Financial Management:

Increased Attention Needed to Prevent Billions in Improper Payments

AIMD-00-10: Published: Oct 29, 1999. Publicly Released: Nov 5, 1999.

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Pursuant to a congressional request, GAO provided information on improper payments in light of the projected future growth of federal expenditures, focusing on the: (1) amounts reported by agencies as improper payments in their fiscal year (FY) 1998 financial statements prepared pursuant to the Chief Financial Officers (FO) Act of 1990; (2) types of federal programs at risk of disbursing improper payments; (3) reported causes of improper payments across the federal government; and (4) extent to which agencies are addressing improper payments in their performance plans under the Government Performance and Results Act of 1993.

GAO noted that: (1) in their FY 1998 financial reports, nine agencies collectively reported improper payment estimates of $19.1 billion; (2) these improper payment estimates relate to 17 major programs that expended approximately $870 billion; (3) the programs and related improper payment estimates include: (a) Medicare Fee-for-Service ($12.6 billion); (b) Supplemental Security Income ($1,648 million); (c) Food Stamps ($1,425 million); (d) Old Age and Survivors Insurance ($1,154 million); (e) disability insurance ($941 million); (f) housing subsidies ($857 million); and (g) veterans benefits, unemployment insurance, and others ($514 million); (4) also included are the Agency for International Development (AID), Medicaid, and the Federal Crop Insurance Corporation; (5) AID and the agencies administering these programs acknowledged making improper payments in their FY 1998 financial statement, but did not disclose specific dollar amounts; (6) improper payments are much greater than have been disclosed thus far in agency financial statements reports, as shown by GAO's prior audits and those of agency inspectors general; (7) agencies are not performing comprehensive quality control reviews--internal studies or reviews--for certain programs to determine the propriety of program expenditures; (8) as a result, the full extent of the problem--and possible solutions to it--is unknown; (9) comprehensive quality control reviews could also identify the causes of improper payments, which range from inadvertent errors to fraud and abuse; (10) working with the Office of Management and Budget (OMB), some agencies are taking steps to mitigate this risk by focusing attention on identifying, reporting, and reducing improper payments through the discipline of annual audited financial statements and the development of performance goals; (11) however, agencies responsible for 13 of the 17 programs having made improper payments--many of which GAO identified in its High-Risk and Performance and Accountability series issued earlier this year--did not include specific performance goals or strategies to comprehensively address these payments in their FY 2000 performance plans under the Results Act; and (12) as the federal budget grows, more taxpayer dollars are placed at risk, thus increasing the urgency for identifying and preventing these types of payments and providing complete accountability to taxpayers.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To assist agencies in estimating and managing improper payments, the Director, OMB, through the Deputy Director for Management and OMB's Office of Federal Financial Management, within the framework of the CFO and Results Acts, should develop and issue guidance to executive agencies to assist them in: (1) developing and implementing a methodology for annually estimating and reporting improper payments for major federal programs; and (2) developing goals and strategies to address improper payments in their annual performance plans.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: The Office of Management and Budget (OMB) has revised Circular No. A-11 to require agencies to submit, with their initial budget submission, erroneous payment data, assessments of current agency efforts to minimize erroneous payments, and additional actions the agency could take to prevent erroneous payments and to correct erroneous payments made. For example, the Circular requires agencies to submit data on (1) estimated erroneous payment rates projected for fiscal year 2001, (2) actual error rates for fiscal years 1999 and 2000, if available, and (3) target rates (goals) for fiscal years 2002 and 2003.

    Recommendation: To assist agencies in estimating and managing improper payments, the Director, OMB, through the Deputy Director for Management and OMB's Office of Federal Financial Management, within the framework of the CFO and Results Acts, should require agencies to: (1) include a description of steps being taken to address improper payments in their strategic and annual performance plans when the level of improper payments is mission critical; and (2) consult with congressional oversight committees, as appropriate, on the projected target levels and goals for estimating and reducing improper payments, as presented in the agencies' annual performance plan.

    Agency Affected: Executive Office of the President: Office of Management and Budget

    Status: Closed - Implemented

    Comments: As a result of the Improper Payments Information Act of 2002, OMB has issued guidance to all federal agencies requiring that they review all of their programs and activities for improper payments, estimate the amounts of improper payments in their programs and activities, and publicly report on the causes of improper payments identified, the effectiveness of actions taken to resolve them, and target rates for reducing improper payments. OMB is also meeting with officials in the federal agencies and congressional staff to discuss barriers to actions to reduce improper payments and plans to continue with these meetings.

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