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September 6, 2006: 

The Honorable Tom Coburn:
Chairman, Subcommittee on Federal Financial Management, Government 
Information, and International Security: Committee on Homeland Security 
and Governmental Affairs: United States Senate: 

Subject:Improper Payments: Posthearing Questions Related to Agencies 
Meeting the Requirements of the Improper Payments Information Act of 

Dear Mr. Chairman: 

On March 9, 2006, we testified[Footnote 1] before your subcommittee at 
a hearing entitled, "Reporting Improper Payments: A Report Card on 
Agencies' Progress." At the hearing, we discussed our findings on 
federal agencies' challenges in meeting the requirements of the 
Improper Payments Information Act (IPIA) of 2002 based on our review of 
agencies' fiscal year 2005 performance and accountability reports (PAR) 
and annual reports. Our review focused on the extent to which agencies 
have performed the required assessments to identify programs and 
activities that were susceptible to significant improper payments, the 
annual amount estimated by the reporting agencies, and the amount of 
improper payments recouped through recovery audits. 

This letter responds to your June 15, 2006, request that we provide 
answers to follow-up questions relating to our March 9, 2006, 
testimony. Your questions, along with our responses, follow. 

1. The Department of Homeland Security reported that it had assessed 
all programs and activities and found none to be susceptible to making 
significant improper payments. Their independent auditor reported that 
the Department did not institute a systematic method of reviewing all 
programs and identifying those it believed were susceptible to 
significant improper payments. This was the second year in a row that 
the auditor reported IPIA noncompliance for DHS. What concerns does GAO 
have regarding not only DHS' inability to comply with the Improper 
Payments Information Act; but on a greater scale with their overall 
financial management? 

The Department of Homeland Security (DHS) continues to face challenges 
in meeting the requirements of IPIA as well as experience significant 
financial management weaknesses. For fiscal year 2005, DHS received a 
disclaimer of opinion[Footnote 2] on its fiscal year 2005 balance sheet 
and fiscal year 2004 consolidated financial statements, primarily due 
to financial reporting problems.[Footnote 3] 

As context, DHS's auditors cited 10 material internal control 
weaknesses over areas such as financial management oversight; financial 
systems security; property, plant, and equipment; and accounts payable 
and disbursements. For example, agency auditors reported that DHS had 
not established sufficient controls to prevent duplicate payments to 
vendors related to prior year obligations or adopted policies to ensure 
receipt of goods and services prior to payment of invoices. In 
addition, DHS had not provided effective management and oversight to 
ensure corrective action plans were developed, implemented (with 
progress tracked), and successfully completed to support the 
elimination of material weaknesses and achieve consistent, timely, and 
reliable financial reporting departmentwide. Furthermore, the auditors 
found seven instances of noncompliance with applicable laws and 
regulations, one of those being noncompliance with IPIA. Specifically, 
for a second year in a row, its auditors found that DHS did not 
institute a systematic method of reviewing all programs and identifying 
those that are susceptible to significant erroneous payments.[Footnote 
4] The auditors also reported that DHS did not perform test work to 
evaluate improper payments for all material programs for fiscal year 
2005. DHS's testing approach only included a review of its programs 
with total disbursements exceeding $100 million for each agency 
component. DHS reported that programs with fewer disbursements were 
assumed to be too small to exceed the Office of Management and Budget's 
(OMB) reporting threshold of $10 million in improper payments. 

DHS, like other federal agencies, has a stewardship obligation to 
prevent fraud, waste, and abuse; to use tax dollars appropriately; and 
to ensure financial accountability to the President, Congress, and the 
American people. Management must establish effective internal controls 
to safeguard assets, protect revenue, and make authorized payments. 
Based on our previous work, the basic or root causes of improper 
payments can typically be traced to a lack of or breakdown in internal 
control. While DHS did not identify any of its programs or activities 
susceptible to significant improper payments, several of its inherited 
weaknesses clearly suggest risk for improper payments. These inherited 
weaknesses included financial accounting system design and operation 
limitations; lack of adequate accounting systems and processes to 
ensure property, plant, and equipment were properly recorded; and lack 
of policies and procedures to monitor contractor costs and performance. 

