Estimating Improper Payments at the State Level Is Limited

State responses to our survey show that the number of state-administered  federal programs (state programs) estimating improper payments  significantly decreases if there is no federal requirement to estimate or if  the states are not participating in a federally administered pilot to estimate. Programs with Federal Requirements

Only 2 of the 25 major programs in our review had federal requirements for  all the states to annually estimate improper payments—the Food Stamp  and UI programs. In total, 47 states reported estimating improper payments  for one or more major programs, which represented 97 program surveys  for fiscal year 2003, fiscal year 2004, or both. In addition, selected  programs reported that federal incentives and penalties are in place to help  reduce improper payments. Fifty of the 51 states representing  21 different programs reported in their surveys that they used computer- related techniques to prevent or detect improper payments. As with  incentives, most of the penalties identified related to the Food Stamp  Program. States have a fundamental responsibility to ensure the  proper administration of federal awards by using sound management  practices and maintaining internal controls to ensure distribution of federal  funding to subrecipients or beneficiaries in accordance with federal and  state laws and regulations. Given their involvement in determining  eligibility and distributing benefits, states are in a position to assist federal  agencies in reporting on IPIA requirements. Specifically, we recommend that the Director, Office of  Management and Budget,  revise IPIA policy guidance to clearly define state-administered  programs so that federal agencies can consistently identify all such  programs;  expand IPIA guidance to provide criteria that federal agencies should  consider when developing a plan or methodology for estimating a  national improper payment estimate for state-administered programs,  such as criteria that address the nature and extent of data and  documentation needed from the states to calculate a national improper  payment estimate;   require federal agencies to communicate, and make available to the  states, guidance on conducting risk assessments and estimating  improper payments for federally funded, state-administered programs;  and   share ideas, concerns, and best practices with federal agencies and  states regarding improper payment reporting requirements for federally  funded, state-administered programs. Objectives, Scope, and Methodology

The objectives of this report were to determine (1) what actions are being  taken by states to assist federal agencies in estimating improper payments;  (2) what techniques, related to detecting, preventing, or reducing improper  payments, have states employed to ensure proper administration of federal  awards; and (3) what assistance can be provided by the Office of  Management and Budget (OMB) that state program administrators would  find helpful in supporting the respective federal agencies with the  implementation of the Improper Payments Information Act of 2002 (IPIA). Survey Development and Implementation

The surveys were developed based on IPIA, the National Defense  Reauthorization Act for Fiscal Year 2002, and our executive guide on  managing improper payments, and included questions about   state-issued policies or guidance on internal controls or on estimating   statewide risk assessments for improper payments;  state recovery auditing efforts;  state program efforts to prevent, detect, and reduce improper payments;  state program participation in improper payment pilots; and  additional assistance needed by state programs to support efforts in  measuring and reporting improper payments. We did not assess  the reliability of these data. UI overpayments at a national level have fluctuated over the past 16 years. We also noted that since 2001, UI’s national error rate has steadily  increased.
Why GAO Did This Study

Over the past several years, GAO has reported that federal agencies are not well positioned to meet requirements of the Improper Payments Information Act of 2002 (IPIA). For fiscal year 2005, estimated improper payments exceeded $38 billion but did not include some of the highest risk programs, such as Medicaid with outlays exceeding $181 billion for fiscal year 2005. Overall, state-administered programs and other nonfederal entities receive over $400 billion annually in federal funds. Thus, federal agencies and states share responsibility for the prudent use of these funds. GAO was asked to determine actions taken at the state level to help federal agencies estimate improper payments for state-administered federal programs and assistance needed from the federal level to support the respective federal agencies' implementation of IPIA.

What GAO Found

To date, states have been subject to limited requirements to assist federal agencies in estimating improper payments. For the 25 major state-administered federal programs surveyed, only 2 programs--the Food Stamp and Unemployment Insurance programs--have federal requirements for all states to estimate improper payments. A limited number of federal agencies are conducting pilots to estimate improper payments in other programs, but state participation is voluntary. Where no federal requirement or pilot is in place, 5 programs involving 11 states had estimated improper payments during fiscal years 2003 or 2004. States have a fundamental responsibility to ensure the proper administration of federal awards by using sound management practices and maintaining internal controls. To do this, states reported using a variety of techniques to prevent and detect improper payments. All states, except for one, responded that they use computer-related techniques, such as fraud and abuse detection programs or data matching, to prevent or detect improper payments. Other techniques selected states used included performing statewide assessments and recovery auditing methods. States also reported receiving federal incentives and penalties to assist with reducing improper payments, although most of these actions related to the Food Stamp Program, which gives incentives and penalties to states having error rates below and above the program's national error rate. Of the 240 state program officials surveyed, 100 identified tools that would be needed to estimate improper payments and help federal agencies meet various IPIA requirements, including guidance on estimating improper payments and performing risk assessments. OMB has begun planning for increased state involvement in measuring and reporting improper payments via the Erroneous and Improper Payments Workgroup and IPIA guidance. However, much work remains at the federal level to identify and estimate improper payments for state-administered federal programs, including determining the nature and extent of states' involvement to assist federal agencies with IPIA reporting requirements.