OMB: Agencies cut payment errors

Agencies reported an error rate of 3.5 percent, or $55 billion, in 2007 for improper payments for benefits, health care claims and other transactions. But error rates from the original baseline programs reporting in 2004 have steadily fallen from 4.4 percent to 3.1 percent last year.

Agencies have expanded each year since 2004 the number of programs reporting error measurements and also reduced a significant amount of improper payments each year in the past four years since agencies have had to report them, the Office of Management and Budget said.

In 2007, agencies added to the estimate 14 programs that were susceptible to risk of incorrect payments, but Medicaid’s fee-for-service component accounted for the overwhelming majority. Agencies identified $1.9 trillion in program outlays last year to be measured for improper payments and submitted an additional $330 billion in contract payments to recovery audits. As a result, 80 percent of all federal outlays are measured or reviewed for improper payments, OMB said in a memo released Jan. 31. By the end of this fiscal year, agencies will report on 90 percent of high-risk federal outlays.

“Reporting improper payment rates to the public has enabled federal agencies to quickly take effective action to eliminate them,” said Clay Johnson, OMB deputy director for management, at a briefing Jan. 31. “Transparency in goals and performance measures has driven real, significant accountability throughout most of the federal government.”

Most errors result from inaccurate documentation or a lack of supporting information. The results from the past three years of reporting have shown that once agencies have measured and reported program errors, they are able to implement corrective actions to reduce those errors in subsequent years. Many of the improper payments involve decisions made by states for federal payments, said Danny Werfel, OMB acting controller. For example, the Veterans Affairs Department and Army Corps of Engineers have employees to conduct transactions and as agencies implements new technologies, policies and procedures, corrections need to take place around that, but it will take time, he said.

The administration hopes to further cut the payments error rate this year. Congress funded only part of the administration’s proposals to reduce errors in 2006. President Bush will seek funding for program integrity proposals, which translate to $4 billion in savings over 10 years in agencies with improper payments, such as the Social Security Administration, Labor Department and Internal Revenue Service, Werfel said. The presidential budget package includes $18 billion in error reduction and savings over 10 years

“Every year it is not enacted, we lose $1.1 billion in not having error reductions,” he said.

OMB also measures agencies’ effectiveness in reducing improper payments as part of the President’s Management Agenda score card. In the final quarter of 2007, the Small Business Administration, Environmental Protection Agency, Labor and National Science Foundation received a green score, while the Housing and Urban Development Department slipped to yellow.

For overall financial performance, the Commerce, Education and Energy departments; U.S. Agency for International Development; General Services Administration; Office of Personnel Management; Social Security Administration; HUD; Labor; EPA; NSF; and SBA all achieved green on the PMA.

Agencies continue to improve their financial reporting by providing timely, reliable and routine financial information, Werfel said. All agencies met the 45-day financial statement audit deadline in 2007.

“The accelerated reporting deadline enables agencies to provide more timely financial information to decision-makers and also requires them to employ more rigorous disciplines throughout the year to ensure readiness for year-end reporting,” he said.

Of the 24 major agencies, 19 received clean audit opinions, meaning that Congress and the public can be assured that the information is reliable. Agencies also cut the number of major accounting weaknesses across government from 39 from 41. Material weaknesses indicate where internal controls are not effective. Thirteen agencies, however, achieved a clean audit with no material weaknesses. They are:


  • Commerce, Education and Energy.

  • Justice, Interior and Labor.

  • USAID, EPA and GSA.

  • NSF, OPM, SBA and SSA.

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