Our recent testimonies[Footnote 5] on select DHS programs further 
validate our position. Specifically, from our review of DHS's 
Individuals and Households program related to Hurricanes Katrina and 
Rita disaster relief efforts, we estimated that between $600 million 
and $1.4 billion in improper and potentially fraudulent individual 
assistance payments had been made. Similarly, our recent testimony on 
DHS's purchase card program identified a weak control environment and 
ineffective internal control activities that allowed potentially 
fraudulent, improper, and abusive or questionable transactions to 
occur. DHS must continue to focus on resolving weaknesses and 
developing strong internal controls to overcome its financial 
management challenges. 

2. The following agencies reported in their fiscal year 2005 
Performance and Accountability Report that they had no programs 
susceptible to significant improper payments: 

* The Department of Commerce (Commerce): 

* The General Services Administration (GSA): 

* The Department of Homeland Security (DHS): 

* The Department of the Interior (Interior): 

* The Department of Justice (Justice): 

* National Aeronautics and Space Administration (NASA): 

* The Nuclear Regulatory Commission (NRC): 

* The Securities and Exchange Commission (SEC): 

Please comment on any of the above agencies with which GAO has 

While we provided data on the above agencies' implementation efforts to 
annually review all programs and activities as required under IPIA, we 
have not analyzed their methodologies for conducting risk assessments 
to identify those programs and activities susceptible to significant 
improper payments. That said, noncompliance issues related to IPIA and 
agencies' existing financial management challenges raise questions 
regarding these agencies' assertions that they had no programs 
susceptible to significant improper payments. As we testified at the 
March 9 hearing, auditors for DHS and Justice cited agency 
noncompliance with IPIA, primarily caused by inadequate risk 

In addition, other agency auditors have reported major management 
challenges that can hinder effective internal control. For example, at 
Interior, its auditor reported major management challenges in the 
agency's Workers Compensation Program. Specifically, the auditors found 
that (1) Interior's inefficient and ineffective management led to 
increases in the program's annual costs; (2) the program was 
understaffed, employees lacked training, and there was no uniform 
process for ensuring that costs are accurate; and (3) there was an 
overwhelming lack of awareness that workers' compensation fraud 
existed. The auditors also reported that, at best, the program was 
managed inconsistently and, at worst, was subject to abuse by managers 
seeking an easy way to deal with problem employees. 

Internal control serves as the first line of defense in safeguarding 
assets and preventing and detecting errors, fraud, waste, abuse, and 
mismanagement. Strong systems of internal control provide reasonable 
assurance that programs are operating as intended and are achieving 
expected outcomes. A lack of strong internal control was evident in at 
least three of the eight agencies listed above that reported no 
programs were susceptible to significant improper payments. DHS, GSA, 
and NASA reported they have no risk susceptible programs, yet each of 
these agencies received a disclaimer of opinion on their fiscal year 
2005 financial statement audits due to significant financial reporting 
deficiencies. In addition, agency auditors identified a total of 47 
reportable conditions[Footnote 6] related to internal control 
weaknesses found during the eight agencies' financial statement 
audits.[Footnote 7] Weaknesses identified during a financial statement 
audit could materially affect an agency's program operations and thus, 
significantly increase the risk of making improper payments. 

