Disaster Relief:

Agencies Need to Improve Policies and Procedures for Estimating Improper Payments

GAO-15-209: Published: Feb 27, 2015. Publicly Released: Feb 27, 2015.

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What GAO Found

The five agencies GAO reviewed used a variety of approaches to estimate and report improper payments related to Disaster Relief Appropriations Act, 2013 (DRAA) funding, in accordance with Office of Management and Budget (OMB) guidance. Specifically, these agencies, which received approximately 94 percent of the $50 billion provided by DRAA, used various approaches regarding the following:

Estimate presentation. Some agencies reported separate estimates for DRAA funding, while others developed one combined improper payment estimate that also included non-DRAA funding.

Estimate methodology. Agencies used statistical sampling methodologies, used alternative (nonstatistical) sampling methodologies, or tested 100 percent of DRAA-funded payments to estimate improper payments for DRAA funding.

Time period of estimate. Agencies used different time periods (or sampling windows) of the underlying transactions that were tested to develop improper payment estimates, such as October 2012 through September 2013 or April 2013 through March 2014.

The five agencies GAO reviewed had developed policies and procedures to guide their processes for estimating improper payments for 21 of 22 programs. However, GAO found that the agencies' policies and procedures did not address all key requirements from relevant laws, guidance, and Standards for Internal Control in the Federal Government . For example, GAO found the following:

Ten of the 22 programs did not have policies and procedures that included key quality assurance procedures, such as reconciliations, to validate that the populations of transactions were complete and accurate before selecting the samples used to estimate improper payments. Standards for Internal Control in the Federal Government states that control activities, such as reconciliations, are an integral part of an entity's planning, implementing, reviewing, and accountability for stewardship of government resources and achieving effective results.

Fourteen of the 22 programs did not have policies and procedures that included a requirement to maintain sufficient documentation to support their improper payment estimates as required by OMB guidance. Standards for Internal Control in the Federal Government also states that internal controls and all transactions and other significant events need to be clearly documented, and that the documentation should be readily available for examination and properly managed and maintained.

During the audit, one of the five agencies addressed the deficiencies that GAO identified. If key requirements for estimating improper payments are not documented in policies and procedures, agencies face an increased risk that their estimation processes as designed will not comply with the provisions of relevant laws and regulations or consistently produce reliable estimates that can help agencies improve stewardship of taxpayer dollars.

Why GAO Did This Study

DRAA provided approximately $50 billion in supplemental appropriations, before sequestration, to 19 federal agencies for expenses related to Hurricane Sandy and other purposes. DRAA deemed all programs and activities receiving appropriations under the act as susceptible to significant improper payments, making such appropriations subject to improper payment estimation requirements established in law and through OMB guidance.

GAO was asked to review agencies' efforts to estimate improper payments for expenses related to Hurricane Sandy. For DRAA funds, this report (1) describes how selected agencies estimated and reported improper payments and (2) determines the extent to which selected agencies developed policies and procedures for estimating improper payments. GAO reviewed the Departments of Homeland Security, Housing and Urban Development, and Transportation; the U.S. Army Corps of Engineers; and the Small Business Administration, which collectively received most of the DRAA funds. GAO reviewed sampling plans, evaluated agencies' policies and procedures, and conducted interviews with officials at these agencies and OMB.

What GAO Recommends

GAO is making recommendations to four of the five agencies to either develop or revise their policies and procedures for estimating improper payments for DRAA funds. These four agencies generally agreed with GAO's recommendations and cited plans for implementing them.

For more information, contact Beryl H. Davis at (202) 512-2623 or davisbh@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Small Business Administration provided GAO with a copy of an SBA Procedural Notice, Control No. 6000-9903, which provides guidance for SBA personnel responsible for estimating annual improper payments for programs susceptible to such payments. The notice became effective March 25, 2015. The new guidance (1) defines improper payments consistently with the Improper Payments Information Act of 2000 (IPIA); (2) defines payments to include those made to Federal employees; (3) requires SBA personnel to follow the guidance for sampling methodologies outlined in OMB A-123 and for sample selection to be performed by a person who has training and experience in designing statistical samples and using statistical methods; (4) requires the testing office to examine the payment for each sample selected using a test plan or checklist that shows the key elements of a payment for that specific type of disbursement; (5) requires each office to maintain sufficient documentation/records to support the improper payment estimates, including population reconciliations to the general ledger, submissions to the statistician, testing work papers, statistician estimates, and documentation of improper payment discrepancies; and (6)requires a statistician to select a sample and prepare a sampling methodology plan in accordance with OMB Circular A-123. The new guidance should reduce the risk that improper payment estimates at SBA are not accurate or reliable.

    Recommendation: To help reduce the risk that improper payment estimates related to DRAA funding developed and reported by selected agencies may not be accurate or reliable, and to help ensure that SBA produces reliable estimates of its DRAA improper payments, the Administrator of SBA should direct the appropriate officials to revise its Disaster Assistance Loans program policies and procedures for estimating improper payments by: (1) defining improper payments consistently with IPIA, as amended, and OMB Circular No. A-123, Appendix C; (2) require payments to federal employees to be included in populations for testing as required by IPIA, as amended; (3) including steps to assess the completeness of the population of transactions used for selecting the samples to be tested; (4) providing sufficient procedures for determining an error and what documentation is necessary to substantiate payment; (5) requiring the agency to maintain sufficient documentation to support improper payment estimates; and (6) requiring that the sampling methodologies meet the precision requirements outlined in OMB Circular No. A-123, Appendix C.

