IPIA requires executive  branch agency heads to review their programs and activities annually and  identify those that may be susceptible to significant improper payments. Given that total outlays for these 9 programs exceeded   $58.2 billion in fiscal year 2005, the improper payment estimate for these  programs would likely have been much greater had statistically valid  methods been used. Some Agencies Continue to Lack Improper Payment Estimates for Susceptible Programs

The fiscal year 2005 governmentwide improper payments estimate of   $38 billion did not include any amounts for 10 programs, with fiscal year  2005 outlays totaling over $234 billion. Agencies’ Reporting of Recovery Auditing Information Questionable

We noted discrepancies in selected agencies’ reporting of recovery audit  information and limited reviews over contract payments. For example, for fiscal year 2005, NASA reported in its PAR that it had  identified and recovered $617,442 in contract payments, a 100 percent  recovery rate. Yet, the NASA OIG reported it had identified over   $515 million in questioned contract costs during fiscal year 2005. When comparing the $51 million in  questioned contract costs identified for recovery to the $617,442 NASA  actually recovered, the recovery rate decreases from the reported 100  percent recovery rate to a 1.2 percent rate. In addition, another factor that may call into question the reported high  recovery rate is that 5 of the 21 agencies did not review all of their agency  components as part of their recovery audit efforts, and 2 agencies  reported that recovery auditing was not cost beneficial. Recommendations for Executive Action

We are making four recommendations to OMB to help further the progress  toward meeting the goals of IPIA and ensuring the integrity of payments. We  view this as a positive step. Major contributors to this report are listed in   appendix V.

Objectives, Scope, and Methodology

The objectives of this report were to determine (1) the extent to which  agencies have included required improper payment information in their  performance and accountability reports (PAR), (2) the annual improper  payment estimate reported by agencies for fiscal year 2005, (3) whether the  definition and types of improper payments reported in the Improper  Payments Information Act of 2002 (IPIA) and the Office of Management  and Budget’s (OMB) implementing guidance provide adequate disclosure of  the extent of improper payments at the agencies, and (4) the reported  amount of improper payments recouped through recovery audits. As part of our review and analysis of agencies’ reported improper payment  information in their fiscal year 2005 PARs or annual reports, we   determined whether agencies’ had reviewed all programs and activities  for risk-susceptible programs and reviewed details of agencies’ risk- assessment methodologies when reported;  identified program improper payment estimates, including error  amounts and error rates, a breakdown of overpayments and  underpayments, and program outlays;  identified agencies’ sampling methodologies used to estimate program   determined the extent and level of detail agencies reported on key  improper payment reporting elements, including manager  accountability, causes of improper payments, corrective actions, and  statutory barriers;  conducted an analysis of OMB’s assessment criteria—exceeding   $10 million in improper payments and 2.5 percent of program outlays— to identify programs that met only one of OMB’s criteria and thus would  not be required to estimate and report improper payment information  based on these criteria alone;   analyzed OIG-reported major management challenges for various  programs and activities; and  analyzed the amount of improper payments recouped through agencies’  recovery audit activities. Financial Management: Challenges Remain in Meeting Requirements of  the Improper Payments Information Act.
Why GAO Did This Study

Fiscal year 2005 marked the second year that executive agencies were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). As a steward of taxpayer dollars, the federal government is accountable for how its agencies and grantees spend billions of taxpayer dollars and is responsible for safeguarding those funds against improper payments. GAO was asked to determine the progress agencies have made in their improper payment reporting and the total amount of improper payments recouped through recovery auditing. To accomplish this, GAO reviewed improper payment information reported by 35 agencies in their fiscal year 2005 performance and accountability or annual reports.

What GAO Found

While making progress, agencies' fiscal year 2005 reporting under IPIA does not yet reflect the full scope of improper payments across executive branch agencies. Major challenges remain in meeting the goals of the act and ultimately improving the integrity of payments. GAO found that these challenges continue to hinder full reporting of improper payment information because of the following three factors: (1) Existing reporting incomplete. Although 18 agencies collectively identified and estimated improper payments for 57 programs and activities totaling $38 billion, some agencies still had not instituted systematic methods of reviewing all programs, resulting in their identification of none or only a few programs as susceptible to significant improper payments. In many cases, these same agencies had well-known and documented financial management weaknesses as well as fraudulent, improper, and questionable payments. Further, improper payment estimates totaling about $389 million for 9 programs were not based on a valid statistical sampling methodology as required. Higher estimates would have been expected had the correct methods been used, given that total outlays for these 9 programs exceeded $58.2 billion. (2) Large programs still not included. Improper payment estimates for 10 risk-susceptible programs with outlays totaling over $234 billion still have not been provided. Most of these programs were subject to Office of Management and Budget (OMB) reporting requirements that preceded IPIA. (3) Threshold criteria limit reporting. The act includes broad criteria to identify risk-susceptible programs. OMB's implementing guidance includes more specific criteria that limit the disclosure and transparency of agencies' improper payments. With regard to agencies' recovery audit efforts, GAO found that the data reported may present an overly optimistic view of these efforts. While 21 agencies were required to report on their recovery audit efforts, GAO identified discrepancies in several agencies' information and found limited reviews over contract payments. For example, for fiscal year 2005, the National Aeronautics and Space Administration (NASA) reported that it had identified and recovered $617,442 in contract payments, a 100 percent recovery rate. Yet, the NASA Office of Inspector General reported it had identified over $515 million in questioned contract costs during fiscal year 2005, of which NASA management decided to pursue recovery of $51 million. Had this amount been compared to the $617,442 NASA actually recovered, its recovery rate would drop from the reported 100 percent to 1.2 percent. In addition, we noted that 5 of the 21 agencies did not review all of their agency components as part of their recovery audit efforts while 2 agencies reported that recovery auditing was not cost beneficial without reporting any details to support this determination.