Further, we noted 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. For example,  agencies had not estimated improper payments for 10 risk-susceptible  programs with outlays totaling over $234 billion, even though most of  these programs had such reporting requirements predating IPIA. In  addition, we found that improper payment estimates totaling about   $389 million for 9 programs were not based on a statistical sampling  methodology. Given that total outlays for these 9 programs exceeded  $58.2 billion in fiscal year 2005, estimates for these programs would likely  have been much greater had statistically valid methods been used. Our preliminary review of federal agencies’ fiscal year 2006 reporting of  selected improper payment information identified that while progress is  being made, improvements are still needed to fully address improper  payments reporting requirements. Challenges That Hinder Full Reporting of Improper Payment Information

While showing progress, agencies’ fiscal year 2005 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. We found that the  following challenges continue to hinder full reporting of improper  payment information: existing reporting remains incomplete, large  programs are still not included, and OMB’s threshold criteria limit  complete reporting. Improvements Needed in Agencies’ Reporting of Improper Payment Information

Of the 35 agencies whose fiscal year 2005 agency PARs or annual reports  were included in our review, 23, the same number of agencies that  reported having risk assessments in our prior year review, reported they  had performed risk assessments of all of their programs and activities. (See  GAO-07-92, app. After  passage of IPIA, OMB’s implementing guidance required that these  programs continue to report improper payment information under IPIA. On the surface, this would suggest that significant progress has been  made. We also noted instances where agencies with large program outlays  reported that their programs or activities were not susceptible to  significant improper payments because the improper payment estimates  only exceeded one of OMB’s criteria for reporting improper payment  information, another example of how OMB’s criteria could materially  affect the extent to which agencies report improper payment information  in their PARs. Although we do not know the extent of improper payments that are not  reported, a limited number of agencies voluntarily provided information in  their PARs that allowed us to determine the amount of improper payments  for certain programs and activities that were excluded from the total  improper payments estimate of $38 billion for fiscal year 2005. Generally, these  agencies reported on their recovery auditing efforts, such as the amount  identified for recovery and the amount recovered. For example, for fiscal year 2005, NASA reported in its PAR that it had  identified and recovered $617,442 in contract payments, a 100 percent  recovery rate. Yet, the NASA OIG reported it had identified over   $515 million in questioned contract costs during fiscal year 2005. When comparing the $51 million in  questioned contract costs identified for recovery to the $617,442 NASA  actually recovered, the recovery rate decreases from the reported   100 percent recovery rate to a 1.2 percent rate.
Why GAO Did This Study

Fiscal year 2005 marked the second year that executive agencies were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). The ultimate goal is to minimize such payments because, as a practical matter, they cannot be entirely eliminated. GAO's testimony is primarily based on its recently issued report, GAO-07-92 , which included a review of improper payment information reported by 35 agencies in their fiscal year 2005 performance and accountability or annual reports. This statement focuses on the progress agencies have made in their improper payment reporting, the challenges that remain, and the total amount of improper payments recouped through recovery auditing.

What GAO Found

While agencies are making progress, their fiscal year 2005 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. GAO found that three challenges in particular continue to hinder full reporting of improper payment information: First, existing reporting incomplete. Although 18 agencies collectively identified and estimated improper payments for 57 programs and activities totaling $38 billion, some agencies still had not instituted systematic methods of reviewing all programs, resulting in their identification of none or only a few programs as susceptible to significant improper payments. In many cases, these same agencies had well-known and well-documented financial management weaknesses as well as fraudulent, improper, and questionable payments. Further, improper payments estimates totaling about $389 million for 9 programs were not based on a valid statistical sampling methodology as required. Materially higher estimates would have been expected had the correct methods been used, given that total outlays for these 9 programs exceeded $58.2 billion. Second, large programs still not included. Estimates of improper payments for 10 risk-susceptible programs with outlays totaling over $234 billion still have not been provided. Most of these programs were subject to OMB reporting requirements that preceded IPIA. Third, threshold criteria limit reporting. The act includes broad criteria to identify risk-susceptible programs. OMB's implementing guidance includes more specific criteria that limit the disclosure and transparency of agencies' improper payments. GAO's preliminary review of fiscal year 2006 data indicates that while additional progress is being made, agencies continue to face many of the significant challenges noted in GAO's report on fiscal year 2005 reporting. With regard to agencies' recovery audit efforts, GAO found that the data reported may present an overly optimistic view of these efforts. While 21 agencies were required to report on their recovery audit efforts, GAO identified discrepancies in several agencies' information and found limited reviews over contract payments. For example, for fiscal year 2005, the National Aeronautics and Space Administration (NASA) reported that it had identified and recovered $617,442 in contract payments, a 100 percent recovery rate. Yet, the NASA Office of Inspector General reported it had identified over $515 million in questioned contract costs during fiscal year 2005, of which NASA management decided to pursue recovery of $51 million. Had this amount been compared to the $617,442 NASA actually recovered, its recovery rate would drop from the reported 100 percent to 1.2 percent.