	Background

		Improper Payments Information Act of 2002

Fiscal year 2011 marked the eighth year of implementation of the  Improper Payments Information Act of 2002 (IPIA), as well as the first  year of implementation for the Improper Payments Elimination and  Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies  to annually review all programs and activities to identify those that are  susceptible to significant improper payments, estimate the annual amount  of improper payments for such programs and activities, and report these  estimates along with actions taken to reduce improper payments for  programs with estimates that exceed $10 million. IPERA, enacted   July 22, 2010, amended IPIA by expanding on the previous requirements  for identifying, estimating, and reporting on programs and activities  susceptible to significant improper payments and expanding requirements  for recovering overpayments across a broad range of federal programs. OMB and Agencies Reported Progress in Estimating and Reducing Improper Payments

Federal agencies reported improper payment estimates totaling $115.3  billion in fiscal year 2011, a decrease of $5.3 billion from the revised prior  year reported estimate of $120.6 billion. The decrease  in the fiscal year 2011 estimate—when compared to fiscal year 2010—is  attributed primarily to decreases in program outlays for the Department of  Labor’s (Labor) Unemployment Insurance program, and decreases in  reported error rates for fiscal year 2011 for the Department of the  Treasury’s (Treasury) Earned Income Tax Credit program, and HHS’s  Medicare Advantage program. According to OMB, the $115.3 billion in estimated federal improper  payments reported for fiscal year 2011 was attributable to 79 programs  spread among 17 agencies. Specifically, these 10  programs accounted for about $107 billion or 93 percent of the total  estimated improper payments agencies reported for fiscal year 2011. Governmentwide Challenges to Estimating and Evaluating Improper Payments

Despite reported progress in reducing estimated improper payment  amounts and error rates for some programs and activities during fiscal  year 2011, the federal government continues to face challenges in  determining the full extent of improper payments. Specifically, some  agencies have not yet reported estimates for all risk-susceptible  programs, and some agencies’ estimating methodologies need to be  refined. For example,  our case study of the Foster Care program found that although ACF had  established a process to calculate a national improper payment estimate,  the estimate was not based on a statistically valid methodology and  consequently did not reflect a reasonably accurate estimate of the extent  of Foster Care improper payments. The weaknesses we identified in ACF’s methodology to estimate  improper payments in the Foster Care program also impaired its ability to  reliably assess the extent to which its corrective actions reduced Foster  Care program improper payments. Current and Possible Strategies to Move Forward in Reducing Improper Payments

A number of actions are under way across the federal government to help  advance improper payment reduction goals. Completing these initiatives,  as well as designing and implementing enhanced strategies in the future,  will be needed to effectively reduce the federal government’s improper  payments. Proactively preventing improper  payments increases public confidence in the administration of benefit  programs and avoids the difficulties associated with the “pay and chase”aspects of recovering improper payments. Beginning in fiscal year 2011, according to OMB’s  guidance, agencies were required to classify the root causes of  estimated improper payments into three general categories for reporting  purposes: (1) documentation and administrative errors, (2) authentication  and medical necessity errors, and (3) verification errors.information on the root causes of the current improper payment estimates  is necessary for agencies to target effective corrective actions and  implement preventive measures. Of the 79 programs with improper payment  estimates in fiscal year 2011, we found that agencies reported the root  cause information using the required categories for 42 programs in their  fiscal year 2011 PARs and AFRs. Preventive controls may involve a variety of  activities, such as up-front validation of eligibility, predictive analytic tests,  training programs, and timely resolution of audit findings, as described  below. Up-front eligibility validation through data sharing. Implementing Effective Detective Controls to Identify and Recover Overpayments

Although strong preventive controls remain the frontline defense against  improper payments, agencies’ improper payment reduction strategies  could also consider actions to establish additional effective detection  techniques to quickly identify and recover those improper payments that  do occur. Data mining. Recovery auditing. Another area for further exploration for  agencies’ improper payment reduction strategies is the broader use of  incentives for states to implement effective detective controls.
Why GAO Did This Study

Over the past decade, GAO has issued numerous reports and testimonies highlighting improper payment issues across the federal government as well as at specific agencies. Fiscal year 2011 marked the eighth year of implementation of the Improper Payments Information Act of 2002 (IPIA), as well as the first year of implementation for the Improper Payments Elimination and Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.
This testimony addresses (1) federal agencies reported progress in estimating and reducing improper payments; (2) challenges in meeting current requirements to estimate and evaluate improper payments, including the results of GAOs case study of the estimation methodology and corrective actions for the Foster Care program; and (3) possible strategies that can be taken to move forward in reducing improper payments. This testimony is primarily based on prior GAO reports, including the report released today on improper payment estimates in the Foster Care program. It also includes unaudited improper payment information recently presented in federal entities fiscal year 2011 performance and accountability reports and agency financial reports.

What GAO Found

Federal agencies reported an estimated $115.3 billion in improper payments in fiscal year 2011, a decrease of $5.3 billion from the prior year reported estimate of $120.6 billion. According to the Office of Management and Budget (OMB), the $115.3 billion estimate was attributable to 79 programs spread among 17 agencies. Ten programs accounted for about $107 billion or 93 percent of the total estimated improper payments agencies reported. The reported decrease in fiscal year 2011 was primarily related to 3 programsdecreases in program outlays for the Unemployment Insurance program, and decreases in reported error rates for the Earned Income Tax Credit program and the Medicare Advantage program. Further, OMB reported that agencies recaptured $1.25 billion in improper payments to contractors and vendors.
The federal government continues to face challenges in determining the full extent of improper payments. Some agencies have not reported estimates for all risk-susceptible programs, while other agencies estimation methodologies were found to be not statistically valid. For example, GAOs recently completed study of Foster Care improper payments found that the Administration for Children and Families (ACF) had established a process to calculate a national improper payment estimate for the Foster Care program, which totaled about $73 million for fiscal year 2010, the year covered by GAOs review. However, the estimate was not based on a statistically valid methodology and consequently did not provide a reasonably accurate estimate of the extent of Foster Care improper payments. Further, GAO found that ACF could not reliably assess the extent to which corrective actions reduced Foster Care improper payments.
A number of strategies are under way across government to help advance improper payment reduction goals. For example,
Additional information and analysis on the root causes of improper payment estimates will assist agencies in targeting effective corrective actions and implementing preventive measures. Although agencies were required to report the root causes of improper payments in three categories beginning in fiscal year 2011, of the 79 programs with improper payment estimates that year, 42 programs reported the root cause information using the required categories.
Implementing strong preventive controls can help defend against improper payments, increasing public confidence and avoiding the difficult pay and chase aspects of recovering improper payments. Preventive controls involve activities such as up-front validation of eligibility using data sharing, predictive analytic technologies, and training programs. Further, addressing program design issues, such as complex eligibility requirements, may also warrant further consideration.
Effective detection techniques to quickly identify and recover improper payments are also important to a successful reduction strategy. Detection activities include data mining and recovery auditing. Another area for further exploration is the broader use of incentives to encourage states in efforts to implement effective detective controls.
Continuing work to implement and enhance these strategies will be needed to effectively reduce federal government improper payments.