    Agency Affected: Small Business Administration

  2. Status: Open

    Comments: No updated information has been provided by the Department of Transportation. We will continue to monitor the status of this recommendation.

    Recommendation: To help reduce the risk that improper payment estimates related to DRAA funding developed and reported by selected agencies may not be accurate or reliable, and to help ensure that DOT produces reliable estimates of its DRAA improper payments, as applicable to each administration, the Secretary of Transportation should direct the Administrators of the Federal Aviation Administration, Federal Highway Administration, Federal Railroad Administration, and Federal Transit Administration to revise their policies and procedures for estimating improper payments by: (1) clearly identifying roles and responsibilities for estimating improper payments; (2) defining improper payments consistently with IPIA, as amended, and OMB Circular No. A-123, Appendix C; (3) requiring payments to federal employees to be included in populations for testing as required by IPIA, as amended; (4) including steps to assess the completeness of the population of transactions used for selecting the samples to be tested; (5) requiring the agency to maintain sufficient documentation to support improper payment estimates; (6) requiring that the sampling methodologies meet the precision requirements outlined in OMB Circular No. A-123, Appendix C; and (7) requiring a consultation with a statistician to ensure the validity of sample design, sample size, and measurement methodology.

    Agency Affected: Department of Transportation

  3. Status: Open

    Comments: No updated information has been provided by the Department of Housing and Urban Development. We will continue to monitor the status of this recommendation.

    Recommendation: To help reduce the risk that improper payment estimates related to DRAA funding developed and reported by selected agencies may not be accurate or reliable, and to help ensure that the Department of Housing and Urban Development produces reliable estimates of its DRAA improper payments, the Secretary of Housing and Urban Development should direct appropriate officials to revise its policies and procedures for estimating improper payments by (1) requiring payments to federal employees to be included in populations for testing as required by the Improper Payments Information Act of 2002 (IPIA), as amended, and (2) including steps to assess the completeness of the population of transactions used for selecting the samples to be tested.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Open

    Comments: No updated information has been provided by the Department of Defense. We will continue to monitor the status of this recommendation.

    Recommendation: To help reduce the risk that improper payment estimates related to DRAA funding developed and reported by selected agencies may not be accurate or reliable, and to help ensure that the U.S. Army Corps of Engineers (USACE) produces reliable estimates of its DRAA improper payments, the Secretary of the Army should direct the Chief of Engineers and Commanding General of USACE to revise policies and procedures for estimating improper payments by: (1) defining improper payments consistently with IPIA, as amended, and OMB Circular No. A-123, Appendix C; (2) requiring payments to federal employees to be included in populations for testing as required by IPIA, as amended; (3) including steps to assess the completeness of the population of transactions used for selecting the samples to be tested; (4) providing sufficient procedures for determining an error and what documentation is necessary to substantiate payment; and (5) requiring the agency to maintain sufficient documentation to support improper payment estimates.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Comments: The Small Business Administration provided GAO with a copy of an SBA Procedural Notice, Control No. 6000-9903, which provides guidance for SBA personnel responsible for estimating annual improper payments for programs susceptible to significant improper payments. The notice became effective March 25, 2015. The new guidance: (1) provides a list of responsible parties and identifies their roles and associated responsibilities; (2) defines improper payments consistently with the Improper Payments Information Act of 2000 (IPIA); (3) defines payments to include those made to Federal employees; (4) requires the testing office to examine payments in relation to a test plan or checklist for each sample selected; (5) requires supporting documents for the key elements be obtained and reviewed to confirm the disbursement was proper; (6) requires each office to maintain sufficient documentation/records to support the improper payment estimates; (7) requires the preparation of a sampling methodology plan in accordance with the OMB Circular A-123; and (8) requires each office responsible for a program/activity susceptible to improper payments contract with an outside statistician for statistical services. The new guidance should reduce the risk that improper payment estimates at SBA's Office of Entrepreneurial Development are not accurate or reliable.

    Recommendation: To help reduce the risk that improper payment estimates related to DRAA funding developed and reported by selected agencies may not be accurate or reliable, and to help ensure that SBA produces reliable estimates of its DRAA improper payments, the Administrator of the Small Business Administration (SBA) should direct the appropriate officials to develop policies and procedures for the Office of Entrepreneurial Development Grants program to estimate improper payments by: (1) clearly identifying roles and responsibilities for estimating improper payments; (2) defining improper payments consistently with IPIA, as amended, and OMB Circular No. A-123, Appendix C; (3) requiring payments to federal employees to be included in populations for testing as required by IPIA, as amended; (4) including steps to assess the completeness of the population of transactions used for selecting the samples to be tested; (5) providing sufficient procedures for determining an error and what documentation is necessary to substantiate a payment; (6) requiring the agency to maintain sufficient documentation to support improper payment estimates; (7) requiring that the sampling methodologies meet the precision requirements outlined in OMB Circular No. A-123, Appendix C; and (8) requiring a consultation with a statistician to ensure the validity of sample design, sample size, and measurement methodology.

    Agency Affected: Small Business Administration

 

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