Improper Payments Remain a Significant and Pervasive Government-Wide Issue

As we recently reported, improper payments remain a significant and  pervasive government-wide issue. Since fiscal year 2003—when certain  agencies began reporting improper payments as required by IPIA— cumulative reported improper payment estimates have totaled over $1.2  trillion, as shown in figure 1. For fiscal year 2016, agencies reported improper payment estimates  totaling $144.3 billion, an increase of over $7 billion from the prior year’s  estimate of $136.7 billion. As we have previously reported, the federal government faces multiple  challenges that hinder its efforts to determine the full extent of and reduce  improper payments. Changes in VA’s Evaluation Procedures Caused Significant Increases in Reported Improper Payment Estimates since Fiscal Year 2013

For fiscal year 2016, VA’s reported improper payment estimate totaled  $5.5 billion, an increase of about $500 million from the prior year. Specifically, for fiscal year 2016, VA’s reported improper  payment estimate for VA’s Community Care was approximately $3.6  billion (about 65 percent of VA’s total reported improper payments  estimate) and for VA’s Purchased Long-Term Services and Support was  approximately $1.2 billion (about 22 percent of VA’s total reported  improper payments estimate). The significant increase in VA’s reported improper payment estimates  and error rates primarily occurred, according to the VA OIG, because VA  changed its sample evaluation procedures in fiscal year 2015, which  resulted in more improper payments being identified. The OIG reported that when those purchases do not  follow applicable legal requirements, such as having FAR-compliant  contracts in place, the resulting payments are improper because they  “should not have been made or were made in an incorrect amount under  statutory, contractual, administrative, or other legally applicable  requirements, according to the definition of improper payments set forth in  OMB Circular A-123, Appendix C.” As a result of the change in its sample  evaluation procedures, VA reported significant increases in estimated  improper payments for both its Community Care and Purchased Long- Term Services and Support programs. Ongoing Efforts for Reducing Improper Payments at VA

According to OMB guidance, to reduce improper payments, VA can use  root cause analysis to identify why improper payments are occurring and  develop effective corrective actions to address those causes. VA can implement our  recommendations from these two reports to better ensure the accuracy of  or eligibility for disability benefits. According to VA’s fiscal year 2016 agency financial report, the root cause  for over three-fourths of VA’s reported fiscal year 2016 improper payment  estimates was program design or structural issues. In the fiscal year  2016 agency financial report, VA provided details on how it plans to  correct some program design issues by making its procurement practices  compliant with relevant laws and regulations. VA reported  that most of these errors occurred in its Compensation program. In November 2014, we reported that while VA pays billions of dollars to  millions of disabled veterans, there were problems with VA’s ability to  ensure that claims were processed accurately and consistently by its  regional offices. We also identified shortcomings in quality review practices  that could reduce their effectiveness. To date, VA has implemented six of the report’s eight recommendations. VA has initiated action on the remaining two  recommendations related to quality review of the claims processes. VA stated that  this new database will support increased data analysis capabilities and  allow the agency to evaluate the effectiveness of quality assurance  activities through improved and vigorous error rate trend analysis. In conclusion, in light of VA’s significant financial management  challenges, we continue to be concerned about VA’s ability to reasonably  ensure its resources are being used cost-effectively and efficiently. While VA has taken several  actions to help prevent improper payments, further efforts are needed to  help minimize the risks of improper payments across its programs.
Why GAO Did This Study

For several years, GAO has reported in its audit reports on the consolidated financial statements of the U.S. government that the federal government is unable to determine the full extent to which improper payments occur and reasonably assure that actions are taken to reduce them.
Strong financial management practices, including effective internal control, are important for federal agencies to better detect and prevent improper payments. VA faces significant financial management challenges. In 2015, GAO designated VA health care as a high-risk area because of concern about VA's ability to ensure that its resources are being used cost effectively and efficiently to improve veterans' timely access to health care and to ensure the quality and safety of that care. Further, improving and modernizing federal disability programs has been on GAO's high-risk list since 2003, in part because of challenges that VA has faced in providing accurate, timely, and consistent disability decisions related to disability compensation. In addition, in VA's fiscal year 2016 agency financial report, the independent auditor cited material weaknesses in internal control over financial reporting.
This statement discusses improper payments on both the government-wide level and at VA. The statement also discusses certain actions that VA has taken and other actions that VA can take to reduce improper payments. This statement is based on GAO's recent work on improper payments and its analysis of agency financial reports and VA's Office of Inspector General reports.

What GAO Found

Improper payments, which generally include payments that should not have been made, were made in the incorrect amount, or were not supported by sufficient documentation, remain a significant and pervasive government-wide issue. Since fiscal year 2003—when certain agencies began reporting improper payments as required by the Improper Payments Information Act of 2002—cumulative improper payment estimates have totaled over $1.2 trillion. For fiscal year 2016, agencies reported improper payment estimates totaling $144.3 billion, an increase of about $7.6 billion from the prior year's estimate of $136.7 billion.
For fiscal year 2016, the Department of Veterans Affairs' (VA) reported improper payment estimate totaled $5.5 billion. VA's Community Care and Purchased Long-Term Services and Support programs accounted for reported improper payment estimates of $3.6 billion and $1.2 billion, respectively, or about 87 percent of VA's reported improper payment estimate for fiscal year 2016. VA's reported improper payment estimates increased significantly from $1.6 billion for fiscal year 2014 to $5.0 billion for fiscal year 2015. According to the VA Office of Inspector General, this increase was primarily due to a change in VA's evaluation procedures, which resulted in more improper payments being identified.
In accordance with Office of Management and Budget guidance, to reduce improper payments, VA can use detailed root cause analysis to identify why improper payments are occurring and to develop corrective actions. For example, according to VA, the root cause for over 75 percent of VA's reported improper payments for fiscal year 2016 was program design or structural issues. Most of these errors occurred in VA's health care area. To reduce these improper payments, VA stated that it will make its procurement practices compliant with Federal Acquisition Regulation provisions. GAO has also recommended steps that VA can take to reduce the risk of improper payments related to disability benefits. For example, in November 2014, GAO reported that VA had shortcomings in quality review practices that could reduce its ability to ensure accurate and consistent processing of disability compensation claim decisions, and GAO made eight related recommendations to improve the program. To date, VA has implemented six of the report's eight recommendations and expects to implement the other two recommendations related to the effectiveness of quality assurance activities later this summer.