Source of Fiscal Exposure: Government Operations

Some fiscal exposures stem from challenges encountered during the regular implementation of federal operations—such as benefit payments made to eligible recipients, the management of large acquisitions and real property, and tax collection. When these activities are not carried out as planned, the result can be inefficient or improper federal spending or foregone federal revenues. Examples of exposures in this area include the following:

Improper payments. When the federal government makes improper payments—which may include payments made absent appropriate documentation, in the incorrect amount, to an ineligible recipient, or in duplicate—the result can be reduced efficiency and economy. Federal agencies reported an estimated $124.7 billion in improper payments in fiscal year 2014, attributable to 124 programs spread among 22 agencies. Recouping these payments and reducing future ones will likely require future federal spending. Improper payment estimates may or may not represent a loss to the government. However, as the steward of taxpayer dollars, the federal government is accountable for how its agencies and grantees spend hundreds of billions of taxpayer dollars annually, including safeguarding those expenditures against improper payments and establishing mechanisms to recover those funds when overpayments occur. The following figure shows the five federal programs with the highest reported amounts.

Improper Payment Dollar Estimates: Five Programs with the Highest Reported Amounts in Fiscal Year 2014

Cost overruns and delays of systems acquisitions. An exposure occurs when systems acquisitions cost more or take longer to develop and produce than originally planned. When this happens, agencies are forced to take actions such as (1) requesting more funding to complete the systems, (2) making trade-offs among programs, (3) deferring other priorities, or (4) canceling programs after significant amounts of money have already been spent. For example, GAO reported in March 2014 that of the $682 billion of total future funding required to complete procurements in the Department of Defense's (DOD) 2013 portfolio of 80 major defense acquisition programs, $311.6 billion was attributed to cost growth from the first full estimates for those programs.

Backlogs of deferred maintenance and repairs to federal real property. In the Financial Report of the United States Government of Fiscal Year 2012, estimates for deferred and critical maintenance and repair government-wide ranged from about $153.6 billion to about $159.1 billion. Of this amount, approximately $111.2 billion was attributed to deferred maintenance and repair for DOD. Because agencies use different methods to define and estimate their repair and maintenance backlog, the amount of the government's fiscal exposure is unclear. The following figure shows estimated maintenance and repair backlogs from selected agencies.

Selected Agencies' Deferred Maintenance and Repair Backlog Estimates, Fiscal Year 2012

Uncollected taxes. The tax gap is the difference between the amount of tax payments owed to the federal government and the amount collected on time. The tax gap arises when taxpayers, whether intentionally or inadvertently, fail to accurately report tax liabilities on tax returns (underreporting), fail to pay taxes due from filed returns (underpayment), or fail to file a required tax return altogether or on time (nonfiling). The tax gap is spread across the five types of taxes that the Internal Revenue Service administers: individual income, corporate income, employment, estate, and excise taxes. As shown in the following figure, underreporting, particularly of individual income taxes, accounts for most of the tax gap.

Tax Gap Noncompliance


Excerpted from GAO's Key Issues webpage on the Tax Gap, as of February 2015.

Examples

GAO Reports

Other GAO Resources

Improper payments

  • Improper Payments: Government-wide Estimates and Reduction Strategies (GAO-14-737T)
  • Disability Insurance: Work Activity Indicates Certain Social Security Disability Insurance Payments Were Potentially Improper (GAO-13-635)

Acquisition program cost overruns

National Defense System Acquisitions

Deferred maintenance

Federal Real Property

Tax gap

  • Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources (GAO-13-151)

  • Tax Gap: Sources of Noncompliance and Strategies to Reduce It (GAO-12-651T)

Tax Gap

Tax Expenditures

Tax Reform

Other related areas

Managing for Results in Government

DOD Business Systems Modernization

DOD Financial Management

Realigning and Closing Military Bases

Transforming DOD's Business Operations

Federal Leadership Capacity and Continuity

Management of Federal Grants to State and Local Governments

U.S. Postal Service's Financial Viability