Program outlays: 784.0[K];
Total: estimate: 0.0;
Error rate: 0.0;
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
30;
Department or agency: Social Security Administration;
Program or activity: Old Age and Survivors' Insurance;
Program outlays: 493,300.0;
Total: estimate: 3,681.0;
Error rate: 0.7;
Overpayment: Estimate: 2,582.0;
Overpayment: Error rate: 0.5;
Underpayment: Estimate: 1,099.0;
Underpayment: Error rate: 0.2.
Department or agency: Social Security Administration;
Program or activity: Disability Insurance;
Program outlays: 0.0[I];
Total: estimate: 0.0[I];
Error rate: 0.0[I];
Overpayment: Estimate: 0.0[I];
Overpayment: Error rate: 0.0[I];
Underpayment: Estimate: 0.0[I];
Underpayment: Error rate: 0.0[I].
Department or agency: Social Security Administration;
Program or activity: Supplemental Security Income Program;
Program outlays: 37,470.0;
Total: estimate: 2,910.0;
Error rate: 7.7;
Overpayment: Estimate: 2,406.0;
Overpayment: Error rate: 6.4;
Underpayment: Estimate: 504.0;
Underpayment: Error rate: 1.3.
31;
Department or agency: Department of State;
Program or activity: International Narcotic and Law Enforcement Affairs-
Narcotics Program;
Program outlays: 114.0;
Total: estimate: 0.6[F];
Error rate: 0.0[F,M];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of State;
Program or activity: International Information Program-U.S. Speaker and
Specialist Program;
Program outlays: 41.0;
Total: estimate: 1.9[F];
Error rate: 81.2[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of State;
Program or activity: Vendor payments;
Program outlays: 3,299.0;
Total: estimate: 0.4[F];
Error rate: 0.0[F,M];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of State;
Program or activity: Structures and Equipment;
Program outlays: 485.0;
Total: estimate: 0.2[F];
Error rate: 0.0[F,M];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
32;
Department or agency: Tennessee Valley Authority;
Program or activity: Payment programs;
Program outlays: 7,080.0;
Total: estimate: 36.3[F];
Error rate: 0.5[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
33;
Department or agency: Department of Transportation;
Program or activity: Airport Improvement Program;
Program outlays: 2,996.0;
Total: estimate: 0.0[C,F];
Error rate: 0.0[C,F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Transportation;
Program or activity: Highway Planning and Construction;
Program outlays: 31,217.0;
Total: estimate: 0.0[C,F];
Error rate: 0.0[C,F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Transportation;
Program or activity: Federal Transit--Capital Investment Grants;
Program outlays: 3,375.0;
Total: estimate: 0.0[C,F];
Error rate: 0.0[C,F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Transportation;
Program or activity: Federal Transit--Formula Grants;
Program outlays: 4,521.0;
Total: estimate: 0.0[C,F];
Error rate: 0.0[C,F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
34;
Department or agency: Department of the Treasury;
Program or activity: Earned Income Tax Credit;
Program outlays: 41,300.0;
Total: estimate: 10,500.0[F];
Error rate: 25.5[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
35;
Department or agency: Department of Veterans Affairs;
Program or activity: Compensation;
Program outlays: 28,960.0;
Total: estimate: 322.9;
Error rate: 1.1;
Overpayment: Estimate: 181.0;
Overpayment: Error rate: 0.6;
Underpayment: Estimate: 141.9;
Underpayment: Error rate: 0.5.
Department or agency: Department of Veterans Affair;
Program or activity: Dependency and Indemnity Compensation;
Program outlays: 0.0[I];
Total: estimate: 0.0[I];
Error rate: 0.0[I];
Overpayment: Estimate: 0.0[I];
Overpayment: Error rate: 0.0[I];
Underpayment: Estimate: 0.0[I];
Underpayment: Error rate: 0.0[I].
Department or agency: Department of Veterans Affair;
Program or activity: Education programs;
Program outlays: 2,661.0;
Total: estimate: 64.0;
Error rate: 2.4;
Overpayment: Estimate: 34.0;
Overpayment: Error rate: 1.3;
Underpayment: Estimate: 30.0;
Underpayment: Error rate: 1.1.