For example, at NRC, agency auditors identified four reportable 
conditions during their examination of the effectiveness of NRC's 
internal control over financial reporting. One of these reportable 
conditions related to financial controls over disbursements. 
Specifically, auditors found that NRC lacked verification controls to 
review the propriety of edits made to vendor tables which house 
information such as the vendor name, address, tax identification 
number, and bank routing numbers. Verifying such edits helps to ensure 
the existence of the vendor prior to payment, decreasing the risk of 
improper payments to phantom vendors. The auditors also reported that 
NRC does not have controls in place for review and approval of high- 
value payments to nonfederal entities, ranging from amounts in excess 
of $250,000 to $300,000. Payments in the high-value category are not 
reviewed any differently than payments with lower dollar values. During 
their internal control testing, the auditors identified one improper 
payment in excess of $1 million, which had not been detected by NRC. 
The auditors made four recommendations to NRC to strengthen controls 
over its disbursements. Going forward, agency management at this agency 
and the other seven agencies listed above will need to ensure their 
risk assessment methodologies measure the potential or actual effect of 
major management challenges and internal control weaknesses identified 
from financial statement audits in order to assist in identifying 
programs and activities susceptible to significant improper payments. 

3. Should "unavoidable overpayment" statistics at the Social Security 
Administration be reported to the Office of Management and Budget? Why 
would this be important, and how could the Social Security 
Administration implement such a process? 

As we previously reported to your subcommittee,[Footnote 8] OMB has 
allowed the Social Security Administration (SSA) to exclude from its 
estimate of improper payments those payments that it had to make 
following constitutional, statutory, or judicial requirements even 
though those payments are subsequently determined to be 
incorrect.[Footnote 9] OMB deemed these types of payments to be 
"unavoidable" improper payments,[Footnote 10] as there are no 
administrative changes SSA could implement that would eliminate the 
requirement to make such payments. Although the definition of improper 
payments does not use the terms "avoidable"[Footnote 11] or 
"unavoidable," we agree with OMB that a payment that was made because 
of a legal requirement to make the payment, subject to subsequent 
determinations that the payment is not due, should not be included in 
an agency's estimate of its improper payments because it does not meet 
the definition of an improper payment under the act. 

Currently, SSA does not track or publicly report on these types of 
payments. In addition, OMB has reported that it is not aware of other 
agencies that are similarly legislatively mandated to make these types 
of payments nor does OMB require governmentwide reporting of these 
types of payments. Because agencies are not currently required to 
track, monitor, and report these types of payments on a governmentwide 
basis, the magnitude of this issue is unknown. 

4. As you know, the Subcommittee is committed to rigorously overseeing 
USAID and some of its programs. In a written question to Linda Combs 
following last July's improper payments hearing, I asked whether or not 
OMB supported USAID's internal assessment that none of their programs 
were considered to be at risk for "significant" improper payments. Her 
response deemed USAID's documentation for fiscal year 2004 as 
acceptable, and stated their intentions to re-evaluate their risk 
assessments in the fiscal year 2005 Performance and Accountability 
Report to determine their acceptability. According to GAO's report, 
USAID was silent as to whether it had programs that are susceptible to 
making significant improper payments. 

a) What concerns does GAO have with the Agency for International 
Development's (USAID) reporting on improper payments? 

As with other agencies, it is important for USAID to fulfill the 
requirements of IPIA and report the applicable improper payments 
information in its PAR. As stated in IPIA and OMB's implementing 
guidance, each agency shall annually review all programs and activities 
that it administers and identify all such programs and activities that 
may be susceptible to significant improper payments. For fiscal year 
2005, USAID reported limited improper payment information in its PAR. 
From our review, we found no assertions from USAID that it had assessed 
all programs and activities for susceptibility to significant improper 
payments. A risk assessment is a key step in gaining assurance that 
programs are operating as intended and that they are achieving their 
expected outcomes. It entails a comprehensive review and analysis of 
program operations to determine where risks exist, what those risks 
are, and the potential or actual effect of those risks on program 
operations. The information developed during a risk assessment forms 
the foundation or basis upon which management can determine the nature 
and type of corrective actions needed. It also gives management 
baseline information for measuring progress in reducing improper 
payments. USAID only reported that it continues to monitor all its 
programs and payment activities. Because USAID's PAR lacks details 
about the monitoring activities it reportedly performed, we are 
uncertain as to whether this meets the above requirement to perform a 
risk assessment. 

