Estimate of improper payments mounts with more scrutiny

Federal agencies estimated higher improper payments as they placed more programs under scrutiny last year. Agencies reported a total estimate for improper payments of $55 billion in fiscal 2007 compared with $41 billion the year before as more programs considered at risk were included.

Most of the increase, or $13 billion, came from a component of the Medicaid program reporting for the first time, said the Government Accountability Office.

Agencies report estimates of improper payments in their annual performance and accountability reports submitted to OMB at the end of the year. Improper payments are those that are inaccurate, duplicative or fraudulent.

“We view this increased reporting as a positive step to improve transparency over the full magnitude of improper payments across the federal government,” said McCoy Williams, managing director of  financial management and assurance at GAO, in a report released Jan. 23.

The $55 billion represents about 2 percent of agencies' $2.8 trillion total outlay in 2007. This latest estimate of $55 billion in improper payments comes from 78 programs in 21 agencies compared with 60 programs in 20 agencies in 2006. Eight programs, however, account for most improper payments, GAO said.

Some agencies still have not developed improper-payments estimates for programs that could be susceptible to incorrect payments.

“Preventing, identifying and recovering improper payments, in that order, are what is needed across the federal government to manage, and ultimately minimize, such payments,” Williams said.

The Homeland Security Department this year will add several programs for which it will report estimates of improper payments, including the Federal Emergency Management Agency’s public assistance programs, he said.

The Health and Human Services Department estimated $13 billion in improper payments over six months for its Medicaid program’s fee-for-service claims, which are processed by the states. This year, HHS will report a comprehensive national Medicaid error rate that includes both its fee-for-service and managed-care components.

Agencies began to target these faulty payments in earnest following passage of the Improper Payments Information Act of 2002, which requires them to assess programs for risk, figure estimates of improper payments from a statistical sample and prepare corrective action plans.

The adoption of internal controls under OMB Circular A-123, similar to Sarbanes-Oxley in the private sector, has added teeth to accounting for federal benefits and payments by establishing a more formal and rigorous self-assessment process.