Department or agency: Department of Veterans Affair;
Program or activity: Pension;
Program outlays: 3,293.0;
Total: estimate: 261.0;
Error rate: 7.9;
Overpayment: Estimate: 247.0;
Overpayment: Error rate: 7.5;
Underpayment: Estimate: 14.0;
Underpayment: Error rate: 0.4.
Department or agency: Department of Veterans Affair;
Program or activity: Insurance programs;
Program outlays: 1,664.0;
Total: estimate: 0.3[F];
Error rate: 0.0[F,M];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Veterans Affair;
Program or activity: Loan Guaranty;
Program outlays: 1,219.0;
Total: estimate: 4.2[F];
Error rate: 0.4[F];
Overpayment: Estimate: 0.0;
Overpayment: Error rate: 0.0;
Underpayment: Estimate: 0.0;
Underpayment: Error rate: 0.0.
Department or agency: Department of Veterans Affair;
Program or activity: Vocational Rehabilitation;
Program outlays: 603.0;
Total: estimate: 9.8;
Error rate: 1.6;
Overpayment: Estimate: 2.7;
Overpayment: Error rate: 0.4;
Underpayment: Estimate: 7.1;
Underpayment: Error rate: 1.2.
Total;
Program or activity: [Empty];
Program outlays: $1,764,560.2;
Total: estimate: $38,404.8;
Error rate: [Empty];
Overpayment: Estimate: $22,070.9[N];
Overpayment: Error rate: [Empty];
Underpayment: Estimate: $3,615.4[N];
Underpayment: Error rate: [Empty].
Sources: GAO analysis of cited agencies' fiscal year 2005 PARs or
annual reports and OMB.
[A] This number is the disbursements from the agencies' statements of
budgetary resources in their fiscal year 2005 PARs or annual reports.
[B] Agency did not report an annual improper payment estimate or error
rate.
[C] Agency reported that the annual improper payment amount was zero.
[D] The reported overpayments plus the reported underpayments do not
equal the reported total improper payments.
[E] See table 5 of this report.
[F] Agency did not provide an estimate breakout between both
overpayments and underpayments.
[G] Agency reported it had no programs or activities susceptible to
significant improper payments.
[H] Student Financial Assistance--Pell Grants and Federal Family
Education Loan are combined together as Student Financial Assistance in
OMB Circular No. A-11, former section 57.
[I] Agency combined with the above program.
[J] Agency did not address improper payments or IPIA.
[K] Agency program outlays were not reported in the fiscal year 2005
PARs. We obtained these amounts from OMB.
[L] An additional $266 million of improper payments exist for these
three programs. In its PAR, HUD did not provide a breakout of this
amount among the three programs. The $266 million is also excluded from
the overpayment and underpayment estimates.
[M] Agency reported error rate was less than 1 percent or reported the
error rate rounded to zero for the purposes of this report.
[N] The overpayments plus the underpayments do not add up total
improper payments because many of the programs did not provide a
breakout of their total improper payment estimate between overpayments
and underpayments.
[End of table]
[End of section]
Appendix IV: Comments from the Office of Management and Budget:
Executive Office Of The President:
Office Of Management And Budget:
Washington, DC 20503:
The Controller:
OCT 26 2006:
Mr. McCoy Williams:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
440 G Street, NW:
Washington, DC 20548:
Dear Mr. Williams:
Thank you for the opportunity to comment on the Government
Accountability Office's (GAO's) draft report entitled "Improper
Payments: Agencies' Fiscal Year 2005 Reporting Under the Improper
Payments Information Act Remains Incomplete;' GAO-07-92.
In general, the Office of Management and Budget (OMB) agrees with your
assessment that challenges remain in meeting the goals of the Improper
Payment Information Act of 2102 (IPIA). and we arc continuing our work
to ensure that government-wide efforts can ultimately reflect the full
scope of improper payments across the Executive Branch. However, we
also believe that significant actions have already occurred that are
not prominent in this report. demonstrating that (I) efforts underway
are moving the Executive Branch to full reporting under IPIA and (2)
efforts to reduce improper payments arc working. We welcome this
opportunity to summarize these actions.
To begin, government-wide reporting of improper payments has shown
significant improvement since the first full year of reporting under
IPIA which occurred with the fiscal year (FY) 2004 Performance and
Accountability Reports (PAR). For example:
* 85% of high risk programs now report an error measurement ($1.3
trillion of $1.5 trillion in high risk programs).
