	Progress Made to Estimate and Reduce Improper Payments

Agencies reported improper payment estimates of almost $55 billion in  their fiscal year 2007 PARs or annual reports, an increase from the fiscal  year 2006 estimate of about $41 billion. The reported increase was  primarily attributable to a component of the Medicaid program reporting  improper payment estimates for the first time totaling about $13 billion for  fiscal year 2007, which we view as a positive step to improve transparency  over the full magnitude of improper payments. The $55 billion estimate  consists of 78 programs in 21 agencies (see app. Also, of the total improper payment estimate of $55 billion, we identified  19 programs and activities that estimated improper payments for the first  time in their fiscal year 2007 PARs, totaling about $16 billion. OMB noted that further reductions in agency program estimated error  rates are expected as agencies take steps to address payment errors  attributed to insufficient or lack of documentation. Challenges Continue with IPIA Implementation

While agencies have shown progress, major challenges remain in meeting  the goals of IPIA and ultimately improving the integrity of payments. Specifically, some agencies have not yet reported estimates for all risk- susceptible programs, the total improper payment estimate does not yet  reflect the full scope of improper payments across executive branch  agencies, noncompliance issues continue to exist, reported statutory or  regulatory barriers limit agencies’ ability to reduce improper payments,  and agencies continue to face challenges in the implementation or design  of internal controls to identify and prevent improper payments. We also noted that four agencies reported  that they did not conduct a risk assessment of all of their programs and  activities because OMB guidance allows agency programs deemed not  risk-susceptible to conduct a risk assessment generally every 3 years. After the enactment of IPIA, OMB’s implementing  guidance required that these programs continue to report improper  payment information under IPIA. Further, we found a few instances where estimates were not based on a  12-month reporting period. Of this  universe, only 9 agency programs reported on recovery of improper  payments under IPIA. Of the 5, agency auditors for all except  USAID reported noncompliance issues related to the key requirements of  the act, including risk assessments, sampling methodologies,  implementing corrective actions, recovering improper payments, and  inadequate documentation. Agency auditors at the  Department of Transportation (Transportation) and DOD reported  noncompliance with IPIA for a second year. Over half of  the agencies’ OIG identified management or performance challenges that  could increase the risk of improper payments, including challenges related  to internal controls. Agencies’ Efforts to Report Recovery Auditing Information Continue

Section 831 of the National Defense Authorization Act for Fiscal Year 2002  provides an impetus for applicable agencies to systematically identify and  recover contract overpayments. Beginning in fiscal year 2004, OMB required that applicable agencies  publicly report on their recovery auditing efforts as part of their PAR  reporting of improper payment information. From these  reviews, agencies reported identifying about $121 million in improper  payments for recovery and actually recovering about $87 million, or an  estimated overall rate of recovery of approximately 72 percent, as shown  in table 2. We found that the number of agencies reporting recovery audit  information remained the same when compared to the prior year. However, the fiscal year 2007 dollar amounts identified for recovery  significantly decreased by about $217 million from fiscal year 2006. Of the 21 agencies reporting  recovery auditing information for fiscal year 2007, 9 reported they  contracted out their recovery audit services, 3 conducted in-house  recovery audits, 5 reported using both in-house and recovery audit  contractors, and two were silent. The remaining 2 agencies—HUD and  Labor—did not conduct recovery audits as they reported it was not cost  beneficial. However, less than half, or 8 agencies reported on  their corrective action plans to address root causes of contract payment  errors. However, Energy did not report on corrective  actions to address the root causes of contract overpayments. Appendix II: Improper Payment Estimates Reported in Agency Fiscal Year 2006 and 2007 Performance and Accountability Reports or Annual Reports

