Improper payments decline

OMB goes after agencies that have lagged in fulfilling their reporting requirements

Only eight programs run by federal agencies have been reporting their risk of improper payments in the three years since the Bush administration began collecting that information. Thirteen other major agency programs that the Office of Management and Budget determined are most at risk of issuing incorrect payments have not been reporting, but that is about to change, OMB officials said.

The Health and Human Services Department’s Medicaid and Temporary Assistance for Needy Families program will begin reporting in fiscal 2008. The Agriculture Department’s National School Lunch and School Breakfast Programs and the Federal Communications Commission’s Universal Service Fund’s Schools and Libraries program also will participate, beginning in fiscal 2008.

OMB officials said the eight programs that have been reporting have reduced their improper payments at the same time those programs have grown. “The trends are continuing to go the right way,” OMB’s Controller Linda Combs said at a recent hearing of the Senate Homeland Security and Governmental Affairs Committee’s Federal Financial Management, Government Information, Federal Services and International Security Subcommittee.

When OMB released the President’s Management Agenda score cards last week, only four of 15 department and agencies   — the Housing and Urban Development and Labor departments, the Environmental Protection Agency and the National Science Foundation — received green scores for eliminating improper payments. However, OMB gave only two red scores for improper payments — to HHS and the Treasury Department.

The improper payments rate was 2.9 percent in 2006, down from 3.2 percent in 2005 and 3.9 percent the previous year. The overall amount of improper payments declined from $42.9 billion in 2004 to $35.9 billion last year, primarily because of improvements in managing the Medicare program, which still is the biggest violator, Combs said.

Agencies have made substantial progress in three areas, Combs said. They have become better at identifying risky payments, estimating the annual improper payments for risky programs, identifying the root causes of improper payments and correcting the errors.

The Government Accountability Office found that more than half of the programs reporting improper payment estimates also reported management challenges, such as weak internal controls. Internal controls are critical to managing an agency and fulfilling its mission, said McCoy Williams, director of financial management and assurance at GAO.

“Internal controls also serve as the first line of defense in safeguarding assets and preventing and detecting errors and fraud,” Williams said.
Agencies can use recovery auditing to recoup improper payments, Williams said. Recovery auditing focuses on erroneous invoices, discounts offered but not received, improper late penalty payments and incorrect shipping costs.

Agencies are required to include their recovery auditing efforts in their annual performance and accountability reports. Of the $840 million identified for recovery last year, agencies reported that they recovered 30 percent, or $256 million.

In addition to better use of recovery auditing and tracking of contractor costs, agencies can enlist states to help in reducing improper payments, Williams said.
States administer a number of federal programs, including Medicaid.
CMS contractors recover $144 millionThe Centers for Medicare and Medicaid Services has begun using five recovery audit contractors to identify incorrect Medicare payments in California, Florida and New York. The contractors have identified more than $400 million in overpayments and collected $144 million to date, said Tim Hill, CMS’ chief financial officer. Congress mandated recovery audit contractors to be in all states by 2010.

“I expect the recoveries will get into the billions,” Hill said.

CMS also hired an independent evaluation contractor to determine what actions CMS, Medicare providers and claims processors can take to improve payment accuracy. Possible additional actions include new or improved edits in claims payment systems, industrywide and provider-specific education, and clarification of coverage and payment policies.

— Mary Mosquera

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