* In FY 2004, only 30 programs were reported in agencies' annual PARs,
while in FY 2005, 47 additional programs reported improper payment
measurement results, an increase of 17. This number will increase again
in FY 2006 by an estimated ten programs.
Our success in increasing the number of programs reporting improper
payments is similar to the success the government is having in reducing
improper payments. For example:
* The overall dollar amount of improper payments for the 30 programs
reported in FY 2004 decreased 17% from $45.1 billion to $37.3 billion.
* Medicare substantially improved its claim documentation and reduced
its error rate reporting in the Fee for Service portion of the program
from 10.1% in FY 2004 to 5.2% in FY 2005.
* Food Stamps reported its lowest error rate ever in FY 2005 (5.88%).
* Unemployment Insurance decreased improper payments by $600 million
from FY 2004 to FY 2005.
* The Department of Housing & Urban Development's Public Housing and
Rental Assistance programs have reduced improper payments by more than
$1 billion since FY 2000.
* Only a handful of agencies reported on their recovery auditing
activities in their FY 2004 PARs; in FY 2005 an additional 19 agencies
reported on their recovery auditing efforts, and several agencies have
plans to expand these efforts to more contract categories for FY 2006
reporting.
We fully expect that these trends of reporting more programs and
reducing improper payments will continue. In fact, in FY 2005, OMB
launched a separate initiative under the President's Management Agenda
to hold agencies accountable for both improving improper payment
measurements and initiating corrective actions to eliminate payment
errors.
As we chart a course forward, we recognize that alternative strategies
need to be considered in order to advance the overall improper payment
initiative. Permitting alternative strategies is a flexibility that OMB
believes is necessary to support government-wide IPIA compliance,
particularly for programs that have never been able to report a payment
error rate. Appendix C to OMB Circular A-123 still requires that all
high risk programs report a statistically valid rate, but not
necessarily within one year.
For example, beginning with the FY 2007 PAR reporting, Medicaid,
Temporary Assistance to Needy Families, and the State Children's Health
Insurance Program will begin reporting component error rates. For FY
2008 reporting, we project that these programs will report a
statistically valid national error estimate. Therefore, by permitting
some variation, more programs are able to report sooner on some form of
error rate and dollar amount. This is a significant improvement over FY
2004 reporting. While there are a few large programs without current
error measurements being reported, we are progressively moving towards
full reporting.
GAO continues to express concern that OMB's use of reporting threshold
criteria ($10 million and 2.5 percent error rate) limits agency review
and reporting of improper payments. We can appreciate GAO's concern
that this criterion limits reporting; however, our specific rationale
for adding the 2.5 percent requirement was not highlighted in the
report, and further explanation and understanding of the 2.5 percent
requirement may alleviate some of GAO's concern. Specifically, since
the implementation of IPIA and OMB's guidance M-03-13, all programs
originally listed in Section 57 of OMB Circular A-11 were automatically
determined to be risk susceptible and were therefore required to be
reported upon annually in agency PARs. OMB included the 2.5 percent as
part of its threshold criteria for determining risk, to ensure that
agencies were focusing their resources on programs with the highest
levels of risk for improper payments. Most notably, even with the 2.5
percent threshold in place, Federal agencies deemed more than 60% of
all outlays (or $1.5 trillion) as high risk. Further, an additional
$300 billion in outlays are being tracked under the Recovery Audit Act.
For the remaining outlays, OMB is now requiring agencies to track any
programs that are discovered to have a high risk for significant
improper payment, but an error rate less than 2.5 percent. With these
facts, we believe our framework is appropriately mitigating the risk
that high risk programs will be left out of our IPIA reporting
activities.
Below are OMB's specific responses to the four recommendations included
in the draft report:
Regarding the first recommendation to expand the IPIA implementing
guidance to describe in greater detail (a) factors that agencies should
consider when conducting their annual risk assessments and (b) factors
that agencies should use when reporting improper payments in their
PARs, OMB agrees with both recommendations and has taken steps to
implement them. In our revised implementation guidance for IPIA (OMB
Circular A-123, Appendix C) issued in August of 2006, we included
factors to be considered in agency risk assessments. Additionally, OMB
lists the requirements for agency PAR IPIA reporting in OMB Circular A-
136, Financial Report Requirements, Section 11.5.6., IPIA Reporting
Details.
