Improper Payments
Posthearing Questions Related to Agencies Meeting the Requirements of the Improper Payments Information Act of 2002 Gao ID: GAO-06-1067R September 6, 2006On March 9, 2006, we testified before Congress at a hearing entitled, "Reporting Improper Payments: A Report Card on Agencies' Progress." At the hearing, we discussed our findings on federal agencies' challenges in meeting the requirements of the Improper Payments Information Act (IPIA) of 2002 based on our review of agencies' fiscal year 2005 performance and accountability reports (PAR) and annual reports. We were asked to provide answers to the following follow-up questions relating to our March 9, 2006, testimony: (1) What concerns does GAO have regarding not only DHS' inability to comply with the Improper Payments Information Act; but on a greater scale with their overall financial management? (2) About which Agencies that reported in their fiscal year 2005 Performance and Accountability Report that they had no programs susceptible to significant improper payments does GAO have concerns about? (3) Should "unavoidable overpayment" statistics at the Social Security Administration (SSA) be reported to the Office of Management and Budget, and if so why would this be important, and how could the Social Security Administration implement such a process? (4) What concerns does GAO have with the Agency for International Development's (USAID) reporting on improper payments? (5) Does GAO have any concerns with the rest of these agencies and their failure to report improper payment information? (6) has GAO done any analysis of the President's proposals, and if so, what is the GAO's assessment? (7) Has GAO made any recommendations regarding the administration and financial controls in the EITC program? (8) How can the Department of Labor's successes be carried over to other agencies? and (9) Is GAO concerned that CDBG's outlays are $5.4 billion, and not only are they not reporting, they have claimed that they are in compliance?
The Department of Homeland Security (DHS) continues to face challenges in meeting the requirements of IPIA as well as experience significant financial management weaknesses. For fiscal year 2005, DHS received a disclaimer of opinion on its fiscal year 2005 balance sheet and fiscal year 2004 consolidated financial statements, primarily due to financial reporting problems. While we provided data on the above agencies' implementation efforts to annually review all programs and activities as required under IPIA, we have not analyzed their methodologies for conducting risk assessments to identify those programs and activities susceptible to significant improper payments. That said, noncompliance issues related to IPIA and agencies' existing financial management challenges raise questions regarding these agencies' assertions that they had no programs susceptible to significant improper payments. As we testified at the March 9 hearing, auditors for DHS and Justice cited agency noncompliance with IPIA, primarily caused by inadequate risk assessments. Currently, SSA does not track or publicly report on these types of payments. In addition, OMB has reported that it is not aware of other agencies that are similarly legislatively mandated to make these types of payments nor does OMB require governmentwide reporting of these types of payments. Because agencies are not currently required to track, monitor, and report these types of payments on a governmentwide basis, the magnitude of this issue is unknown. We found no assertions from USAID that it had assessed all programs and activities for susceptibility to significant improper payments. USAID only reported that it continues to monitor all its programs and payment activities. Because USAID's PAR lacks details about the monitoring activities it reportedly performed, we are uncertain as to whether this meets the above requirement to perform a risk assessment. Any agencies' failure to report improper payment information as required by the act is of great concern. Public reporting helps establish accountability as well as expectations for improvements. This includes holding agencies accountable for achieving target rates or otherwise implementing specifically planned actions. Annually identifying, estimating, and publicly reporting progress made to reduce improper payments enables agencies and others with oversight and monitoring responsibilities to measure this progress and determine whether further action is needed to minimize future improper payments. To date, we have not performed an analysis or an assessment of the President's legislative proposals as they relate to the Earned Income Tax Credit (EITC) program. There are several key initiatives that federal agencies with state-administered programs should employ to fulfill the requirements of IPIA, such as establishing a culture of accountability, developing a system to collect program information at the state level for estimating improper payments, and monitoring program performance to determine if desired program outcomes have been achieved. The Department of Housing and Urban Development's Office of the Inspector General (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 evident by the HUD OIG's reviews, the CDBG program may be at risk of making improper payments.
