Agencies were to first include this improper payment information  in their initial fiscal year 2003 budget submissions. Progress Made but Challenges Remain in Assessing Programs for Risk of Significant Improper Payments

In response to the new requirements of the IPIA, agencies overall made  progress in identifying programs susceptible to the risk of improper  payments. At the same time, our reviews of the fiscal year 2004 PARs for 29  of 35 federal agencies that are significant to the U.S. government’s  consolidated financial statements suggest that even with the enhanced  emphasis on improper payment reporting fueled by the new legislation,  certain agencies have not yet performed risk assessments of all their  programs. Of the 15  agencies with prior reporting requirements under OMB Circular No. A-11,  12 reported that they had performed comprehensive inventories and  assessed the risk of improper payments for all their programs and  activities. Magnitude of Improper Payments Is Still Unknown

Once agencies have identified programs that may be susceptible to  significant improper payments, developing statistically valid estimates of  the amounts of improper payments for their programs and activities has  been a further challenge. In the 29 agency PARs included in our review, 17 agencies  reported over $45 billion of improper payments in 41 programs. This  represented almost a $10 billion, or 27 percent, increase in the dollar  amount of improper payments reported by agencies in fiscal year 2003. However, we determined that this increase was primarily attributable to  changes in the method for estimating and reporting improper payment  amounts in the Department of Health and Human Services’ Medicare  Program. The 24 agency programs with no prior reporting requirements  reported improper payment estimates that did not significantly increase the  governmentwide total. We  found that for 34 of the programs, agencies reported estimates in their  fiscal year 2004 PARs or stated that improper payment amounts were  insignificant. As shown in table 1, the governmentwide estimate did not include the  remaining 12 programs with total outlays of $248.7 billion in 2004. This  included some of the largest risk-susceptible federal programs, such as the  Department of Health and Human Services’ Medicaid Program, with  outlays exceeding $175 billion annually, or the Department of Education’s  Title I Program, with outlays of over $10 billion annually. Scope and Methodology

This report is based on our review of agency fiscal year 2004 Performance  and Accountability Reports (PAR).
Why GAO Did This Study

Fiscal year 2004 marked the first year that federal agencies governmentwide were required to report improper payment information under the Improper Payments Information Act of 2002 (IPIA). The increasing scope of reporting over the past several years has demonstrated that improper payments are a significant and widespread problem in federal agencies, and in the past a limited number of agencies reported in their Performance and Accountability Reports (PAR) annual payment accuracy rates and estimated improper payment amounts. Because of your continued interest in addressing the governmentwide improper payments issue, you asked GAO to report on (1) the extent to which agencies have performed the required assessments to identify programs and activities that are susceptible to significant improper payments and (2) the annual amount estimated for improper payments by the agencies.

What GAO Found

The federal government made progress in identifying programs susceptible to the risk of improper payments in response to the new IPIA requirements. The fiscal year 2004 PARs for 29 of 35 federal agencies that are significant to the U.S. government's consolidated financial statements show that even with the enhanced emphasis on improper payment reporting fueled by the new legislation, 6 agencies reported that they did not perform risk assessments of all their programs. The magnitude of the governmentwide improper payment problem is still unknown, because agencies have not yet prepared estimates of improper payments for all of their programs. In the 29 agency PARs included in GAO's fiscal year 2004 review, 17 agencies reported over $45 billion of improper payments in 41 programs governmentwide. This represented almost a $10 billion, or 27 percent, increase in the amount of improper payments reported by agencies in fiscal year 2003. This increase was primarily attributable to changes in the method for estimating and reporting improper payment amounts in one major program. Looking forward, future estimates are likely to trend higher because the governmentwide estimate did not include 12 programs with outlays of $248.7 billion in fiscal year 2004 that were required to annually report improper payments under OMB Circular No. A-11 during the past 3 years. This included some of the largest risksusceptible federal programs, such as the Department of Health and Human Services' Medicaid Program, with outlays exceeding $175 billion annually, or the Department of Education's Title I Program, with outlays of over $10 billion annually.