Improper Payments

September 20, 2010 § Leave a comment

It is estimated that nearly $110 billion of the $2 trillion in payments to individuals and organization are improperly paid out by the federal government each year, which amounts to more than the combined budgets of the Department of Education and the Small Business Administration. An improper payment occurs when the government funds go to the wrong recipient, an incorrect amount has been given to a recipient, or recipients use the funds in an undesirable manner. Under the Obama Administration, a series of executive orders and legislation have been issued with the goal of reducing the amount of improper payments made by the federal government each year.

The President took the first step in late November 2009 by signing Executive Order 13520 to restrain improper payments by responding to three categories of action: boosting transparency, holding agencies accountable, and creating strong incentives for compliance. The Order developed an online dashboard of key indicators and statistics on improper payments (http://paymentaccuracy.gov/). In addition, the Order calls for the establishment of a single venue for reporting incidences of waste, fraud, and abuse and for agencies to establish more frequent error reduction tactics. More substantially, in order to increase the level of accountability, the administration will require each agency to select high-level, Senate confirmed appointees responsible for meeting reduction targets.

In March 2010, the Office of Management and Budget (OMB) released new guidance for implementing the President’s Executive Order. The guidance better defines the role of agency-accountable officials; verifies which programs must comply with the Order; delineates goals for high priority programs; establishes reporting requirements; and provides procedures to identify organizations with outstanding improper payments. OMB also expanded the use of “Payment Recapture Audits” where accounting specialists attempt to uncover such issues as duplicate payments, payment for services not rendered, overpayments, and non-existent vendors.

In June, the Administration began addressing some of the logistical challenges agencies face in accessing multiple databases across the government in order to identify potential applicants’ eligibility status. As a result, the President issued the Presidential Memorandum: Enhancing Payment Accuracy Through a “Do Not Pay List,” which calls for the development of a single source for agencies to check on the records of a potential contractor or grantee and that pull data from existing federal databases.

In addition, Congress has issued legislation providing further direction. On July 22, the President signed into law the Improper Payments Elimination and Recovery Act (IPERA). The goal behind IPERA is to complement and enable implementation of improper payments directives issued by the Administration since November. The bill requires agencies to conduct annual risk assessments and measure improper payments in programs significantly susceptible to it. It continues to expand payment recapture audits by lowering the threshold for programs that must conduct the reviews. IPERA also authorizes agency heads to use recovered funds for additional uses than is currently allowed, including support for an agency’s Office of the Inspector General. Finally, IPERA institutes a host of actions an agency must take for non-compliance in order to increase its error reduction rate.

Agencies should continue to anticipate further guidance concerning improper payments, requiring greater coordination among federal, state, and local entities. Agencies have been asked to submit methodologies for identifying and measuring improper payments and plans for meeting reduction targets for improper payments. Furthermore, these activities must be carried out without overburdening access and participation for eligible beneficiaries. Each agency has been asked to submit a plan to OMB that includes information on its current pre-payment and pre-award procedures and a list of databases that the agency checks pursuant to those procedures. Agencies should also work with OMB by offering consultation concerning the development of additional guidance, as OMB is required to seek advice from affected agencies. Finally, reporting on current procedures should be as accurate as possible as further guidance will attempt to take into account existing processes.

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