GAO-06-1067R, Improper Payments: Posthearing Questions Related to Agencies Meeting the Requirements of the Improper Payments Information Act of 2002
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September 6, 2006:
The Honorable Tom Coburn:
Chairman, Subcommittee on Federal Financial Management, Government
Information, and International Security: Committee on Homeland Security
and Governmental Affairs: United States Senate:
Subject:Improper Payments: Posthearing Questions Related to Agencies
Meeting the Requirements of the Improper Payments Information Act of
2002:
Dear Mr. Chairman:
On March 9, 2006, we testified[Footnote 1] before your subcommittee at
a hearing entitled, "Reporting Improper Payments: A Report Card on
Agencies' Progress." At the hearing, we discussed our findings on
federal agencies' challenges in meeting the requirements of the
Improper Payments Information Act (IPIA) of 2002 based on our review of
agencies' fiscal year 2005 performance and accountability reports (PAR)
and annual reports. Our review focused on the extent to which agencies
have performed the required assessments to identify programs and
activities that were susceptible to significant improper payments, the
annual amount estimated by the reporting agencies, and the amount of
improper payments recouped through recovery audits.
This letter responds to your June 15, 2006, request that we provide
answers to follow-up questions relating to our March 9, 2006,
testimony. Your questions, along with our responses, follow.
1. The Department of Homeland Security reported that it had assessed
all programs and activities and found none to be susceptible to making
significant improper payments. Their independent auditor reported that
the Department did not institute a systematic method of reviewing all
programs and identifying those it believed were susceptible to
significant improper payments. This was the second year in a row that
the auditor reported IPIA noncompliance for DHS. What concerns does GAO
have regarding not only DHS' inability to comply with the Improper
Payments Information Act; but on a greater scale with their overall
financial management?
The Department of Homeland Security (DHS) continues to face challenges
in meeting the requirements of IPIA as well as experience significant
financial management weaknesses. For fiscal year 2005, DHS received a
disclaimer of opinion[Footnote 2] on its fiscal year 2005 balance sheet
and fiscal year 2004 consolidated financial statements, primarily due
to financial reporting problems.[Footnote 3]
As context, DHS's auditors cited 10 material internal control
weaknesses over areas such as financial management oversight; financial
systems security; property, plant, and equipment; and accounts payable
and disbursements. For example, agency auditors reported that DHS had
not established sufficient controls to prevent duplicate payments to
vendors related to prior year obligations or adopted policies to ensure
receipt of goods and services prior to payment of invoices. In
addition, DHS had not provided effective management and oversight to
ensure corrective action plans were developed, implemented (with
progress tracked), and successfully completed to support the
elimination of material weaknesses and achieve consistent, timely, and
reliable financial reporting departmentwide. Furthermore, the auditors
found seven instances of noncompliance with applicable laws and
regulations, one of those being noncompliance with IPIA. Specifically,
for a second year in a row, its auditors found that DHS did not
institute a systematic method of reviewing all programs and identifying
those that are susceptible to significant erroneous payments.[Footnote
4] The auditors also reported that DHS did not perform test work to
evaluate improper payments for all material programs for fiscal year
2005. DHS's testing approach only included a review of its programs
with total disbursements exceeding $100 million for each agency
component. DHS reported that programs with fewer disbursements were
assumed to be too small to exceed the Office of Management and Budget's
(OMB) reporting threshold of $10 million in improper payments.
DHS, like other federal agencies, has a stewardship obligation to
prevent fraud, waste, and abuse; to use tax dollars appropriately; and
to ensure financial accountability to the President, Congress, and the
American people. Management must establish effective internal controls
to safeguard assets, protect revenue, and make authorized payments.
Based on our previous work, the basic or root causes of improper
payments can typically be traced to a lack of or breakdown in internal
control. While DHS did not identify any of its programs or activities
susceptible to significant improper payments, several of its inherited
weaknesses clearly suggest risk for improper payments. These inherited
weaknesses included financial accounting system design and operation
limitations; lack of adequate accounting systems and processes to
ensure property, plant, and equipment were properly recorded; and lack
of policies and procedures to monitor contractor costs and performance.