Regarding the second recommendation to enforce existing guidance
requiring agencies to use a statistically valid sampling methodology to
calculate improper payment estimates, OMB generally agrees with the
recommendation and believes that our actions to date reflect this
approach for the most part. However, we believe that allowing
alternative sampling methodologies, prior to a full statistically valid
sample, is acceptable as long as the alternative is used as an interim
error measurement on a path toward a more comprehensive statistical
estimate. This method is discussed in OMB Circular A-123, Appendix C
and is a method OMB has been working with agencies on for a number of
years. It recognizes that a single approach is not feasible for many
large, complex programs, such as the Earned Income Tax Credit and the
National School Lunch and Breakfast programs and ensures that such
programs have interim information on payment errors so that targeted
corrective actions could be defined and initiated in the short term,
rather than waiting until a more comprehensive rate was in place. In
most cases, a statistically valid and comprehensive sampling
methodology will be achieved within two to three years.
Regarding the third recommendation to gather from agencies the dollar
amount of payments that agencies make under statute or judicial
determinations that later are determined to be overpayments to
determine the magnitude of the issue and whether additional reporting
is warranted, OMB generally agrees with the recommendation. As you
know, agencies such as the Social Security Administration in their
Supplemental Security Income program are required to continue making
benefit payments while a termination of benefits is being appealed.
Once the adjudication is made, if it is determined that benefits should
have ceased at the original date of termination, the payments made
subsequent to the appeal are immediately entered as a receivable. and
the beneficiary is responsible for repayment of the debt. This type of
situation does not fall under the statutory definition of an improper
payment. We believe that in the near perm, agencies should concentrate
on obtaining national error estimates for programs that do not yep
report an error rate, and implementing corrective action plans that
reduce improper payments.
Regarding the fourth recommendation to require agencies to include
their rationale for any determination that recovery audit efforts are
not cost beneficial, OMB agrees with the recommendation. We will plan
to include wording to this effect when we update Circular A-136 during
FY 2007.
Again, we want to thank GAO for the opportunity to comment on this
draft report. We look forward to our continuing work in the area of
improving the accuracy and integrity of Federal payments.
Sincerely,
Signed by:
Linda M. Combs:
Controller:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
McCoy Williams, (202) 512-9095 or w [Hyperlink, williamsm1@gao.gov]
illiamsm1@gao.gov:
Acknowledgments:
In addition to the contact named above, Carla Lewis, Assistant
Director; Sharon Byrd; Francine DelVecchio; Francis Dymond; Lisa M.
Galvan; Jacquelyn Hamilton; James Maziasz; Christina Quattrociocchi;
Donell Ries; and Autumn Schmid made important contributions to this
report.
[End of section]
Related GAO Products:
Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs. GAO-06-347.
Washington, D.C.: April 14, 2006.
Financial Management: Challenges Continue in Meeting Requirements of
the Improper Payments Information Act. GAO-06-581T. Washington, D.C.:
April 5, 2006.
Financial Management: Challenges Remain in Meeting Requirements of the
Improper Payments Information Act. GAO-06-482T. Washington, D.C.: March
9, 2006.
Financial Management: Challenges in Meeting Governmentwide Improper
Payment Requirements. GAO-05-907T. Washington, D.C.: July 20, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. GAO-05-605T. Washington, D.C.: July
12, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. GAO-05-417. Washington, D.C.: March
31, 2005.
Financial Management: Fiscal Year 2003 Performance and Accountability
Reports Provide Limited Information on Governmentwide Improper
Payments. GAO-04-631T. Washington, D.C.: April 15, 2004.
Financial Management: Status of the Governmentwide Efforts to Address
Improper Payment Problems. GAO-04-99. Washington, D.C.: October 17,
2003.
Financial Management: Effective Implementation of the Improper Payments
Information Act of 2002 Is Key to Reducing the Government's Improper
Payments. GAO-03-991T. Washington, D.C.: July 14, 2003.
Financial Management: Challenges Remain in Addressing the Government's
Improper Payments. GAO-03-750T. Washington, D.C.: May 13, 2003.
(195082):
FOOTNOTES
[1] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
[2] OMB Memorandum M-03-13, "Improper Payments Information Act of 2002"
(Public Law 107-300), May 21, 2003; OMB Circular No. A-136, Financial
Reporting Requirements, § II.5.6 (July 24, 2006). OMB recently issued
revised guidance for fiscal year 2006 reporting in Memorandum M-06-23,
Issuance of Appendix C to OMB Circular No. A-123 (Aug. 10, 2006).
