	Progress Made in Estimating and Reducing Improper Payments

Federal agencies reported improper payment estimates of $72 billion for  fiscal year 2008, which represented about 4 percent of the $1.8 trillion of  reported outlays for the related programs and a $23 billion increase from the  fiscal year 2007 estimate of about $49 billion. These efforts represent a  positive step to improve transparency over the full magnitude of federal  improper payments so that appropriate corrective actions can be put in place. This increase was primarily attributable to (1) a $12 billion increase in the  Medicaid program’s estimate for its Fee-for-Service and managed care  payments and payments related to incorrect eligibility determinations; and (2)  10 newly reported programs with improper payment estimates totaling about  $10 billion. Of the 35 agency programs  reporting improper payment estimated error rates for each of the 5 fiscal  years—2004 through 2008—24 programs, or about 69 percent had reduced  error rates when comparing fiscal year 2008 error rates to the initial error  rates reported for fiscal year 2004. Further, we found the number of  programs with error rate reductions totaled 35 when comparing fiscal  years 2008 and 2007 error rates. Challenges Remain in Meeting IPIA

While federal agencies have shown progress, major challenges remain in  meeting the goals of IPIA and ultimately provide reasonable assurance as  to the integrity of payments. Specifically, while improved, the total  improper payment estimate reported in fiscal year 2008 does not yet  reflect the full scope of improper payments across executive branch  agencies; noncompliance issues with IPIA implementation continue to  exist; and agencies continue to face challenges in the design or  implementation of internal controls to identify and prevent improper  payments. Not all agencies have yet developed improper payment  estimates for all of the programs and activities they identified as  susceptible to significant improper payments. As shown in table 1, the  fiscal year 2008 total improper payment estimate of $72 billion did not  include any amounts for 10 risk-susceptible programs—including the  Medicare Prescription Drug Benefit program—with fiscal year 2008  outlays totaling about $61 billion. Over half of  the OIGs for agencies required to report under IPIA identified management  or performance challenges that could increase the risk of improper  payments, including challenges related to internal controls. Implementation of IPIA in Medicare and Medicaid Programs

The Department of Health and Human Services (HHS) annually reports on  improper payments in its Agency Financial Report (AFR). Collectively, HHS reported improper  payment estimates for Medicare and Medicaid totaling about $36 billion  for fiscal year 2008. This represents about 50 percent of  the total $72 billion in reported improper payments. The Centers for  Medicare and Medicaid Services (CMS), a component of HHS, administers  Medicare and oversees Medicaid at the federal level. CMS has a long-history of estimating  improper payments for its Medicare FFS program that predate IPIA. Beginning in 1996, HHS’s Office of Inspector General (OIG) estimated  improper payments in the Medicare FFS program as part of its annual  financial statement audit. For fiscal year 2008, CMS estimated improper payments for fee-for- service providers, managed care plans, and for ineligible recipients—and  reported an error rate of 10.5 percent or $18.6 billion as the federal share  of these improper payments. CMS has taken steps to  enhance its program integrity efforts, but further work remains to put in  place the controls necessary to effectively identify and detect improper  payments. Likewise, our  review of enrollment of Medicare’s durable medical equipment suppliers  found weaknesses in Medicare’s screening process that exposed the  program to potentially paying millions of dollars for medical equipment  and supplies that were not necessary or were not provided to  beneficiaries. As  we previously reported, measuring improper payments within the  Medicaid program is critical to recouping and reducing them. The  magnitude of the program’s payment errors indicates that CMS and the  states face significant challenges to address the program’s vulnerabilities. Appendix I: Improper Payment Estimates Reported in Agency Fiscal Year 2007 and 2008 Performance and Accountability Reports, Agency Financial Reports, or Annual Reports

Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2007 error  rate  (percent)
Fiscal year  2008 error  rate  millions) (percent)
3  Grants and Cooperative Agreements  Child and Adult Care Food Program  Conservation Security Program  (previously Farm Security and Rural  Investment)
Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2007 error  rate  (percent)
Fiscal year  2008 error  rate  millions) (percent)
Fiscal  year 2008  total  estimate  (dollars in  millions)
Fiscal year  2007 error  rate  (percent)
Fiscal year  2008 error  rate  millions) (percent)
Temporary Assistance for Needy Families 48  Customs and Border Protection— Custodial—Refund & Drawback and  Continued Dumping & Subsidy Offset Act  & Payments to Wool Manufacturers   Federal Emergency Management  Agency—Assistance to Firefighters  Grants  Federal Emergency Management  Agency—Homeland Security Grant  Program  Federal Emergency Management  Agency—Individuals and Households  Program  Federal Emergency Management  Agency—Infrastructure Protection  Program  Federal Emergency Management  Agency—National Flood Insurance  Program  Federal Emergency Management  Agency—Public Assistance Programs  Federal Emergency Management  Agency—Vendor payments  Immigration and Customs Enforcement— Detention and Removal Operations  Immigration and Customs Enforcement— Federal Protective Service  Immigration and Customs Enforcement— Investigations  Transportation Security Administration— Aviation Security—Payroll  60  United States Coast Guard—Active Duty  61  United States Coast Guard—Contract  62  Community Development Block Grant  (Entitlement Grants, States/Small Cities)
Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2007 error  rate  (percent)
Fiscal year  2008 error  rate  millions) (percent)
Fiscal year  2007 total  estimate  (dollars in  millions)
Fiscal year  2007 error  rate  (percent)
Fiscal year  2008 error  rate  millions) (percent)
Fiscal year  2008 error  rate  millions)
Fiscal year  2007 error  rate  (percent) millions) (percent)
108  Non-VA Care Civilian Health and Medical  Program (CHAMPVA)
Why GAO Did This Study