Our recent testimonies[Footnote 5] on select DHS programs further
validate our position. Specifically, from our review of DHS's
Individuals and Households program related to Hurricanes Katrina and
Rita disaster relief efforts, we estimated that between $600 million
and $1.4 billion in improper and potentially fraudulent individual
assistance payments had been made. Similarly, our recent testimony on
DHS's purchase card program identified a weak control environment and
ineffective internal control activities that allowed potentially
fraudulent, improper, and abusive or questionable transactions to
occur. DHS must continue to focus on resolving weaknesses and
developing strong internal controls to overcome its financial
management challenges.
2. The following agencies reported in their fiscal year 2005
Performance and Accountability Report that they had no programs
susceptible to significant improper payments:
* The Department of Commerce (Commerce):
* The General Services Administration (GSA):
* The Department of Homeland Security (DHS):
* The Department of the Interior (Interior):
* The Department of Justice (Justice):
* National Aeronautics and Space Administration (NASA):
* The Nuclear Regulatory Commission (NRC):
* The Securities and Exchange Commission (SEC):
Please comment on any of the above agencies with which GAO has
concerns.
While we provided data on the above agencies' implementation efforts to
annually review all programs and activities as required under IPIA, we
have not analyzed their methodologies for conducting risk assessments
to identify those programs and activities susceptible to significant
improper payments. That said, noncompliance issues related to IPIA and
agencies' existing financial management challenges raise questions
regarding these agencies' assertions that they had no programs
susceptible to significant improper payments. As we testified at the
March 9 hearing, auditors for DHS and Justice cited agency
noncompliance with IPIA, primarily caused by inadequate risk
assessments.
In addition, other agency auditors have reported major management
challenges that can hinder effective internal control. For example, at
Interior, its auditor reported major management challenges in the
agency's Workers Compensation Program. Specifically, the auditors found
that (1) Interior's inefficient and ineffective management led to
increases in the program's annual costs; (2) the program was
understaffed, employees lacked training, and there was no uniform
process for ensuring that costs are accurate; and (3) there was an
overwhelming lack of awareness that workers' compensation fraud
existed. The auditors also reported that, at best, the program was
managed inconsistently and, at worst, was subject to abuse by managers
seeking an easy way to deal with problem employees.
Internal control serves as the first line of defense in safeguarding
assets and preventing and detecting errors, fraud, waste, abuse, and
mismanagement. Strong systems of internal control provide reasonable
assurance that programs are operating as intended and are achieving
expected outcomes. A lack of strong internal control was evident in at
least three of the eight agencies listed above that reported no
programs were susceptible to significant improper payments. DHS, GSA,
and NASA reported they have no risk susceptible programs, yet each of
these agencies received a disclaimer of opinion on their fiscal year
2005 financial statement audits due to significant financial reporting
deficiencies. In addition, agency auditors identified a total of 47
reportable conditions[Footnote 6] related to internal control
weaknesses found during the eight agencies' financial statement
audits.[Footnote 7] Weaknesses identified during a financial statement
audit could materially affect an agency's program operations and thus,
significantly increase the risk of making improper payments.
For example, at NRC, agency auditors identified four reportable
conditions during their examination of the effectiveness of NRC's
internal control over financial reporting. One of these reportable
conditions related to financial controls over disbursements.
Specifically, auditors found that NRC lacked verification controls to
review the propriety of edits made to vendor tables which house
information such as the vendor name, address, tax identification
number, and bank routing numbers. Verifying such edits helps to ensure
the existence of the vendor prior to payment, decreasing the risk of
improper payments to phantom vendors. The auditors also reported that
NRC does not have controls in place for review and approval of high-
value payments to nonfederal entities, ranging from amounts in excess
of $250,000 to $300,000. Payments in the high-value category are not
reviewed any differently than payments with lower dollar values. During
their internal control testing, the auditors identified one improper
payment in excess of $1 million, which had not been detected by NRC.
