Federal Government Makes Progress in Reducing Improper Payments, But Much Work Remains to Be Done

WASHINGTON, D.C. – The federal government reported an estimated $115 billion in improper payments in Fiscal Year 2011, a slight improvement over FY 2010, but a hearing Tuesday will reveal that more needs to be done to ensure taxpayer dollars are spent much more wisely.  The hearing, entitled “Solutions Needed: Improper Payments Total $115 Billion in Federal Misspending,” will be held by the Subcommittee on Government Organization, Efficiency and Financial Management, chaired by U.S. Congressman Todd Platts (PA-19).
 
An improper payment could be an incorrect payment, an over- or under- payment, and could include a payment to an ineligible recipient, a payment for an ineligible service, a duplicate payment or a payment for a service not received.  Programs are particularly vulnerable to improper payments when agencies fail to maintain effective internal controls, adequate financial management systems, or sufficient oversight.  These programs are classified as “high-error.”

“Focusing on eliminating improper payments goes to the very heart of government accountability,” said Congressman Platts.  “When citizens pay their taxes, they have an absolute right to expect that their tax dollars are being spent responsibly and appropriately.”

The estimated amount of improper payments decreased $5.3 billion from FY2010.  Eleven high-error programs identified by the Office of Management and Budget (OMB) made up 94 percent of all reported improper payments in 2011.  At the top of the list were Medicare and Medicaid, which by themselves accounted for over half of all reported improper payments.  Other high-error programs include unemployment insurance, Social Security, and the Earned Income Tax Credit.

In the subcommittee’s previous hearings on improper payments, Chairman Platts noted that the high-error programs share problems of ineffective internal control structures in their financial management systems.  In order to reduce improper payments, Platts said, agencies must reevaluate their internal control structures and increase accountability in program administration.

There must also be more effort to ensure that agencies report their improper payments.  Although not all agencies are required to report improper payment estimates, some agencies that are required to report do not do so.  The most significant agency failing to report is the U.S. Department of Defense (DOD), although both the Government Accountability Office (GAO) and the DOD - Office of Inspector General has found that the DOD is at a high risk for improper payments.

In 2002, Congress enacted the Improper Payments Information Act, which required agencies to estimate erroneous payments annually and report their findings to Congress and taxpayers. In the intervening years, the amount of improper payments recorded by federal agencies more than tripled, a result of better detection and reporting mechanisms.  In 2010, Congress adopted the Improper Payments Elimination and Recovery Act to strengthen agency governance practices by incorporating more stringent performance frameworks, recovery audits and other tools to measure program outcomes and recoup improper payments. 

“While some agencies have made progress in identifying and reducing improper payments in certain programs, many of the agencies still lack the necessary framework of internal controls that could lead to a sustainable decrease in improper payments,” said Congressman Platts. “The government must do a better job at identifying the root causes of improper payments.  Until we understand how and why these payments are being made, it will be impossible to effectively prevent them.” 

Witnesses at Tuesday’s hearing include: U.S. Senator Thomas Carper; Daniel Werfel, Controller of OMB; Mike Wood, Executive Director, Recovery Accountability and Transparency Board; and Beryl Davis, Director of Financial Management and Assurance, GAO.  The subcommittee will continue its oversight efforts of improper payments throughout the 112th Congress as part of its ongoing review of Executive Branch financial management and accountability issues.  Recent hearings have examined financial management deficiencies at the U.S. Department of Defense, improving data protection at the U.S. Department of Homeland Security, and reviewing Internal Revenue Service policies regarding tax identity theft.