	Significant Trends in IPIA Reporting

I would now like to focus on agencies’ efforts to address select IPIA  reporting requirements during the first 3 years of IPIA implementation,  fiscal years 2004 through 2006. For fiscal years 2004 through  2006, we found that some agencies still had not instituted systematic  methods of reviewing all programs and activities or had not identified all  programs susceptible to significant improper payments. We also reported  that certain agencies’ risk assessments appear questionable. Other agencies reported improving and refining their risk assessment  methodologies for fiscal year 2006. Finally, we noted that the number of agencies conducting risk assessments  may decrease in future reporting, because OMB’s revised IPIA  implementing guidance allows agencies to perform risk assessments every  3 years for those agency programs not deemed susceptible to significant  improper payments. Improper Payment Dollar and Error Rate Estimates

Since fiscal year 2004, agencies have made progress in reporting improper  payment information. For example, the number of programs reporting  improper payment estimates for fiscal year 2004 totaled 41, as compared  to 60 programs reporting for fiscal year 2006, a net increase of 19  programs. The total improper payments dollar estimate was $45 billion in  fiscal year 2004, $38 billion in fiscal year 2005, and about $42 billion in  fiscal year 2006. We noted that agency auditors reported  problems related to agencies’ risk assessments, the definition of programs  for IPIA purposes, sampling methodologies, lack of reporting for all risk- susceptible programs, and supporting documentation, as shown in table 2. Challenges Continue in Reporting Improper Payment Information and Improving Internal Control

While showing progress, agencies’ fiscal year 2006 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. Specifically, some  agencies have not yet reported for all risk-susceptible programs, and  certain methodologies used to estimate improper payments do not result  in reliable estimates. Improper Payments Estimate Excludes Several Large Risk-Susceptible Programs

The fiscal year 2006 total improper payment estimate of about $42 billion  did not include any amounts for 13 risk-susceptible programs having fiscal  year 2006 outlays totaling about $329 billion. After passage of IPIA, OMB’s implementing guidance  required that these programs continue to report improper payment  information under IPIA. Improved Internal Control Is Key to Resolving Improper Payments

Agency OIGs reported management challenges in the annual PARs related  to agencies’ internal control weaknesses that continue to plague programs  susceptible to significant improper payments. I would like to emphasize that effective internal control calls for a sound,  ongoing invoice review and approval process as the first line of defense in  preventing unallowable contract costs. Given the large volume and  complexity of federal payments and historically low recovery rates for  certain programs, it is much more efficient and effective to pay bills and  provide benefits properly in the first place. From fiscal year 2004 to 2006, we noted that the number of agencies  reporting recovery auditing information and the dollar amounts identified  for recovery and actually recovered had increased, as shown in table 4. From our review, we noted that 12 agencies reported recovering about   $53 million for fiscal year 2004 compared to 18 agencies that reported  recovering about $256 million for fiscal year 2006. Appendix I: Agencies and Related Programs Included in Our Review of Fiscal Year 2006 Performance and Accountability Reports and Annual Reports

Appendix II: Improper Payment Estimates Reported in Agency Fiscal Year 2005 and 2006 Performance and Accountability Reports or Annual Reports

millions) (percent) millions) (percent)
Cooperative Agreements,  Grants, and Contracts   Child and Adult Care Food  Program   Farm Security and Rural  Investment   Program (previously  Commodity Loan Programs)   12  Milk Income Loss Contract  13  National School Lunch and  School Breakfast Programs  (previously School Programs)17  Women, Infants, and Children  18  All programs and activities4  Department of Defense    19  Civilian Pay  0.1  millions) (percent) millions) (percent)
5  Department of Education  25  Student Financial Assistance—  29  Clean Water State Revolving  30  Drinking Water State Revolving  31  All programs and activities   32  All programs and activities  33  High Cost Support Program34  Universal Service Fund’s  35  All programs and activities   36  All programs and activities  37  All programs and activities38  Child Care and Development  45  State Children’s Insurance  Programmillions) (percent) millions) (percent)
Block Grant (Entitlement  Grants, States/Small Cities)
Administration’s Single Family  Acquired Asset Management  System   51  Low Income Public Housing  52  Public Housing Capital Fund   55  All programs and activities56  All programs and activities60  All programs and activities61  All programs and activities  62  All programs and activities  64  All programs and activities  65  All programs and activities0.0  millions) (percent) millions) (percent)
66  Federal Employees Group Life  68  Retirement Program (Civil  Service Retirement System  and Federal Employees  Retirement System)  69  All programs and activities   70  All programs and activities  73  All programs and activities75  7(a) Business Loan Program  78  All programs and activities  79  Old Age and Survivors’  International Information  Program—U.S.
Why GAO Did This Study