Appendix II: Improper Payment Estimates  Reported in Agency Fiscal Year 2006 and 2007  Performance and Accountability Reports or  Annual Reports Fiscal year  2006 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent)
Fiscal year  2007 total  estimate  (dollars in  millions) rate (percent)
Cooperative Agreements,  Grants, and Contracts  Child and Adult Care Food  Program  Conservation Security  Program (previously Farm  Security and Rural  Investment)
Fiscal year  2006 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent)
Fiscal year  2007 total  estimate  (dollars in  millions) rate (percent)
Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent) millions) rate (percent)
Fiscal year  2006 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent)
Fiscal year  2007 total  estimate  (dollars in  millions) rate (percent)
Immigration and Customs  Enforcement—Detention  and Removal OperationsImmigration and Customs  Enforcement—Federal  Protective Service  Immigration and Customs  Enforcement— InvestigationsBlock Grant (Entitlement  Grants, States/Small  Cities)
Fiscal year  2006 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent)
Fiscal year  2007 total  estimate  (dollars in  millions) rate (percent)
77  All programs and activities  79  All programs and activities  80  All programs and activities  83  Retirement Program (Civil  Service Retirement  System and Federal  Employees Retirement  System)  84  All programs and activities  85  All programs and activities  30  Railroad Retirement Board  86  Railroad Unemployment  Companies (Debentures)
Companies (Guaranties)  92  7(a) Business Loan  Program (Guaranty  Purchases)  93  7(a) Business Loan  Program (Guaranty  Approvals)
Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent) millions) rate (percent)
Fiscal year  2006 total  estimate  (dollars in  millions)
Fiscal year  2006 error rate  (percent)
Fiscal year  2007 total  estimate  (dollars in  millions) rate (percent) nnual improper pyment etimte or error rte.
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 and recouping those funds when improper payments occur. The Congress enacted the Improper Payments Information Act of 2002 (IPIA) and section 831 of the National Defense Authorization Act for Fiscal Year 2002, commonly known as the Recovery Auditing Act, to address these issues. GAO was asked to testify on agencies' efforts to eliminate and recover improper payments. Specifically, GAO focused on (1) progress made in agencies' implementation and reporting under IPIA for fiscal year 2007, (2) major challenges that continue to hinder full reporting of improper payment information, and (3) agencies' efforts to report on recovery auditing and recoup contract overpayments. This testimony is based in part on a recently issued report (GAO-08-377R) in addition to a further review and analysis of improper payment and recovery auditing information reported in agencies' fiscal year 2007 performance and accountability reports (PAR) or annual reports. The Office of Management and Budget (OMB) provided technical comments which GAO incorporated as appropriate.

What GAO Found

While agencies have made progress, GAO identified ongoing challenges in key areas related to IPIA and recovery auditing implementation and reporting. (1) Progress made in agencies' implementation and reporting under IPIA: Agencies reported improper payment estimates of about $55 billion in their fiscal year 2007 performance and accountability reports (PAR) or annual reports, an increase from the almost $41 billion reported in fiscal year 2006. The reported increase was primarily attributable to a component of the Medicaid program reporting improper payments for the first time totaling about $13 billion, which GAO viewed as a positive step to improve transparency over the full magnitude of improper payments. The $55 billion estimate consists of 21 agencies reporting for 78 programs, including 19 agency programs or activities reporting for the first time in fiscal year 2007. Further, select agency programs that first reported an error rate in fiscal year 2004 reported an overall decrease in their error rate estimates when compared to fiscal year 2007. OMB noted that further reductions in error rates are expected as agencies take steps to address payment errors resulting from insufficient or no documentation. (2) Challenges with IPIA implementation: Not all agencies reported conducting risk assessments of all of their programs and activities as required under IPIA. Further, agencies have not estimated for 14 risk-susceptible programs with outlays totaling about $170 billion. Additionally, in some instances, agencies did not measure improper payments for a 12-month period as generally required by OMB's implementing guidance, nor did the estimates reflect improper payments for the entire program. Four agency auditors reported noncompliance issues with IPIA regarding risk assessments, sampling methodologies, corrective actions, recovery of improper payments, and inadequate documentation. Agencies also reported that statutory or regulatory barriers may limit corrective actions to reduce improper payments. Lastly, agencies continue to face challenges in the implementation or design of internal controls to identify and prevent improper payments. Specifically, over half of agencies' Offices of Inspectors General identified management or performance challenges that could increase the risk of improper payments. (3) Agencies' efforts to report recovery auditing information continue: In total, 21 agencies reported identifying about $121 million in improper payments in fiscal year 2007 for recovery and actually recovering about $87 million, a decrease of about $217 million when compared to the reported amount identified for recovery in the prior year. Most of the decrease can be attributed to the Department of Defense's decision to stop reporting voluntary refunds. GAO noted that few agencies reported on corrective action plans to address the root causes of contract payment errors. Also, two agencies reported that conducting recovery audits was not cost beneficial. All but two agencies reported they contracted out recovery audit services, conducted in-house recovery audits, or both. The other two were silent on this on matter.