The auditors made four recommendations to NRC to strengthen controls
over its disbursements. Going forward, agency management at this agency
and the other seven agencies listed above will need to ensure their
risk assessment methodologies measure the potential or actual effect of
major management challenges and internal control weaknesses identified
from financial statement audits in order to assist in identifying
programs and activities susceptible to significant improper payments.
3. Should "unavoidable overpayment" statistics at the Social Security
Administration be reported to the Office of Management and Budget? Why
would this be important, and how could the Social Security
Administration implement such a process?
As we previously reported to your subcommittee,[Footnote 8] OMB has
allowed the Social Security Administration (SSA) to exclude from its
estimate of improper payments those payments that it had to make
following constitutional, statutory, or judicial requirements even
though those payments are subsequently determined to be
incorrect.[Footnote 9] OMB deemed these types of payments to be
"unavoidable" improper payments,[Footnote 10] as there are no
administrative changes SSA could implement that would eliminate the
requirement to make such payments. Although the definition of improper
payments does not use the terms "avoidable"[Footnote 11] 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 because it does not meet
the definition of an improper payment under the act.
Currently, SSA does not track or publicly report on these types of
payments. In addition, OMB has reported that it is not aware of other
agencies that are similarly legislatively mandated to make these types
of payments nor does OMB require governmentwide reporting of these
types of payments. Because agencies are not currently required to
track, monitor, and report these types of payments on a governmentwide
basis, the magnitude of this issue is unknown.
4. As you know, the Subcommittee is committed to rigorously overseeing
USAID and some of its programs. In a written question to Linda Combs
following last July's improper payments hearing, I asked whether or not
OMB supported USAID's internal assessment that none of their programs
were considered to be at risk for "significant" improper payments. Her
response deemed USAID's documentation for fiscal year 2004 as
acceptable, and stated their intentions to re-evaluate their risk
assessments in the fiscal year 2005 Performance and Accountability
Report to determine their acceptability. According to GAO's report,
USAID was silent as to whether it had programs that are susceptible to
making significant improper payments.
a) What concerns does GAO have with the Agency for International
Development's (USAID) reporting on improper payments?
As with other agencies, it is important for USAID to fulfill the
requirements of IPIA and report the applicable improper payments
information in its PAR. As stated in IPIA and OMB's implementing
guidance, each agency shall annually review all programs and activities
that it administers and identify all such programs and activities that
may be susceptible to significant improper payments. For fiscal year
2005, USAID reported limited improper payment information in its PAR.
From our review, we found no assertions from USAID that it had assessed
all programs and activities for susceptibility to significant improper
payments. A risk assessment is a key step in gaining assurance that
programs are operating as intended and that they are achieving their
expected outcomes. It entails a comprehensive review and analysis of
program operations to determine where risks exist, what those risks
are, and the potential or actual effect 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. USAID only reported that it continues to monitor all its
programs and payment activities. Because USAID's PAR lacks details
about the monitoring activities it reportedly performed, we are
uncertain as to whether this meets the above requirement to perform a
risk assessment.
In fact, there were five programs that did not provide sufficient
reporting on improper payments in their fiscal year 2005 Performance
and Accountability Report: USAID, the Export-Import Bank, the Pension
Benefit Guarantee Corporation, the Postal Service, and the Smithsonian.
b) Does GAO have any concerns with the rest of these agencies and their
failure to report improper payment information?
Any agencies' failure to report improper payment information as
required by the act is of great concern. For example, the Postal
Service's Office of Inspector General (OIG) reported that for fiscal
year 2005 it had identified $75 million in questioned costs, $261
million in funds that could have been put to better use, and $11
million in unrecoverable costs. The OIG further reported fines,
restitutions, and recoveries of $66 million. These OIG findings suggest
that the agency may not be adequately assessing all of its programs and
activities for significant improper payments. In meeting the
requirements of the act, the Postal Service, as well as other agencies,
should report on their risk assessment activities and explicitly state
whether the results of the risk assessment identified programs and
activities susceptible to significant improper payments.
