From the U.S. Government Accountability Office, www.gao.gov Transcript for: Improper Payments Description: Audio interview by GAO staff with Beryl Davis, Director, Financial Management and Assurance Related GAO Work: GAO-16-554: Improper Payments: CFO Act Agencies Need to Improve Efforts to Address Compliance Issues Released: July 2016 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's July 2016. Federal government agencies made an estimated $137 billion worth of improper payments in fiscal year 2015. These were payments that shouldn't have been made at all, or were sent in the wrong amount. Beryl Davis, a director in GAO's Financial Management and Assurance team, led a recent review of improper payments in the federal government. Jacques Arsenault sat down with Beryl to talk about what they found. [ Jacques Arsenault: ] For starters, can you explain what an improper payment is? [ Beryl Davis: ] An improper payment is any payment that should not have been made, or that was made in [an] incorrect amount. And let me give you an example. Let's say the federal government paid me -- because they thought I was a beneficiary of a certain program -- paid me $100. But it turns out that I was not entitled to receive that $100,that I really didn't qualify as a beneficiary. That entire $100 would be an improper payment. Let me give you a similar scenario where I receive $100 and I'm a beneficiary for the program, and I'm entitled to be a beneficiary for that program. But the amount of the payment is $100. However, it's inaccurately calculated. So that what I should've received was $90 rather than $100. And the difference between those two amounts -- $10 -- is an improper payment. [ Jacques Arsenault: ] So it could be the payment itself is in error, or the amount of the payment? [ Beryl Davis: ] Correct. [ Jacques Arsenault: ] So how big of an issue are improper payments overall, dollar-wise to the federal government? [ Beryl Davis: ] This past fiscal year, they estimated the federal government -- government-wide - estimated that improper payments were around $137 billion. That was an increase of $12 million over the previous year's estimate. [ Jacques Arsenault: ] Now there are a lot of questions out there about how much fraud is in the federal government. And can you explain for me, what is the relationship between improper payments and fraud? [ Beryl Davis: ] Well, every instance of fraud is an improper payment. However, every improper payment does not constitute fraud. Fraud requires adjudication as to guilt. And that is not part of the process of developing a methodology for estimating improper payments. [ Jacques Arsenault: ] So when we're looking at improper payments, we can get to a total dollar figure, or an estimated dollar figure of how many dollars of improper payments. But you would really need to look into the individual payments themselves, to determine whether those are caused by fraud, or waste, or process errors or things like that. [ Beryl Davis: ] Right. It's a little bit more complicated even than that. Because even if you looked into those again, it's adjudication issue. You might suspect that it was a fraudulent activity ongoing, but there's a process -- a legal process -- that you have to go through in order to determine whether in fact, fraud has occurred. [ Jacques Arsenault: ] And as you said, this report focused in particular, on the Inspector's General. Can you talk about what the IG's found about how well agencies are complying? [ Beryl Davis: ] The IG's determined in their fiscal year 2014 reporting -- which was actually reported in May of 2015, that there were 15 agencies that were not in compliance with improper payments legislation. The key piece of legislation is what we call IPERA. That stands for the Improper Payments Elimination and Recovery Act of 2010. And there are six criteria within that legislation that agencies are required to comply with in order to be not out of compliance with -- you know, with the legislation and adhere to the requirements of the law. There are a number of components in that, where agencies have had difficulties. For example, one of the components is to keep the rate under 10 percent. We have a number of agencies or programs in particular, that have exceeded that 10 percent rate. Likewise, one of the requirements are to establish reduction targets, and meet those reduction targets. And again, agencies are having difficulty doing that. They are more generally in compliance with the requirements of developing risk assessments, providing estimates, and, you know, making up corrective action plans that they're finding that their improper payments are high. [ Jacques Arsenault: ] And are there particular agencies or types of programs that are more susceptible to sending out these types of payments than others? [ Beryl Davis: ] Well, there are three areas within the federal government that kind of are the drivers of the huge dollar amount of improper payments -- $137 billion in fiscal year 2015. Those three areas are first of all, Small Medicare. And that is comprised of the various Medicare programs. In total they comprise almost $60 billion. And then there's Medicaid, which this past year -- in fiscal year 2015 -- was another $29 billion. And then the Earned Income Tax Credit Program, which was another 15. If you take all three of those together, where you're talking about, about 75 percent of the total government-wide estimate. And what's really troublesome about these is some of the rates are pretty high. Medicaid is close to the 10 percent mark -- doesn't go over it. It's about 9.8 percent; just under it. Medicare is over it -- 12 percent at least for fee-for-service component. And then Earned Income Tax Credit has a rate of about 24 percent for improper payments. Which is one of the higher rates within the government -- Federal Government. [ Jacques Arsenault: ] Finally then, what would you say is the bottom line of this report? [ Beryl Davis: ] The bottom line is that there are issues still related to agencies compliance with the law in attempting to reduce improper payments. And more importantly, I think our review disclosed that the Inspector's General are providing a very necessary and needed role to identify some of the issue areas, report on their compliance for their respective agencies, and the individual programs within those agencies. And then, you know, assist their agencies through this reporting process, and developing action plans so that eventually we can solve the problem by developing internal controls to reduce improper payments. 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