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entitled 'Post-Hearing Questions Related to Agency Implementation of 
the Improper Payments Information Act' which was released on September 
15, 2005. 

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September 16, 2005: 

The Honorable Tom Coburn: 
Chairman, Subcomittee on Federal Financial Management, Government 
Information, and International Security: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Subject: Post-Hearing Questions Related to Agency Implementation of the 
Improper Payments Information Act: 

Dear Mr. Chairman: 

On July 12, 2005, we testified before your subcommittee at a hearing 
entitled "Improper Payments: Where Are Truth and Transparency in 
Federal Financial Reporting?" At that hearing, we discussed our 
findings on federal agencies' implementation of the Improper Payments 
Information Act of 2002 (IPIA) based on our review of agencies' fiscal 
year 2004 Performance and Accountability Reports (PAR). Our review 
focused on the extent to which agencies have performed the required 
assessments to identify programs and activities that are susceptible to 
significant improper payments, and the annual amount estimated for 
improper payments by federal agencies. 

This report responds to your August 24, 2005, request that we provide 
answers to follow-up questions relating to our July 12, 2005, 
testimony. Your questions, along with our responses, follow. 

1. Pursuant to the Improper Payments Information Act of 2002 (P.L. 107- 
300), OMB provided implementation guidance to agencies, and provided 
the Social Security Administration with supplemental guidance on 
improper payments reporting. This guidance establishes a distinction 
between "avoidable" and "unavoidable" payments. Are you concerned with 
this supplemental guidance? What are the implications of making this 
distinction? Is it GAO's understanding that agencies would not be 
required to report improper payment information to the Congress if they 
are considered to be "unavoidable" under OMB's guidance?

On August 28, 2003, the Office of Management and Budget (OMB) advised 
Social Security Administration (SSA) on improper payment reporting. 
Under this advice, SSA could exclude from its estimate of improper 
payments those payments that it made following constitutional, 
statutory, or judicial requirements even though those payments are 
subsequently determined to be incorrect. These payments were deemed by 
OMB to be "unavoidable" improper payments, 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 

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. 

While the definition of improper payments does not use the terms 
"avoidable" or "unavoidable," we agree with OMB that a payment that was 
made following a legal requirement to make the payment subject to 
subsequent judicial or administrative 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. 

For example, SSA has cited that it is required by statute to continue 
making a payment, even if SSA concludes that the recipient is no longer 
eligible, until certain due process requirements have been met. In this 
example, SSA, because of the statutory requirement, must make the 
payment. Because SSA is continuing to make the mandatory payment, the 
amount is not incorrect under IPIA. 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 have not been made to an ineligible recipient. Accordingly, 
the facts would not support inclusion of these payments as improper 
payments as defined under IPIA. 

While we recognize that OMB's advice is only applicable to SSA, we are 
concerned that other agencies might rely on it, particularly in light 
of the justification OMB provided for not including the above, and 
similar, payments. In its February 13, 2004, response to the Senate 
Committee on Finance inquiry, OMB discussed in detail its advice to SSA 
and its rationale for establishing a distinction between "unavoidable" 
and "avoidable" improper payments. While we concur with OMB's result 
for the SSA examples cited in its response to the committee inquiry, we 
are concerned that the result is based on a principle that might not 
always be applicable in other fact situations. We would caution OMB 
against concluding that any payment that is unavoidable - that is, the 
agency cannot do anything about it - 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 theses types of payments as part of their debt collection 
efforts and have the ability to readily report this type of information 
upon request. 

2. Is SSA the only agency where "unavoidable" and "avoidable" improper 
payment distinctions arise? If not, which other agencies have raised 
these issues, and what is GAO's concern with such a distinction?

Many of the government programs with improper payments are benefit 
programs like those of SSA, which involve recipients and providers of 
services. Although there could be other agencies that also face having 
to make payments as a result of legal or regulatory requirements, we 
are not aware of other agencies having raised the issue of 
"unavoidable" and "avoidable" improper payments. It is our 
understanding that OMB's advice was specific to SSA. 