Since fiscal year 2000, our work has demonstrated that improper
payments are a long-standing, widespread, and significant problem in
the federal government. Transparency in reporting improper payments is
crucial at both the federal agency and governmentwide levels. Public
reporting helps establish accountability as well as expectations for
improvements. This includes holding agencies accountable for achieving
target rates or otherwise implementing specifically planned actions.
Annually identifying, estimating, and publicly reporting progress made
to reduce improper payments enables agencies and others with oversight
and monitoring responsibilities to measure this progress and determine
whether further action is needed to minimize future improper payments.
5. As you know, the improper payments made in the Earned Income Tax
Credit makes up the second largest portion of government-wide improper
payments for fiscal year 2005, estimating $9.6 to $11.4 billion dollars
paid improperly.
In fiscal year 2004 EITC had an improper payment rate of 25 percent.
For fiscal year 2005, it was 28 percent and this is on the low side,
because it's just an estimate. This program does not just need help, it
needs a complete overhaul, with an improper payment rate that high.
I am familiar with the legislative proposals in the President's fiscal
year 2007 Budget. OMB believes that if enacted, this proposal would
save $232 million in the first year and $5 billion over ten years. That
seems a bit under-ambitious when EITC is making at least $10 billion in
improper payments every year. In other words, with improper payments of
$100 billion over 10 years, why are you [OMB] projecting only to reduce
that number by 5 percent? Mr. Williams, has GAO done any analysis of
the President's proposals? If so, what is the GAO's assessment? Has GAO
made any recommendations regarding the administration and financial
controls in the EITC program?
To date, we have not performed an analysis or an assessment of the
President's legislative proposals as they relate to the Earned Income
Tax Credit (EITC) program. Regarding any recommendations made, since
fiscal year 2001, we have issued three reports that included seven
recommendations related to the administration and financial controls in
the EITC program. (See table 1.)
Table 1: GAO Recommendations since Fiscal Year 2001 Related to the EITC
Program:
GAO Report Number: GAO-05-221[A];
GAO Findings: Of the 12 federal means-tested programs reviewed,
including the EITC program, we found that information on participants'
eligibility and particular recipient groups can help program managers
more effectively address issues related to program access. With regard
to the EITC program, we found that the Internal Revenue Service (IRS)
does not: (1) use rate information as a performance measure or (2)
include rate information in its performance report or other key program
reports;
GAO recommendations related to the EITC program: As participation rate
estimates are developed to use as program performance measures for the
EITC program, we recommended that steps be taken to quantify errors
that may result from estimating EITC participation rate estimates to
help users better understand the accuracy of the data and ensure that
estimates will be comparable over time;
Status of recommendations: The recommendation is open.
GAO report number: GAO-05-92[ B];
GAO Findings: We found that IRS's implementation of tests to address
the leading sources of EITC errors was not well documented and the
level and quality of some services provided to test participants were
not measured;
GAO recommendations related to the EITC program: We made four
recommendations to (1) ensure the rationale for key decisions is
documented, (2) obtain information on the quality and use of all types
of taxpayer assistance, (3) clearly state limitations when
disseminating results, and (4) complete development of detailed
evaluation plans for the 2005 tests;
Status of recommendations: The first two recommendations are closed.
The remaining two recommendations are open.
GAO Report number: GAO-01-42[C];
GAO findings: While IRS has made improvements since we began auditing
its financial statements in fiscal year 1992, serious internal control
and financial and operational system weaknesses continued to affect the
agency's ability to effectively manage its operations and produce
reliable financial statement information during fiscal year 1999;
GAO recommendations related to the EITC program: We made two
recommendations to (1) determine why service centers have been
ineffective in stopping refunds associated with questionable EITCs, and
(2) develop reliable cost/benefit data, using the best available
information from the screening and examination of EITC claims, to
estimate the tax revenue collected by, and the amount of improper
refunds returned to, IRS for each dollar spent pursuing these
outstanding amounts;
Status of recommendations: The first recommendation is closed. The
second recommendation is open.