[3] IPIA defines improper payments as any payment that should not have
been made or that was made in an incorrect amount (including
overpayments and underpayments) under statutory, contractual,
administrative, or other legally applicable requirements. It includes
any payment to an ineligible recipient, any payment for an ineligible
service, any duplicate payment, payments for services not received, and
any payment that does not account for credit for applicable discounts.
[4] See the Related GAO Products list at the end of this report.
[5] GAO, Financial Management: Challenges in Meeting Requirements of
the Improper Payments Information Act, GAO-05-417 (Washington, D.C.:
Mar. 31, 2005).
[6] Office of Management and Budget, Improving the Accuracy and
Integrity of Federal Payments (Washington, D.C.: Feb. 2, 2006).
[7] Included in this estimate were 10 agencies reporting for the first
time improper payment estimates of almost $1.2 billion for 17 programs.
Also, the governmentwide estimate includes both over-and underpayments.
OMB's implementing guidance requires agencies to report the gross
versus net total of both over-and underpayments.
[8] In their fiscal year 2005 PARs, several agencies updated their
fiscal year 2004 improper payment estimates to reflect changes since
issuance of their fiscal year 2004 PARs. These updates increased the
governmentwide improper payment estimate for fiscal year 2004 from $45
billion to $46 billion.
[9] For these three key requirements, OMB requires the following: (1)
causes of improper payments and corrective actions--a discussion of the
causes of the improper payments identified, actions taken to correct
those causes, and results of the actions taken to address those causes;
(2) manager accountability--a description of the steps (including
timeline) the agency has taken and plans to take to ensure that agency
managers (including the agency head) are held accountable for reducing
and recovering erroneous payments; and (3) statutory barriers--a
description of any statutory or regulatory barriers that may limit the
agency's corrective actions in reducing erroneous payments.
[10] Prior to the executive branch-wide IPIA reporting requirements,
beginning with fiscal year 2004, former section 57 of OMB Circular No.
A-11 required certain agencies to submit similar information, including
estimated improper payment target rates, target rates for future
reductions in these payments, the types and causes of these payments,
and variances from targets and goals established. In addition, these
agencies were to provide a description and assessment of the current
methods for measuring the rate of improper payments and the quality of
data resulting from these methods.
[11] Agency-reported estimates were primarily based on known cases
identified through Office of Inspector General audits and other
isolated instances. However, one agency reported using a combination of
statistical and nonstatistical methodologies, but did not identify what
portion of the estimate was calculated using statistical sampling. Any
agency that reported using nonstatistical sampling methodologies to
calculate its programs' improper payment estimates was included in this
analysis.
[12] OMB's guidance defines significant improper payments as those in
any particular program that exceed both 2.5 percent of program payments
and $10 million annually.
[13] IPIA does not mention the "exceeding the 2.5 percent of program
payments" threshold that OMB uses for identifying, estimating, and
reporting improper payments.
[14] Pub. L. No. 107-107, div. A, title VIII § 831, 115 Stat. 1012,
1186 (Dec. 28, 2001) (codified at 31 U.S.C. §§ 3561-3567).
[15] OMB Circular No. A-123 provides a central reference point for
guidance to federal managers on improving the accountability and
effectiveness of federal programs and operations by establishing,
assessing, correcting, and reporting on internal control. The circular
emphasizes the need for integrated and coordinated internal control
assessments that synchronize all internal control-related activities.
In addition to Appendix C, Requirements for Effective Measurement and
Remediation of Improper Payments, there are two other appendixes to A-
123--Appendix A, Implementation Plans (Aug. 1, 2005), and Appendix B,
Improving the Management of Government Charge Card Programs (revised
February 2006).
[16] The three memorandums consolidated in Appendix C include M-03-13,
"Improper Payments Information Act of 2002 (Public Law 107-300)," May
21, 2003; M-03-07, "Programs to Identify and Recover Erroneous Payments
to Contractors," January 16, 2003; and M-03-12, "Allowability of
Contingency Fee Contracts for Recovery Audits," May 8, 2003.
[17] An example of an alternative sampling methodology includes
developing an annual error rate for a component of the program.