In fact, there were five programs that did not provide sufficient 
reporting on improper payments in their fiscal year 2005 Performance 
and Accountability Report: USAID, the Export-Import Bank, the Pension 
Benefit Guarantee Corporation, the Postal Service, and the Smithsonian. 

b) Does GAO have any concerns with the rest of these agencies and their 
failure to report improper payment information? 

Any agencies' failure to report improper payment information as 
required by the act is of great concern. For example, the Postal 
Service's Office of Inspector General (OIG) reported that for fiscal 
year 2005 it had identified $75 million in questioned costs, $261 
million in funds that could have been put to better use, and $11 
million in unrecoverable costs. The OIG further reported fines, 
restitutions, and recoveries of $66 million. These OIG findings suggest 
that the agency may not be adequately assessing all of its programs and 
activities for significant improper payments. In meeting the 
requirements of the act, the Postal Service, as well as other agencies, 
should report on their risk assessment activities and explicitly state 
whether the results of the risk assessment identified programs and 
activities susceptible to significant improper payments. 

Since fiscal year 2000, our work has demonstrated that improper 
payments are a long-standing, widespread, and significant problem in 
the federal government. Transparency in reporting improper payments is 
crucial at both the federal agency and governmentwide levels. Public 
reporting helps establish accountability as well as expectations for 
improvements. This includes holding agencies accountable for achieving 
target rates or otherwise implementing specifically planned actions. 
Annually identifying, estimating, and publicly reporting progress made 
to reduce improper payments enables agencies and others with oversight 
and monitoring responsibilities to measure this progress and determine 
whether further action is needed to minimize future improper payments. 

5. As you know, the improper payments made in the Earned Income Tax 
Credit makes up the second largest portion of government-wide improper 
payments for fiscal year 2005, estimating $9.6 to $11.4 billion dollars 
paid improperly. 

In fiscal year 2004 EITC had an improper payment rate of 25 percent. 
For fiscal year 2005, it was 28 percent and this is on the low side, 
because it's just an estimate. This program does not just need help, it 
needs a complete overhaul, with an improper payment rate that high. 

I am familiar with the legislative proposals in the President's fiscal 
year 2007 Budget. OMB believes that if enacted, this proposal would 
save $232 million in the first year and $5 billion over ten years. That 
seems a bit under-ambitious when EITC is making at least $10 billion in 
improper payments every year. In other words, with improper payments of 
$100 billion over 10 years, why are you [OMB] projecting only to reduce 
that number by 5 percent? Mr. Williams, has GAO done any analysis of 
the President's proposals? If so, what is the GAO's assessment? Has GAO 
made any recommendations regarding the administration and financial 
controls in the EITC program? 

To date, we have not performed an analysis or an assessment of the 
President's legislative proposals as they relate to the Earned Income 
Tax Credit (EITC) program. Regarding any recommendations made, since 
fiscal year 2001, we have issued three reports that included seven 
recommendations related to the administration and financial controls in 
the EITC program. (See table 1.) 

Table 1: GAO Recommendations since Fiscal Year 2001 Related to the EITC 

GAO Report Number: GAO-05-221[A]; 
GAO Findings: Of the 12 federal means-tested programs reviewed, 
including the EITC program, we found that information on participants' 
eligibility and particular recipient groups can help program managers 
more effectively address issues related to program access. With regard 
to the EITC program, we found that the Internal Revenue Service (IRS) 
does not: (1) use rate information as a performance measure or (2) 
include rate information in its performance report or other key program 
GAO recommendations related to the EITC program: As participation rate 
estimates are developed to use as program performance measures for the 
EITC program, we recommended that steps be taken to quantify errors 
that may result from estimating EITC participation rate estimates to 
help users better understand the accuracy of the data and ensure that 
estimates will be comparable over time; 
Status of recommendations: The recommendation is open. 

