	Background

Fiscal year 2011 marked the eighth year of implementation of the  Improper Payments Information Act of 2002 (IPIA), as well as the first  year of implementation for the Improper Payments Elimination and  Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies  to annually review all programs and activities to identify those that are  susceptible to significant improper payments, estimate the annual amount  of improper payments for such programs and activities, and report these  estimates along with actions taken to reduce improper payments for  programs with estimates that exceed $10 million. IPERA, enacted        July 22, 2010, amended IPIA by expanding on the previous requirements  for identifying, estimating, and reporting on programs and activities  susceptible to significant improper payments and expanding requirements  for recovering overpayments across a broad range of federal programs. OMB and Agencies Reported Progress in Estimating and Reducing Improper Payments

Federal agencies reported improper payment estimates totaling $115.3  billion in fiscal year 2011, a decrease of $5.3 billion from the revised prior  year reported estimate of $120.6 billion. The decrease in the fiscal year 2011 estimate is attributed primarily to  decreases in program outlays for the Department of Labor’s  Unemployment Insurance program, and decreases in reported error rates  for fiscal year 2011 (compared to fiscal year 2010) for the Department of  the Treasury’s (Treasury) Earned Income Tax Credit program and the  Department of Health and Human Services’ (HHS) Medicare Advantage  program. The $115.3 billion in estimated federal improper payments reported for  fiscal year 2011 was attributable to 79 programs spread among 17  agencies. Specifically, as shown in table 1, these  10 programs accounted for about $107 billion or 93 percent of the total  estimated improper payments agencies reported for fiscal year 2011. However, three  additional programs providing estimates in fiscal year 2011 were not  included in the governmentwide totals because their estimation  methodologies were still under development. Over half of this amount, $797 million, can be  attributed to the Medicare recovery audit contractor program which  identifies improper Medicare payments—both overpayments and  underpayments—in all 50 states. Remaining Challenges in Complete and Accurate Reporting of Improper Payments

Despite reported progress in reducing estimated improper payment  amounts and error rates for some programs and activities during fiscal  year 2011, the federal government continues to face challenges in  determining the full extent of improper payments. Specifically, some  agencies have not yet reported estimates for all risk-susceptible programs  and some agencies’ estimating methodologies need to be refined. We  have also found that internal control weaknesses exist, heightening the  risk of improper payments occurring. Current and Future Actions to Move Forward with Improper Payment Reduction Strategies

A number of actions are under way across the federal government to help  advance improper payment reduction goals. These initiatives, as well as  additional actions in the future, will be needed to advance the federal  government efforts to reduce improper payments. Identifying and  analyzing the root causes of improper payments is key to developing  effective corrective actions and implementing the controls needed to  advance the federal government’s efforts to reduce and prevent improper  payments. In this regard, implementing strong preventive controls can  serve as the front-line defense against improper payments. Proactively  preventing improper payments increases public confidence in the  administration of benefit programs and avoids the difficulties associated  with the “pay and chase”example, addressing program design issues that are a factor in causing  improper payments may be an effective preventive strategy to be   aspects of recovering overpayments. In addition, agencies can also enhance detective  controls to identify and recover overpayments. Of the 79 programs with improper payment estimates in fiscal  year 2011, we found that agencies reported the root causes information  using the required categories for 42 programs in their fiscal year 2011  PARs and AFRs. Preventive controls may involve a variety of  activities such as upfront validation of eligibility, predictive analytic tests,  training programs, and timely resolution of audit findings. Data mining. Recovery auditing. Another area for further exploration is the  broader use of incentives for states to implement effective preventive  and detective controls. 2011 Financial  Report of the United States Government.
Why GAO Did This Study

Over the past decade, GAO has issued numerous reports and testimonies highlighting improper payment issues across the federal government as well as at specific agencies. Fiscal year 2011 marked the eighth year of implementation of the Improper Payments Information Act of 2002 (IPIA), as well as the first year of implementation for the Improper Payments Elimination and Recovery Act of 2010 (IPERA). IPIA requires executive branch agencies to annually identify programs and activities susceptible to significant improper payments, estimate the amount of improper payments for such programs and activities, and report these estimates along with actions taken to reduce them. IPERA, enacted July 22, 2010, amended IPIA and expanded requirements for recovering overpayments across a broad range of federal programs.
This testimony addresses (1) federal agencies reported progress in estimating and reducing improper payments, (2) remaining challenges in meeting current requirements to estimate and report improper payments and (3) actions that can be taken to move forward with improper payment reduction strategies. This testimony is primarily based on prior GAO reports, including GAOs fiscal year 2011 audit of the Financial Report of the United States Government. The testimony also includes improper payment information recently presented in federal entities fiscal year 2011 financial reports.

What GAO Found

Federal agencies reported an estimated $115.3 billion in improper payments in fiscal year 2011, a decrease of $5.3 billion from the prior year reported estimate of $120.6 billion. The $115.3 billion estimate was attributable to 79 programs spread among 17 agencies. Ten programs accounted for about $107 billion or 93 percent of the total estimated improper payments agencies reported for fiscal year 2011. The reported decrease in fiscal year 2011 was primarily related to three programsdecreases in program outlays for the Department of Labors Unemployment Insurance program, and decreases in reported error rates for the Earned Income Tax Credit program and the Medicare Advantage program. Further, the Office of Management and Budget reported that agencies recaptured $1.25 billion in improper payments to contractors, vendors, and healthcare providers in fiscal year 2011. Over half of this amount, $797 million, can be attributed to the Medicare Recovery Audit Contractor program which identifies Medicare overpayments and underpayments.
The federal government continues to face challenges in determining the full extent of improper payments. Some agencies have not yet reported estimates for all risk-susceptible programs, such as the Department of Health and Human Services Temporary Assistance for Needy Families program. Internal control weaknesses continue to exist, heightening the risk of improper payments. Some agencies estimating methodologies need to be refined. For example, two Department of Defense commercial payment programs were not included in the total governmentwide error rate because the estimation methodologies for these programs were still under development.
A number of actions are under way across government to help advance improper payment reduction goals. These actions and future initiatives will be needed to enhance federal government efforts to reduce improper payments. For example,
Additional information and analysis on the root causes of improper payment estimates would help agencies target effective corrective actions and implement preventive measures. Although agencies were required to report the root causes of improper payments in three categories beginning in fiscal year 2011, of the 79 programs with improper payment estimates for fiscal year 2011, 42 programs reported the root cause information using the required categories. In addition, because the three categories are general, additional analysis is critical to understanding the root causes.
Implementing strong preventive controls can help defend against improper payments, increasing public confidence and avoiding the difficult pay and chase aspects of recovering improper payments. Preventive controls involve activities such as upfront validation of eligibility using electronic data matching, predictive analytic tests, and training programs. Further, addressing program design issues, such as complex eligibility requirements, may also warrant further consideration.
Effective detection techniques to quickly identify and recover improper payments are also important to a successful reduction strategy. Detection activities include data mining and recovery audits. Another area for further exploration is the broader use of incentives to encourage and support states in efforts to implement effective preventive and detective controls.