Source: GAO.
[A] GAO, Means-Tested Programs: Information on Program Access Can Be an
Important Management Tool, GAO-05-221 (Washington, D.C.: Mar. 11,
2005).
[B] GAO, Earned Income Tax Credit: Implementation of Three New Tests
Proceeded Smoothly, But Tests and Evaluation Plans Were Not Fully
Documented, GAO-05-92 (Washington, D.C.: Dec. 30, 2004).
[C] GAO, Internal Revenue Service: Recommendations to Improve Financial
and Operational Management, GAO-01-42 (Washington, D.C.: Nov. 17,
2000).
[End of table]
6. The Department of Labor has reduced improper payments in its
Unemployment Insurance program by about $600 million between 2004 and
2005. OMB reports that this is more than a 15 percent decrease in the
error rate for this program since last year's reporting. A 15 percent
reduction is a significant accomplishment.
a) How can the Department of Labor's successes be carried over to other
agencies? b) If the Department of Labor has had this much success in
reporting and reducing improper payments, shouldn't other federal-state
partnered programs like Temporary Assistance for Needy Families (TANF),
Medicaid, Foster Care, Child Care, State Children's Health Insurance
Program (SCHIP), School Programs and Women, Infants and Children (WIC)
be able to coordinate between the federal and state authorities to
develop an improper payment estimate?
In our April 2006 report,[Footnote 12] we highlighted that federal and
state coordination was needed to develop improper payment estimates for
federal programs administered at the state level, including some of the
programs included in your question. State-administered programs and
other nonfederal entities receive over $400 billion annually in federal
funds. Thus, federal agencies and states share a responsibility for the
prudent use of these funds. One of the reasons the Department of Labor
(Labor) has been able to report an improper payment estimate for its
Unemployment Insurance (UI) program is because of a federal
requirement[Footnote 13] in place that mandates that Labor measure each
state's payment accuracy rate. To address this requirement, Labor
implemented the Benefit Accuracy Measurement (BAM) program, which is
designed to determine the accuracy of paid and denied claims in the UI
program. It does this by reconstructing the UI claims process from
samples of weekly payments and denied claims using data verified by
trained investigators. For claims that were overpaid, underpaid, or
improperly denied, the BAM program determines the cause of and the
party responsible for the error, the point in the UI claims process at
which the error was detected, and actions taken by the agency and
employers prior to the error. For erroneously paid claims, the BAM
program determines the amount of benefits the claimants should have
received, which becomes the basis for subsequent recovery efforts. In
addition to the federal requirement[Footnote 14] in place that states
must adhere to for estimating improper payments, Labor has attributed
its successes to the support and commitment from top management to
facilitate successful implementation of IPIA and excellent working
relationships with the states.
There are several key initiatives that federal agencies with state-
administered programs should employ to fulfill the requirements of
IPIA, such as establishing a culture of accountability, developing a
system to collect program information at the state level for estimating
improper payments, and monitoring program performance to determine if
desired program outcomes have been achieved. These key initiatives are
aligned with our Standards of Internal Control[Footnote 15] and
executive guide[Footnote 16] on strategies to manage improper payments.
Among the standards that are directly linked to the above key
initiatives are the following:
² Control environment--creating a culture of accountability by
establishing a positive and supportive attitude toward improvement and
the achievement of established program outcomes.
² Information and communication--using and sharing relevant, reliable,
and timely financial and nonfinancial information in managing
activities related to improper payments.
² Monitoring--tracking improvement initiatives over time, and
identifying additional actions needed to further improve program
efficiency and effectiveness.
As we previously reported,[Footnote 17] measuring improper payments and
designing and implementing actions to reduce or eliminate them are not
easy tasks, particularly for grant programs that rely on high-quality
administration efforts at the state, grantee, or subgrantee level.
Given states' involvement in determining eligibility and distributing
benefits, states are in a position to assist federal agencies in
reporting on IPIA requirements. Communication, coordination, and
cooperation among federal agencies and the states will be critical
factors in estimating improper payment rates and meeting IPIA reporting
requirements for state-administered programs.