GAO report number: GAO-05-92[ B]; 
GAO Findings: We found that IRS's implementation of tests to address 
the leading sources of EITC errors was not well documented and the 
level and quality of some services provided to test participants were 
not measured; 
GAO recommendations related to the EITC program: We made four 
recommendations to (1) ensure the rationale for key decisions is 
documented, (2) obtain information on the quality and use of all types 
of taxpayer assistance, (3) clearly state limitations when 
disseminating results, and (4) complete development of detailed 
evaluation plans for the 2005 tests; 
Status of recommendations: The first two recommendations are closed. 
The remaining two recommendations are open. 

GAO Report number: GAO-01-42[C]; 
GAO findings: While IRS has made improvements since we began auditing 
its financial statements in fiscal year 1992, serious internal control 
and financial and operational system weaknesses continued to affect the 
agency's ability to effectively manage its operations and produce 
reliable financial statement information during fiscal year 1999; 
GAO recommendations related to the EITC program: We made two 
recommendations to (1) determine why service centers have been 
ineffective in stopping refunds associated with questionable EITCs, and 
(2) develop reliable cost/benefit data, using the best available 
information from the screening and examination of EITC claims, to 
estimate the tax revenue collected by, and the amount of improper 
refunds returned to, IRS for each dollar spent pursuing these 
outstanding amounts; 
Status of recommendations: The first recommendation is closed. The 
second recommendation is open.  

Source: GAO. 

[A] GAO, Means-Tested Programs: Information on Program Access Can Be an 
Important Management Tool, GAO-05-221 (Washington, D.C.: Mar. 11, 

[B] GAO, Earned Income Tax Credit: Implementation of Three New Tests 
Proceeded Smoothly, But Tests and Evaluation Plans Were Not Fully 
Documented, GAO-05-92 (Washington, D.C.: Dec. 30, 2004). 

[C] GAO, Internal Revenue Service: Recommendations to Improve Financial 
and Operational Management, GAO-01-42 (Washington, D.C.: Nov. 17, 

[End of table]

6. The Department of Labor has reduced improper payments in its 
Unemployment Insurance program by about $600 million between 2004 and 
2005. OMB reports that this is more than a 15 percent decrease in the 
error rate for this program since last year's reporting. A 15 percent 
reduction is a significant accomplishment. 

a) How can the Department of Labor's successes be carried over to other 
agencies? b) If the Department of Labor has had this much success in 
reporting and reducing improper payments, shouldn't other federal-state 
partnered programs like Temporary Assistance for Needy Families (TANF), 
Medicaid, Foster Care, Child Care, State Children's Health Insurance 
Program (SCHIP), School Programs and Women, Infants and Children (WIC) 
be able to coordinate between the federal and state authorities to 
develop an improper payment estimate? 

In our April 2006 report,[Footnote 12] we highlighted that federal and 
state coordination was needed to develop improper payment estimates for 
federal programs administered at the state level, including some of the 
programs included in your question. State-administered programs and 
other nonfederal entities receive over $400 billion annually in federal 
funds. Thus, federal agencies and states share a responsibility for the 
prudent use of these funds. One of the reasons the Department of Labor 
(Labor) has been able to report an improper payment estimate for its 
Unemployment Insurance (UI) program is because of a federal 
requirement[Footnote 13] in place that mandates that Labor measure each 
state's payment accuracy rate. To address this requirement, Labor 
implemented the Benefit Accuracy Measurement (BAM) program, which is 
designed to determine the accuracy of paid and denied claims in the UI 
program. It does this by reconstructing the UI claims process from 
samples of weekly payments and denied claims using data verified by 
trained investigators. For claims that were overpaid, underpaid, or 
improperly denied, the BAM program determines the cause of and the 
party responsible for the error, the point in the UI claims process at 
which the error was detected, and actions taken by the agency and 
employers prior to the error. For erroneously paid claims, the BAM 
program determines the amount of benefits the claimants should have 
received, which becomes the basis for subsequent recovery efforts. In 
addition to the federal requirement[Footnote 14] in place that states 
must adhere to for estimating improper payments, Labor has attributed 
its successes to the support and commitment from top management to 
facilitate successful implementation of IPIA and excellent working 
relationships with the states. 