GAO's work over the past several years has demonstrated that improper payments are a long-standing, widespread, and significant problem in the federal government. The Improper Payments Information Act of 2002 (IPIA) has increased visibility over improper payments by requiring executive branch agency heads, using guidance from the Office of Management and Budget, to identify programs and activities susceptible to significant improper payments, estimate amounts improperly paid, and report on the amounts of improper payments and their actions to reduce them. This testimony addresses (1) progress made in agencies' implementation of IPIA for fiscal year 2008, and (2) several major challenges that continue to hinder full reporting of IPIA information. GAO was also asked to provide an overview of Medicare and Medicaid programs' implementation of IPIA. This testimony is based primarily on GAO products, Office of Inspector General (OIG) audit reports, and agencies' fiscal year 2008 reported improper payment information, including information reported by the Department of Health and Human Service's (HHS) Centers for Medicare and Medicaid Services (CMS). GAO also analyzed fiscal year 2008 governmentwide improper payment information to identify trends and reviewed Medicare and Medicaid programs' reported actions to identify, estimate, and reduce improper payments.

What GAO Found

Agencies reported improper payment estimates of $72 billion for fiscal year 2008, which represented about 4 percent of the $1.8 trillion of reported outlays for the related programs. This represents a significant increase from the fiscal year 2007 estimate attributable to (1) a $12 billion increase in the Medicaid program's estimate and (2) 10 newly reported programs with improper payment estimates totaling about $10 billion. (1) Progress made in estimating and reducing improper payments. The governmentwide improper payment estimates rose about $23 billion from fiscal year 2007 to 2008. This represents a positive step to improve transparency over the full magnitude of the federal government's improper payments. Further, of the 35 agency programs reporting improper payment estimated error rates for each of the 5 fiscal years since implementation of IPIA--2004 through 2008--24 programs (or about 69 percent) reported reduced error rates when comparing fiscal year 2008 error rates to fiscal year 2004 error rates. Also, the number of programs with error rate reductions totaled 35 when comparing fiscal year 2008 error rates to fiscal year 2007 rates. (2) Challenges remain in meeting the goals of IPIA governmentwide. The total improper payment estimate does not yet reflect the full scope of improper payments across executive branch agencies; noncompliance issues with IPIA continue; and agencies continue to face challenges in the design or implementation of internal controls critical to identifying and preventing improper payments. The fiscal year 2008 total improper payment estimate of $72 billion reported for fiscal year 2008 did not include any estimate for ten programs--including the Medicare Prescription Drug Benefit program--with fiscal year 2008 outlays totaling about $61 billion that were identified as susceptible to significant improper payments. Over half of the agencies' OIGs identified management or performance challenges that could increase the risk of improper payments, including challenges related to effective internal controls. (3) Medicare and Medicaid programs' implementation of IPIA and its challenges. Medicare and Medicaid comprise 50 percent of reported governmentwide improper payments in fiscal year 2008. HHS reported improper payment amounts of $10.4 billion in Medicare Fee-for-Service and $6.8 billion in Medicare Advantage. HHS also reported in its agency financial report that it issued its first full-year Medicaid improper payment rate estimate of 10.5 percent, or $18.6 billion for the federal share of expenditures for fiscal year 2008. This Medicaid improper payment estimate represents the largest amount that any federal agency reported for a program in fiscal year 2008. While CMS has taken steps to enhance its program integrity efforts, further work remains to put in place the internal controls necessary to effectively identify and detect improper payments. For example, GAO's work on Medicare's home health care administration and enrollment of durable medical equipment suppliers found weaknesses that exposed the program to significant improper payments. The magnitude of Medicaid improper payments indicates that CMS and the states face significant challenges in addressing the program's vulnerabilities in estimating national improper payment rates for diverse state-administered programs.