For each program and activity agencies identify as susceptible, the act  requires them to estimate the annual amount of improper payments and to  submit those estimates to the Congress. A-136  includes requirements for agencies to report on their risk assessments;  annual improper payment estimates; corrective action plans; and recovery  auditing efforts, including the amounts recovered in the current year. Section 831 of the National Defense Authorization Act for Fiscal Year 2002  contains a provision that requires all executive branch agencies entering  into contracts with a total value exceeding $500 million in a fiscal year to  have cost-effective programs for identifying errors in paying contractors  and for recovering amounts erroneously paid. Specifically, we reported that while progress  had been made to reduce improper payments, significant challenges  remain to effectively achieve the goals of  IPIA. Some Agencies Still Have Not Assessed All Programs and Activities for Risk of Improper Payments

We reviewed the fiscal year 2005 PARs or annual reports for 33 of the 35  federal agencies that the Treasury determined to be significant to the U.S.  government’s consolidated financial statements and that were available as  of March 2006. For example, auditors for the Departments of Justice and  Homeland Security cited agency noncompliance with IPIA in their fiscal  year 2005 annual audit reports, primarily caused by inadequate risk  assessments. This  represents almost a $7 billion, or 16 percent, decrease in the amount of  improper payments reported by 17 agencies in fiscal year 2004. However, the magnitude of the  governmentwide improper payment problem remains unknown. This is  because, in addition to not assessing all programs, some agencies had not  yet prepared estimates of significant improper payments for all programs  determined to be at risk. Specifically, of the 33 agency PARs included in our  review, 18 agencies reported improper payment estimates totaling in  excess of $38 billion for some or all of their high-risk programs. Of the remaining 15 agencies  that did not report estimates, 8 said they did not have any programs  susceptible to significant improper payments, 6 were silent about whether  they had programs susceptible to significant improper payments, and the  remaining 1 agency identified programs susceptible to significant improper  payments and said it plans to report an estimate by fiscal year 2007. Therefore, the federal government’s  progress in reducing improper payments may be exaggerated because the  reported improper payments decrease in the Medicare program accounts  for the bulk of the overall reduction in the governmentwide improper  payments estimate. Agency auditors  have reported major management challenges related to agencies’ improper  payment estimating methodologies and highlighted internal control  weaknesses that continue to plague programs susceptible to significant  improper payments. After passage of IPIA, OMB’s implementing guidance  required that these programs continue to report improper payment  information under IPIA. From these reviews, agencies reported identifying about $557  million in improper payments for recovery and reported actually  recovering about $467 million, as shown in table 2. Agency did not address improper payments or the Improper Payments Information Act (IPIA)  requirements for this program in its fiscal year 2005 PAR or annual report. Financial Management: Status of the Governmentwide Efforts to Address  Improper Payment Problems.
Why GAO Did This Study

Improper payments are a long-standing, widespread, and significant problem in the federal government. The Congress enacted the Improper Payments Information Act of 2002 (IPIA) to address this issue. Fiscal year 2005 marked the second year that agencies were required to report improper payment information under IPIA. One result of IPIA has been increased visibility over improper payments by requiring executive branch agencies to identify programs and activities susceptible to significant improper payments, estimate the amount of their improper payments, and report on the amounts of improper payments and their actions to reduce them in their annual performance and accountability reports (PAR). Because of continued interest in addressing the governmentwide improper payments issue, GAO was asked to report on the progress made by agencies in complying with requirements of IPIA and the status of efforts to identify, reduce, and eliminate improper payments. As part of the review, GAO looked at (1) the extent to which agencies have performed risk assessments, (2) the annual amount of improper payments estimated, and (3) the amount of improper payments recouped through recovery audits.

What GAO Found

The federal government continues to make progress in identifying programs susceptible to the risk of improper payments in addressing the new IPIA requirements. At the same time, significant challenges remain to effectively achieve the goals of IPIA. The 33 fiscal year 2005 PARs GAO reviewed show that some agencies still have not instituted systematic methods of reviewing all programs and activities, have not identified all programs susceptible to significant improper payments, or have not annually estimated improper payments for their susceptible programs as required by the act. The full magnitude of the problem remains unknown because some agencies have not yet prepared estimates of improper payments for all of their programs. Of the 33 agencies reviewed, 18 reported over $38 billion of improper payments in 57 programs. This represented almost a $7 billion, or 16 percent, decrease in the amount of improper payments reported by 17 agencies in fiscal year 2004. However, the total improper payments estimate does not include 7 major agency programs with outlays totaling about $228 billion. Further, agency auditors have identified major management challenges related to agencies' improper payment estimating methodologies and significant internal control weaknesses for programs susceptible to significant improper payments. In addition, two agency auditors cited noncompliance with IPIA in their annual audit reports. For fiscal year 2005 PARs, agencies that entered into contracts with a total value exceeding $500 million annually were required to report additional information on their recovery audit efforts. Nineteen agencies reported reviewing over $300 billion in vendor payments, identifying approximately $557 million to be recovered, and actually recovering about $467 million.