[18] The 15 agencies include 14 that were previously required to report
improper payments information under OMB Circular No. A-11 and DHS.
[19] For GAO's audit report on the U.S. government's consolidated
financial statements for fiscal year 2005, see Department of the
Treasury, Financial Report of the United States Government (Washington,
D.C.: December 2005), 135-154, which can be found at www.gao.gov.
[20] Four agencies--the Environmental Protection Agency, National
Science Foundation, Department of State, and Department of
Transportation--estimated improper payments, but were not required to
include the additional reporting requirements in their PARs because
none of their program estimates exceeded $10 million.
[21] 31 U.S.C. §§ 7501-7507. Under the Single Audit Act, as amended,
and implementing guidance, independent auditors audit state and local
governments and nonprofit organizations that expend federal awards to
assess, among other things, compliance with laws, regulations, and the
provisions of contracts or grant agreements material to the entities'
major federal programs. Organizations are required to have single
audits if they annually expend $500,000 or more in federal funds.
[22] DHS's auditors reported that they were engaged to audit the
accompanying consolidated balance sheets of DHS as of September 30,
2005 and 2004, and the related consolidated statements of net cost,
changes in net position, and financing; combined statement of budgetary
resources; and statement of custodial activity for the year ended
September 30, 2004. The auditors were not engaged to audit the
accompanying consolidated statements of net cost, changes in net
position, and financing; combined statement of budgetary resources; and
statement of custodial activity for the year ended September 30, 2005.
[23] A material weakness is a condition that precludes the entity's
internal control from providing reasonable assurance that
misstatements, losses, or noncompliance that are material in relation
to the financial statements or to stewardship information would be
prevented or detected on a timely basis.
[24] Department of Homeland Security, Office of Inspector General,
Audit of FEMA's Individuals and Households Program in Miami-Dade
County, Florida, for Hurricane Frances, OIG-05-20 (Washington, D.C.:
May 2005).
[25] GAO, Hurricanes Katrina and Rita Disaster Relief: Improper and
Potentially Fraudulent Individual Assistance Payments Estimated to Be
Between $600 Million and $1.4 Billion, GAO-06-844T (Washington, D.C.:
June 14, 2006).
[26] Department of Agriculture, Office of Inspector General, Memorandum
for the Secretary, "Management Challenges," September 2, 2005.
[27] Department of the Treasury, Treasury Inspector General for Tax
Administration, Office of Audit, Annual Audit Plan Fiscal Year 2005,
Document 10932 (Rev. 9 2004), Catalog Number 26938H.
[28] GAO-05-417.
[29] OMB requires that agencies' statistical sampling methodologies be
designed to yield estimates with a 90 percent confidence interval of
plus or minus 2.5 percent.
[30] The seven programs that constitute 95 percent of the improper
payment total are (1) Department of Health and Human Services' Medicare
program, 32 percent; (2) Department of the Treasury's Earned Income Tax
Credit program, 28 percent; (3) Social Security Administration's Old
Age, Survivors', and Disability Insurance program, 10 percent; (4)
Department of Labor's Unemployment Insurance program, 9 percent; (5)
Social Security Administration's Supplemental Security Income program,
8 percent; (6) Department of Housing and Urban Development's Public
Housing and Rental Assistance programs, 4 percent; and (7) Department
of Agriculture's Food Stamp program, 4 percent.
[31] The four agencies that reported improper payment estimates yet did
not exceed the $10 million threshold include the Environmental
Protection Agency, the National Science Foundation, the Department of
State, and the Department of Transportation. See app. II for additional
information on improper payment estimates.
[32] The regulatory barriers reported represent governmentwide
regulations that the agency has no authority to modify.
[33] The five agencies are the Department of Energy, Department of
Housing and Urban Development, Railroad Retirement Board, Small
Business Administration, and Tennessee Valley Authority.
[34] GAO, Financial Management: Coordinated Approach Needed to Address
the Government's Improper Payments Problems, GAO-02-749 (Washington,
D.C.: Aug. 9, 2002).
[35] This act was repealed and parts of it are now codified in code
sections of Titles 1, 5, and 18 of the United States Code.
[36] 5 U.S.C. § 8452.
[37] In their fiscal year 2005 PARs, several agencies updated their
fiscal year 2004 improper payment estimates to reflect changes since
issuance of their fiscal year 2004 PARs. These updates increased the
governmentwide improper payment estimate for fiscal year 2004 from $45
billion to $46 billion.