7. There is some confusion on whether or not the Community Development
Block Grant Program (CDBG) is required to report improper payments. It
was one of the original programs on the President's Management Agenda,
so it's been required to report since 2001. It is also required to
report under the Improper Payments Information Act, but is not
reporting under [either] requirements. In other hearings held by this
Subcommittee as well as in written responses to letters sent by me and
Senator Carper, the Department of Housing and Urban Development (HUD)
has denied that they are out of compliance with the Improper Payments
Information Act. The CDBG program is required to report under IPIA. Is
GAO concerned that CDBG's outlays are $5.4 billion, and not only are
they not reporting, they have claimed that they are in compliance?
In its fiscal year 2005 PAR, HUD reported that based on completed
testing of fiscal year 2003 payments, the CDBG program was below OMB's
threshold for significant improper payments and, therefore, was removed
from HUD's at-risk inventory. As such, 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. First, CDBG was subject to the previous
OMB Circular No. A-11 requirements[Footnote 18] and thus was required
by OMB's guidance to continue to report improper payment information
under IPIA, regardless of the agency-determined risk level. Second,
during a June 2006 hearing before your subcommittee[Footnote 19] 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 evident by the HUD OIG reviews,
the CDBG program may be at risk of making improper payments.
We are sending a copy of this report to the Director of OMB and other
interested parties. This report is also available on GAO's home page at
[Hyperlink, http://www.gao.gov]. Should you have any questions on
matters discussed in this report or need additional information, please
contact me at (202) 512-9095 or at williamsm1@gao.gov. 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 include Carla Lewis, Assistant Director; James Maziasz, and
Donell Ries.
Sincerely yours,
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
(195093):
FOOTNOTES
[1] GAO, Financial Management: Challenges Remain in Meeting
Requirements of the Improper Payments Information Act, GAO-06-482T
(Washington, D.C.: Mar. 9, 2006).
[2] A disclaimer of opinion means that the auditor does not express an
opinion on the financial statements. This type of opinion is
appropriate when the audit scope is not sufficient to enable the
auditor to express such an opinion or when there are material
uncertainties involving scope limitations.
[3] 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.
[4] We consider the terms "erroneous payments" and "improper payments"
to be synonymous.
[5] 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) and Purchase Cards: Control Weaknesses Leave DHS Highly
Vulnerable to Fraudulent, Improper, and Abusive Activity, GAO-06-957T
(Washington, D.C.: July 19, 2006).
[6] Reportable conditions are matters coming to an auditor's attention
that, in their judgment, should be communicated because they represent
significant deficiencies in the design or operation of internal control
that could adversely affect the federal government's ability to meet
the internal control objectives described in the audit report.
[7] The number of reportable conditions for each of the eight agencies
ranged from 2 to 14.
[8] GAO, Post-Hearing Questions Related to Agency Implementation of the
Improper Payments Information Act, GAO-05-1029R (Washington, D.C.:
Sept. 16, 2005).
[9] 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, and 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.
[10] OMB defines "unavoidable" payments as payments resulting from
legal or policy requirements.
[11] OMB defines "avoidable" payments as payments that could be reduced
through changes in
administrative actions.
[12] GAO, Improper Payments: Federal and State Coordination Needed to
Report National Improper Payment Estimates on Federal Programs, GAO-06-
347 (Washington, D.C.: Apr. 14, 2006).
[13] Part 602 of Title 20, U.S. Code of Federal Regulations.
[14] We have previously reported that only the Food Stamps and
Unemployment Insurance programs had federal requirements for all states
to annually estimate improper payments. See GAO-06-347.
[15] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[16] GAO, Strategies to Manage Improper Payments: Learning From Public
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October
2001).
[17] GAO-05-1029R.
[18] Prior to the governmentwide 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.
[19] June 29, 2006 hearing before the Senate Subcommittee on Federal
Financial Management, Government Information, and International
Security, Committee on Homeland Security and Governmental Affairs.
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