There are several key initiatives that federal agencies with state- 
administered programs should employ to fulfill the requirements of 
IPIA, such as establishing a culture of accountability, developing a 
system to collect program information at the state level for estimating 
improper payments, and monitoring program performance to determine if 
desired program outcomes have been achieved. These key initiatives are 
aligned with our Standards of Internal Control[Footnote 15] and 
executive guide[Footnote 16] on strategies to manage improper payments. 
Among the standards that are directly linked to the above key 
initiatives are the following: 

 Control environment--creating a culture of accountability by 
establishing a positive and supportive attitude toward improvement and 
the achievement of established program outcomes. 

 Information and communication--using and sharing relevant, reliable, 
and timely financial and nonfinancial information in managing 
activities related to improper payments. 

 Monitoring--tracking improvement initiatives over time, and 
identifying additional actions needed to further improve program 
efficiency and effectiveness. 

As we previously reported,[Footnote 17] measuring improper payments and 
designing and implementing actions to reduce or eliminate them are not 
easy tasks, particularly for grant programs that rely on high-quality 
administration efforts at the state, grantee, or subgrantee level. 
Given states' involvement in determining eligibility and distributing 
benefits, states are in a position to assist federal agencies in 
reporting on IPIA requirements. Communication, coordination, and 
cooperation among federal agencies and the states will be critical 
factors in estimating improper payment rates and meeting IPIA reporting 
requirements for state-administered programs. 

7. There is some confusion on whether or not the Community Development 
Block Grant Program (CDBG) is required to report improper payments. It 
was one of the original programs on the President's Management Agenda, 
so it's been required to report since 2001. It is also required to 
report under the Improper Payments Information Act, but is not 
reporting under [either] requirements. In other hearings held by this 
Subcommittee as well as in written responses to letters sent by me and 
Senator Carper, the Department of Housing and Urban Development (HUD) 
has denied that they are out of compliance with the Improper Payments 
Information Act. The CDBG program is required to report under IPIA. Is 
GAO concerned that CDBG's outlays are $5.4 billion, and not only are 
they not reporting, they have claimed that they are in compliance? 

In its fiscal year 2005 PAR, HUD reported that based on completed 
testing of fiscal year 2003 payments, the CDBG program was below OMB's 
threshold for significant improper payments and, therefore, was removed 
from HUD's at-risk inventory. As such, HUD stated that this program was 
not subject to retesting unless there was a significant change in the 
nature of activity or internal control structure. We have several 
problems with HUD's position. First, CDBG was subject to the previous 
OMB Circular No. A-11 requirements[Footnote 18] and thus was required 
by OMB's guidance to continue to report improper payment information 
under IPIA, regardless of the agency-determined risk level. Second, 
during a June 2006 hearing before your subcommittee[Footnote 19] on the 
CDBG program, HUD's OIG reported on numerous instances of fraudulent, 
improper, and abusive use of program funds identified over a 2- year 
period based on 35 audits. The HUD OIG reported that its office has 
recovered over $120 million in program funds, identified over $100 
million in questioned costs, indicted 159 individuals, initiated 
administrative actions against 143 individuals, and took 5 civil 
actions and 39 personnel actions. As evident by the HUD OIG reviews, 
the CDBG program may be at risk of making improper payments. 

We are sending a copy of this report to the Director of OMB and other 
interested parties. This report is also available on GAO's home page at 
[Hyperlink,]. Should you have any questions on 
matters discussed in this report or need additional information, please 
contact me at (202) 512-9095 or at Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Major contributors to this 
report include Carla Lewis, Assistant Director; James Maziasz, and 
Donell Ries. 