[38] GAO, Financial Management: Challenges Remain in Meeting
Requirements of the Improper Payments Information Act, GAO-06-482T
(Washington, D.C.: Mar. 9, 2006), and Financial Management: Challenges
Continue in Meeting Requirements of the Improper Payments Information
Act, GAO-06-581T (Washington, D.C.: Apr. 5, 2006).
[39] 31 U.S.C. Chp. 75.
[40] June 29, 2006, hearing before the Senate Subcommittee on Federal
Financial Management, Government Information, and International
Security, Committee on Homeland Security and Governmental Affairs.
[41] Pub. L. No. 105-220, 112 Stat. 936 (Aug. 7, 1998).
[42] We determined that the decrease was primarily caused by a $9.6
billion reduction in the HHS Medicare program improper payment
estimate, which was partially offset by more programs reporting
estimates of improper payments, resulting in a net decrease of $7
billion. The $9.6 billion reduction is the difference between the
fiscal year 2004 estimate of $21.7 billion and the fiscal year 2005
estimate of $12.1 billion.
[43] Department of Justice, United States Attorney's Office, Southern
District of Texas, News Release, "Local Businessman Pleads Guilty to
Conspiracy to Defraud Medicare of $40 Million," May 30, 2006.
[44] See footnote 10 of this report.
[45] Department of Defense, Office of Inspector General, Financial
Management: Improper Payments for Defense Fuel, D-2006-094 (Washington,
D.C.: June 29, 2006).
[46] OMB defines "unavoidable" payments as payments resulting from
legal or policy requirements.
[47] GAO, Post-Hearing Questions Related to Agency Implementation of
the Improper Payments Information Act, GAO-05-1029R (Washington, D.C.:
Sept. 16, 2005).
[48] OMB defines "avoidable" payments as payments that could be reduced
through changes in administrative actions.
[49] Had we agreed with OMB's characterization, we would disagree that
such payments should be excluded from IPIA reporting. We find nothing
in the act that excludes "unavoidable" payments from coverage.
[50] 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.
[51] Cardinale v. Mathews, 399 F. Supp. 1163 (D.D.C. 1975), and
Goldberg v. Kelly, 397 U.S. 254 (1970).
[52] 42 U.S.C. §§ 423(g)(2) and 404.
[53] GAO, Financial Management: Challenges Remain in Addressing the
Government's Improper Payments, GAO-03-750T (Washington, D.C.: May 13,
2003).
[54] National Aeronautics and Space Administration, Office of Inspector
General, Semi-Annual Reports October 1, 2004-March 31, 2005 and April 1-
September 30, 2005 (Washington, D.C.)
[55] We found that the recovery rate could have been higher than the
1.2 percent calculation had we solely used the OIG reported amounts
regarding the universe of questioned contract costs and subsequent
amounts recovered. Specifically, the OIG reported that of the $51
million in questioned contract costs decided by NASA management, $16
million had been recovered. This results in a recovery rate of about 31
percent. While this recovery rate is higher than our calculated 1.2
percent recovery rate, it is still significantly lower than the 100
percent recovery rate reported by NASA in its PAR.
[56] Department of Defense, Office of Inspector General, Semi-Annual
Reports October 1, 2004-March 31, 2005 and April 1-September 30, 2005
(Washington, D.C.)
[57] The OIG reported that the $2 billion in contract costs were deemed
questionable because they did not comply with rules, regulations, laws,
contractual terms, or a combination of these. Thus, we used the entire
$2 billion to illustrate the disparity between what the OIG and agency
reported.
[58] HUD and Labor reported that recovery auditing efforts were not
cost beneficial.
[59] See Treasury Financial Manual, vol. 1, part 2, ch. 4700. A list of
35 agencies is included in app. II.
[60] Office of Management and Budget, Improving the Accuracy and
Integrity of Federal Payments (Washington, D.C.: Feb. 2, 2006).
[61] GAO, Financial Management: Challenges Continue in Meeting
Requirements of the Improper Payments Information Act, GAO-06-581T
(Washington, D.C.: Apr. 5, 2006), and Financial Management: Challenges
Remain in Meeting Requirements of the Improper Payments Information
Act, GAO-06-482T (Washington, D.C.: Mar. 9, 2006).
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