Key Issues > Duplication & Cost Savings > GAO's Action Tracker > Governmentwide Improper Payments
government icon, source: Eyewire

General Government: Governmentwide Improper Payments

Efforts to address governmentwide improper payments could result in significant cost savings.

Action:

Until the federal government has implemented effective processes to determine the full extent to which improper payments occur and to reasonably ensure that appropriate actions are taken across entities and programs to effectively recover and reduce improper payments, the federal government will not have reasonable assurance that the use of taxpayer funds is adequately safeguarded.

Progress:

The federal government has made progress in identifying programs that are susceptible to improper payments and including them in its estimate of governmentwide improper payments and recovering overpayments. However,further efforts, consistent with GAO’s suggestion in March 2011, are needed to ensure that all risk-susceptible programs are included,estimates are reliable, and improper payments are reduced.Under the Improper Payments Information Act of 2002 (IPIA), as amended, executive agencies are required to determine whether any of their programs are susceptible to improper payments and annually estimate and report the amount of improper payments in any susceptible programs.[1] While the specific programs included in the governmentwide improper payment estimate may change from year to year, a net of 40 additional programs were included in fiscal year 2014 when compared to fiscal year 2013. For fiscal year 2014, the Office of Management and Budget (OMB) reported federal entity recoveries of overpayments of over $20 billion. OMB reported that the governmentwide improper payment error rate increased to 4.0 percent of program outlays in fiscal year 2014 from 3.5 percent in fiscal year 2013 when including the Department of Defense’s (DOD) Defense Finance and Accounting Service (DFAS) Commercial Pay program.[2]  In May 2013, GAO reported on major deficiencies in DOD’s process for estimating improper payments in the DFAS Commercial Pay program, including deficiencies in identifying a complete and accurate population of payments and developing a statistically valid sampling methodology. DOD reported in its fiscal year 2014 agency financial report that it has revised its sampling methodology. Because of long-standing financial management weaknesses, DOD also reported that it cannot demonstrate that all payments subject to improper payment estimation requirements were included in the population of payments for review.Consequently, the fiscal year 2014 improper payment estimate for the DFAS Commercial Pay program may not be reliable. Without the DFAS Commercial Pay program, federal entity improper payment estimates totaled $124.7 billion in fiscal year 2014, a significant increase from the prior year estimate of $105.8 billion. When excluding the DFAS Commercial Pay program, the governmentwide error rate was 4.5 percent of program outlays in fiscal year 2014, compared to 4.0 percent in fiscal year 2013. Further, in their most recent annual reports, various inspectors general reported deficiencies related to compliance under the requirements in section 3 of the Improper Payments Elimination and Recovery Act of 2010 (IPERA) for fiscal year 2013 at their respective federal entities, including risk-susceptible programs that did not report improper payment estimates, estimation methodologies that may not produce reliable estimates, and risk assessments that may not accurately assess the risk of improper payment. Also, twofederal entities did not report fiscal year 2014 estimated improper payment amounts for four risk-susceptible programs. To determine the full extent of improper payments governmentwide and to more effectively recover and reduce them, continued agency attention is needed to (1) identify programs susceptible to improper payments, (2) develop reliable improper payment estimation methodologies, (3) report on improper payments as required, and (4) implement effective corrective actions based on root cause analysis. Absent such continued efforts, the federal government cannot be assured that taxpayer funds are adequately safeguarded.



[1]Improper payment is defined 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.  According to guidance from the Office of Management and Budget, agencies should also report as improper payments any payments for which insufficient or no documentation is found.

[2]Reported error rates represent the estimated improper payments as a percentage of total outlays. The programs included in the governmentwide totals may change from year to year, affecting the comparability of annual totals and error rates.

Action:

The level of importance the agencies and administration place on the efforts to implement the requirements established by the Improper Payments Elimination and Recovery Act of 2010 (IPERA); Executive Order 13520, Reducing Improper Payments; and other guidance will be a key factor in determining their overall effectiveness in reducing improper payments and ensuring that federal funds are used efficiently and for their intended purposes.

Progress:

The Office of Management and Budget (OMB) and the Department of the Treasury (Treasury) have taken steps to help agencies implement the requirements of laws and guidance focused on reducing improper payments, but additional action by the agencies is needed to ensure they are effectively implementing the requirements of such laws and guidance, as GAO suggested in March 2011. In January 2013, the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA) was enacted to strengthen efforts to identify, prevent, and recover federal funds disbursed because of payment error, waste, fraud, and abuse, amending and supplementing the Improper Payments Information Act of 2002 (IPIA) and the Improper Payments Elimination and Recovery Act of 2010 (IPERA) requirements. Among other things, IPERIA enacted into law elements of the Do Not Pay (DNP) initiative, which began in April 2012, in response to the June 2010 Presidential Memorandum—Enhancing Payment Accuracy Through a "Do Not Pay List."DNP is a web-based, centralized data-matching service that allows agencies to review multiple databases to determine a recipient’s award or payment eligibility prior to making payments. IPERIA requires entities to review prepayment and pre-award procedures and ensure a thorough review of available databases to determine program or award eligibility before the release of any federal funds. In August 2013, the Director of OMB issued Memorandum M-13-20 (M-13-20), Protecting Privacy while Reducing Improper Payments with the Do Not Pay Initiative. As required by IPERIA, M-13-20 sets forth implementation guidance for the DNP initiative to help ensure that the federal government’s efforts to reduce improper payments comply with privacy laws and policies. The commitment and attention of agency top management to the program’s utilization will be important to its success. Further, in April 2014, agency inspectors general (IG) issued their third annual reports on agency compliance with specific criteria listed in IPERA. The reports on agency compliance for fiscal year 2013 identified issues such as inadequate risk assessment methods used by agencies to identify programs and activities susceptible to significant improper payments, estimates not reported for susceptible programs, and estimation methodologies that may not produce reliable estimates. IPERIA also required OMB to issue guidance to agencies for improving the estimates of improper payments. In October 2014, OMB issued a revision to its improper payments guidance, Appendix C to OMB Circular No. A-123. OMB’s revised guidance consolidated and streamlined reporting requirements, established more detailed categories for reporting improper payments, provided guidance to strengthen the statistical validity of improper payment estimates, and introduced a new internal control framework related to improper payments. Although the revised guidance is generally effective for fiscal year 2015 reporting, OMB has requested that the four agencies with the largest high-priority programs implement the revised guidance early―by April 30, 2015―using fiscal year 2014 information. While the revised guidance may help agencies in performing activities to reduce improper payments, it is too early to determine its impact. Nevertheless, agency top management needs to provide greater attention to ensure compliance with the provisions of these laws and related guidance, especially the issues identified in the IG reports, to help reduce improper payments and ensure that federal funds are used efficiently and for their intended purposes.

  • portrait of
    • Beryl H Davis
    • Director, Financial Management and Assurance
    • davisbh@gao.gov
    • (202) 512-2623