From the U.S. Government Accountability Office, www.gao.gov Transcript for: Comptroller General Testifies to U.S. Senate on Improper Payments and the Tax Gap Description: In his October 1, 2015 testimony to the U.S. Senate, Comptroller General Gene Dodaro discusses improper payments and the tax gap. Related GAO Work: GAO-16-92T: Fiscal Outlook: Addressing Improper Payments and the Tax Gap Would Improve the Government's Fiscal Position Released: October 2015 [First Screen] [Silence] Senate Committee on Finance [Second Screen] [Silence] Improper Payments and the Tax Gap [Third Screen] U.S. Comptroller General Gene L. Dodaro Opening Statement October 1, 2015 Thank you very much, Mr. Chairman, Ranking Member Senator Wyden, members of the committee. I'm very pleased to be here today to have this opportunity to talk about improper payments and the tax gap. Both of these areas involve huge amounts of money. I believe there is considerable opportunity to improve the federal government's fiscal position, while not having any detrimental effect on the important programs that serve our citizens across the country. First in improper payments, as we'll show on this chart, since the Congress has required, by law, federal agencies to report estimates of improper payments starting in 2003, the cumulative total of improper payments estimated has risen close to $1 trillion over this period of time. The latest estimate as pointed out in your opening statement, Mr. Chairman, was $124.7 billion in fiscal year '14, up $19 billion from the prior year, so it's very important to get a perspective on the cumulative number here as well as the annual numbers that have been pointed out. And the second chart, as has been mentioned, 75 percent of the improper payment estimates for 2014 involved Medicare, which is the blue part on the chart, which is about 48 percent; Medicaid, 14 percent; another 14 percent for the earned income tax credit. So these programs are important to focus on as you've mentioned in your opening statements. But I also want to emphasize the point that this is a government-wide issue. The estimate here for 2014 involves 124 programs at 22 different agencies across the federal government. So it's not confined to these programs. We think, for example, the next chart shows that there are 10 programs that spend over a billion dollars a year that have improper payment rates over 10 percent. The law sets a bar. If you're over 10 percent, you're not in compliance with the law. And so this problem needs to be addressed on multiple levels. Now, we've made many recommendations in this area. We believe that the Congress has passed laws in 2002, 2010, 2012 to address this issue. Senator Carper's been very involved in helping shape this legislation. The administration is focused on it. The agencies are focused on it. But much more needs to be done. First, there are several programs, including TANF, where estimates are not being made at all. So this picture is not the complete picture of the full extent of potential improper payments across the federal government, as large as these numbers are. Secondly, there are a number of areas where better estimates are required. Department of Defense is one of those areas where we think there needs to be better estimates. We also think that there needs to be a better effort to focus on root causes of the problems. The documentation issue is a symptom, it's not necessarily the root cause of the problem. And lastly, we think there's room for the Congress for additional legislation in this area, particularly to require improper payment estimates for TANF and also provide GAO clear access to the national hire database, which would help us provide a lot more analysis that would help, particularly for those programs that require an income eligibility. Let me quickly turn to the tax gap. The latest estimate of the tax gap by IRS is $450 billion, gross estimate based on their examination of 2006 data. They expect to collect some amount of money, so the net tax gap is $385 billion. It doesn't take long for that to accumulate to trillions over a period of time. The tax gap largely results from underreporting as this chart shows. Eighty-four percent are people not reporting or underreporting their income. Underpayments, where they're acknowledging the tax debt but not paying, is another 10 percent. And then non-filers are 6 percent. The biggest area is in the individual income tax, and over half of that is business income tax for sole proprietors, partnerships, and S corporations as well. The next chart shows that there's a direct correlation between the tax gap and third-party reporting. Where you have third-party reporting to individuals and the government, you have very small amounts in the tax gap. For example, on wages and salaries. For those people who have their wages and salaries, have the deductions taken out, it's only 1 percent of the total amount of improper payments. And it goes up the scale to where you have business income reporting in other areas where there is no third-party reporting or very limited information. They account for over half the tax gap. And it addresses a number of different areas across the areas, across the taxes that IRS collects. We've made many recommendations to IRS to increase the use of third-party information, to better target their efforts, to have a strategy for providing online services to people to help them who want to voluntarily comply better and understand their responsibilities. And we also have made suggestions to the Congress to regulate paid tax preparers and to accelerate W-2 reporting so the IRS has information earlier in the process. I'm very pleased to see this committee considering legislation to regulate tax preparers and accelerate W-2 reporting. I think it's a very good move and I support it and I'd be happy to answer questions about that and any other area, Mr. Chairman. Thank you very much again for the opportunity to be here today.