IGs: IRS, SSA and DHS lose billions in improper payments

The Internal Revenue Service, Social Security Administration and Homeland Security Department all need to improve their methods of recovering and reporting improper payments, according to several recent inspector general reports.

The IRS made an estimated $14 billion to $17 billion in improper payments related to the Earned Income Tax Credit Program in fiscal 2011, according to a March 22 report from the Treasury Inspector General for Tax Administration. That amounts to an improper payment rate of 21 percent to 26 percent.

Furthermore, the IRS has not fully complied with the Improper Payments Elimination and Recovery Act of 2010, the report said.

Under that law, federal agencies are required to report improper payments and set targets to reduce them. However, the IRS has not set those targets and has not fully complied with the law with respect to the earned income credits, the inspector general wrote in the report.

"The IRS's failure to fully comply with this important Federal law is troubling," J. Russell George, Treasury inspector general for tax administration, said in a news release. “The law requires the IRS to establish annual reduction targets for improper payments; however, it has not done so." He made no recommendations in the report.

IRS officials said they have plans in place to establish reduction targets and are testing the feasibility of computing an improper payment estimate for earned income underpayments.

At the SSA, the inspector general found problems with improper payments with regard to wives and husbands who are due to receive Social Security benefits for a deceased spouse while also being recipients of government pensions on their own, according to a March 21 report. In those cases, the SSA is supposed to reduce the amount of the spousal benefit by an amount called the government pension offset.

Based on an investigation of a random sample from a pool of 3,200 such beneficiaries, the inspector general estimated that 925 beneficiaries were overpaid about $16.6 million because of SSA gaps in administering the regulations.

“SSA did not always monitor beneficiaries’ pension entitlement dates or take prompt action to initiate Government Pension Offset actions,” the report said. “SSA needed to improve its controls and procedures to ensure GPO was timely and accurately applied.”

At DHS, the inspector general’s office contracted with KPMG to determine whether DHS complied with the improper payments law last year. The auditing company found no instances of noncompliance, according to the March 13 report. At the same time, the inspector general recommended that DHS improve its controls over improper payment testing and reporting.

The greatest amount of improper payments at the department in fiscal 2011 were reported by Immigration and Customs Enforcement, with $108 million in improper payments, which equated to an improper payment rate of 8 percent. ICEs total payments were $1.3 billion.

The second highest was at the Federal Emergency Management Agency, with $68 million in improper payments, which equated to an improper payment rate of 2 percent. FEMA’s total pool of payments as $3.7 billion.

On the whole, DHS had an improper payment rate of 2 percent, or $210 million improper out of a pool of $12.7 billion, the report said.

Federal agencies reported an estimated $125 billion in improper payments in fiscal 2010. Those included all payments made to the wrong person, or made for an incorrect reason or amount or at the wrong time.







payments.

KPMG did not find any instances of noncompliance with the Act.

DHS’ Controls over Improper Payment Testing and Reporting

DHS needs to improve its controls over





Federal government agencies reported an estimated $125 billion in

improper payments in fiscal year 2010. Congress passed the

Improper Payments Elimination and Recovery Act of 2010 in an

effort to reduce these erroneous payments. The Act requires each

agency’s Inspector General to annually determine if the agency is

in compliance with the Act.

Our audit objectives were to 1) determine if the Department of

Homeland Security is in compliance with the Act; 2) evaluate the

accuracy and completeness of the Department’s improper payment

reporting; and 3) evaluate the Department’s efforts in reducing and

recovering improper payments for fiscal year 2011.

We contracted with KPMG LLP to determine whether the

Department of Homeland Security complied with the Act.

KPMG LLP did not find any instances of noncompliance with the

Act.

We reviewed the accuracy and completeness of the Department’s

improper payment reporting and its efforts to reduce and recover

improper payments. The Department needs to 1) improve controls

to ensure completeness and accuracy of reporting and 2) increase

efforts to recover improper payments. Specifically, the

Department should ensure that all payments subject to testing are

tested and reported and that recovery audit rates are reported

accurately. Independent parties should perform test work and

review sample payments. Also, the Department should develop

guidance on applying results of test work using alternative

sampling methodologies. Finally, the Department should perform

recovery audits when cost effective, and those audits should target

payments with a higher potential for overpayment and recovery.

We made six recommendations that if implemented would improve

the accuracy and completeness of the Department’s improper

payment reporting and improve its efforts to recover any

overpayments. DHS concurred with all six of our

recommendations.

Department of Homeland Security’s Compliance with Improper Payments Elimination and Recovery Act of 2010

Page 1

Background

The federal government’s efforts to reduce improper payments

predate the Department of Homeland Security (DHS). In 2002, the

Government Accountability Office (GAO) reported, based on

estimates voluntarily provided by some agencies, that the federal

government made approximately $20 billion in improper payments

annually for fiscal years (FYs) 1999, 2000, and 2001. GAO

believed





DHS needs to improve its improper payment recovery efforts. Not all

Components conducted payment recovery audits as required by IPERA.

Of those Components that did conduct recovery audits, only the USCG

prioritized its audit to target categories with higher potential for

overpayments and recoveries. If these issues are corrected, DHS would

benefit by recovering a greater number of improper payments.

Performing Recovery Audits

DHS decided



We contracted with KPMG to determine whether DHS complied with

IPERA in FY 2011. KPMG conducted audit procedures to determine if

DHS met the following requirements prescribed in the Act:

conducted required program-specific risk assessments;

published improper payment estimates for high-risk programs;

published programmatic corrective action plans;

published, and has met, annual reduction targets for programs at

risk;

achieved and reported a gross improper payment rate of less than

10 percent for all programs tested; and

reported on its efforts to recover improper payments.

KPMG did not find any instances of noncompliance with the Act.

DHS’ Controls over Improper Payment Testing and Reporting

DHS needs to improve its controls over

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