3. In its report, entitled "Financial Management: Challenges in Meeting 
Requirements of the Improper Payments Information Act," GAO reported, 
based on information provided by OMB from PARs collected, that all 
programs and activities in the Department of Defense had been assessed 
for risk of making improper payments. Only two programs within the 
Department of Defense reported improper payment information: the 
Military Retirement Fund and Military Health Benefits. Please comment 
on the following: 

* Whether or not GAO believes that all programs in the Department of 
Defense have been adequately assessed for risk of improper payments. 

In its fiscal year 2004 PAR, the Department of Defense (DOD) reported 
it had assessed all programs and activities for susceptibility to 
significant improper payments, that is, improper payments exceeding $10 
million and 2.5 percent of program payments, pursuant to criteria OMB 
included in its implementing guidance. While we have provided data on 
DOD's and other agencies' implementation efforts to meet certain 
requirements under IPIA, we have not analyzed DOD's assessments of its 
programs nor its improper payment estimates. 

* Any other programs within the Department of Defense that GAO suspects 
to be at risk for making "significant" improper payments. 

Based on GAO's most recent high-risk series work[Footnote 1] and an 
August 2005 DOD Office of Inspector General (OIG) report on DOD's 
identification and reporting of erroneous payments,[Footnote 2] we 
believe DOD may have other programs and activities that are at risk of 
making significant improper payments. In our January 2005 High-Risk 
Update, we identified 25 high-risk areas. Of the 25, 14 areas involve 
DOD, including 6 governmentwide high-risk areas (see table 1). 

Table 1: GAO Designated DOD High-Risk Areas: 

DOD high-risk areas: 

Approach to Business Transformation; 
Year designated: 2005. 

Personnel Security Clearance Program; 
Year designated: 2005. 

Support Infrastructure Management; 
Year designated: 1997. 

Business Systems Modernization; 
Year designated: 1995. 

Financial Management; 
Year designated: 1995. 

Contract Management; 
Year designated: 1992. 

Supply Chain Management (formerly Inventory Management); 
Year designated: 1990. 

Weapon Systems Acquisition; 
Year designated: 1990. 

Total; 8. 

Governmentwide high-risk areas: 

Establishing Appropriate and Effective Information-Sharing Mechanisms 
to Improve Homeland Security; 
Year designated: 2005. 

Management of Interagency Contracting; 
Year designated: 2005. 

Managing Federal Real Property; 
Year designated: 2003. 

Implementing and Transforming the Department of Homeland Security; 
Year designated: 2003. 

Strategic Human Capital Management; 
Year designated: 2001. 

Protecting the Federal Government's Information Systems and the 
Nation's Critical Infrastructure; 
Year designated: 1997. 

Total: 6. 

Grand total: 14. 

Source: GAO. 

[End of table]

For years, GAO has reported on inefficiencies and lack of adequate 
transparency and appropriate accountability across DOD's major business 
areas, resulting in billions of dollars of wasted resources annually. 
In addition, DOD's financial management deficiencies represent the 
single largest obstacle to achieving an unqualified opinion on the U.S. 
government's consolidated financial statements. Among other things, 
these deficiencies adversely affect the department's ability to control 
costs, ensure basic accountability, and prevent fraud. DOD's financial 
management problems have negatively affected its business operations, 
including activities related to military pay, travel, property, 
contract payments, and automated systems. Based on this, we believe 
that programs related to these areas may be at risk of making 
significant improper payments. 

In its August 2005 report, the DOD OIG reported that DOD estimated 
approximately $977.5 million in erroneous payments associated with DOD 
fiscal year 2004 operations. DOD also identified the military pay 
activity as being at high risk of erroneous payments. Because DOD did 
not complete its preliminary estimates or identify high-risk areas 
until January 2005, none of this information was reported in DOD's 
fiscal year 2004 PAR. As stated in our response to the first part of 
question 3, we have not analyzed DOD's assessments of its programs nor 
its improper payment estimates. 

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 Should you have any questions on matters discussed 
in this report or need additional information, please contact me at 
(202) 512-6906 or at 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; Verginie Amirkhanian; and Donell Ries. 

Sincerely yours,

Signed by: 

McCoy Williams: 
Director, Financial Management and Assurance: 



[1] GAO, High-Risk Series: An Update, GA0-05-207 (Washington, D.C.: 
January 2005). 

[2] Department of Defense Office of Inspector General, Financial 
Management: Identification and Reporting of DoD Erroneous Payments, D- 
2005-100 (Arlington, Va.: Aug. 17, 2005).