The federal government is accountable for how its agencies and grantees spend hundreds of billions of taxpayer dollars and is responsible for safeguarding those funds against improper payments as well as for recouping those funds when improper payments occur. The Congress enacted the Improper Payments Information Act of 2002 (IPIA) and the Recovery Auditing Act to address these issues. Fiscal year 2006 marked the 3rd year that agencies were required to report improper payment and recovery audit information in their Performance and Accountability Reports. GAO was asked to testify on the progress agencies have made in these areas. Specifically, GAO focused on (1) trends in agencies' reporting under IPIA from fiscal years 2004 through 2006, (2) challenges in reporting improper payment information and improving internal control, and (3) agencies' reporting of recovery auditing efforts. This testimony is based on GAO's previous reports on agencies' efforts to implement IPIA requirements for fiscal years 2005 and 2004 and current review of available fiscal year 2006 improper payment and recovery auditing information. The Office of Management and Budget (OMB) provided technical comments that were incorporated as appropriate.

What GAO Found

GAO identified several key trends related to IPIA reporting requirements. (1) Risk assessments: For fiscal years 2004 through 2006, some agencies still had not instituted systematic methods of reviewing all programs and activities or had not identified all programs susceptible to significant improper payments. Further, certain agencies' risk assessments appeared questionable. GAO also noted that OMB's recently revised IPIA implementing guidance, which allows certain agencies to perform risk assessments every 3 years instead of annually, may result in fewer agencies conducting risk assessments in the future. (2) Improper payment estimates: Since fiscal year 2004, agencies have made some progress in reporting improper payment information. The number of programs reporting improper payment estimates for fiscal year 2004 totaled 41, compared to 60 programs for fiscal year 2006. The total improper payments dollar estimate was $45 billion in fiscal year 2004, $38 billion in fiscal year 2005, and about $42 billion in fiscal year 2006. (3) Noncompliance issues: Although not currently required by IPIA to do so, some agency auditors continued to report problems related to agencies' risk assessments, definition of programs for IPIA purposes, sampling methodologies, lack of reporting for all risk-susceptible programs, and supporting documentation. Although showing progress under OMB's continuing leadership, agencies' fiscal year 2006 reporting under IPIA does not yet reflect the full scope of improper payments. Major challenges remain in meeting the goals of the act and ultimately improving the integrity of payments. First, some agencies have not yet reported for all risk-susceptible programs. For example, the fiscal year 2006 total improper payment estimate of about $42 billion did not include any amounts for 13 risk-susceptible programs that had fiscal year 2006 outlays totaling about $329 billion. Second, certain methodologies used to estimate improper payments did not result in accurate estimates. Finally, GAO noted that internal control weaknesses continued to plague programs susceptible to significant improper payments. From fiscal years 2004 through 2006, the number of agencies reporting recovery auditing information for contract overpayments and the dollar amounts identified for recovery and actually recovered increased. For fiscal year 2004, 12 agencies reported recovering about $53 million, compared to 18 agencies that reported recovering about $256 million for fiscal year 2006. Given the large volume and complexity of federal contract payments and historically low recovery rates for certain programs, GAO emphasized that it is much more efficient to pay bills properly in the first place. Effective internal control calls for a sound, ongoing invoice review and approval process as the first line of defense in preventing erroneous payments.