Sincerely yours, 

Signed by: 

McCoy Williams: 
Director, Financial Management and Assurance: 



[1] GAO, Financial Management: Challenges Remain in Meeting 
Requirements of the Improper Payments Information Act, GAO-06-482T 
(Washington, D.C.: Mar. 9, 2006). 

[2] A disclaimer of opinion means that the auditor does not express an 
opinion on the financial statements. This type of opinion is 
appropriate when the audit scope is not sufficient to enable the 
auditor to express such an opinion or when there are material 
uncertainties involving scope limitations. 

[3] DHS's auditors reported that they were engaged to audit the 
accompanying consolidated balance sheets of DHS as of September 30, 
2005 and 2004, and the related consolidated statements of net cost, 
changes in net position, and financing; combined statement of budgetary 
resources; and statement of custodial activity for the year ended 
September 30, 2004. The auditors were not engaged to audit the 
accompanying consolidated statements of net cost, changes in net 
position, and financing; combined statement of budgetary resources; and 
statement of custodial activity for the year ended September 30, 2005. 

[4] We consider the terms "erroneous payments" and "improper payments" 
to be synonymous. 

[5] GAO, Hurricanes Katrina and Rita Disaster Relief: Improper and 
Potentially Fraudulent Individual Assistance Payments Estimated to Be 
Between $600 Million and $1.4 Billion, GAO-06-844T (Washington, D.C.: 
June 14, 2006) and Purchase Cards: Control Weaknesses Leave DHS Highly 
Vulnerable to Fraudulent, Improper, and Abusive Activity, GAO-06-957T 
(Washington, D.C.: July 19, 2006). 

[6] Reportable conditions are matters coming to an auditor's attention 
that, in their judgment, should be communicated because they represent 
significant deficiencies in the design or operation of internal control 
that could adversely affect the federal government's ability to meet 
the internal control objectives described in the audit report. 

[7] The number of reportable conditions for each of the eight agencies 
ranged from 2 to 14. 

[8] GAO, Post-Hearing Questions Related to Agency Implementation of the 
Improper Payments Information Act, GAO-05-1029R (Washington, D.C.: 
Sept. 16, 2005). 

[9] IPIA defines an improper payment as a 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, and includes 
any payment to an ineligible recipient, any payment for an ineligible 
service, any duplicate payment, any payment for services not received, 
and any payment that does not account for credit for applicable 

[10] OMB defines "unavoidable" payments as payments resulting from 
legal or policy requirements. 

[11] OMB defines "avoidable" payments as payments that could be reduced 
through changes in 

administrative actions. 

[12] GAO, Improper Payments: Federal and State Coordination Needed to 
Report National Improper Payment Estimates on Federal Programs, GAO-06- 
347 (Washington, D.C.: Apr. 14, 2006). 

[13] Part 602 of Title 20, U.S. Code of Federal Regulations. 

[14] We have previously reported that only the Food Stamps and 
Unemployment Insurance programs had federal requirements for all states 
to annually estimate improper payments. See GAO-06-347. 

[15] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[16] GAO, Strategies to Manage Improper Payments: Learning From Public 
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: October 

[17] GAO-05-1029R. 

[18] Prior to the governmentwide IPIA reporting requirements beginning 
with fiscal year 2004, former section 57 of OMB Circular No. A-11, 
required certain agencies to submit similar information, including 
estimated improper payment target rates, target rates for future 
reductions in these payments, the types and causes of these payments, 
and variances from targets and goals established. In addition, these 
agencies were to provide a description and assessment of the current 
methods for measuring the rate of improper payments and the quality of 
data resulting from these methods. 

[19] June 29, 2006 hearing before the Senate Subcommittee on Federal 
Financial Management, Government Information, and International 
Security, Committee on Homeland Security and Governmental Affairs. 

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To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 


Web site: 


Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director, 

(202) 512-4800 

U.S. Government Accountability Office, 

441 G Street NW, Room 7149 

Washington, D.C. 20548: