June 21, 2018
Improper payments: Wasted Federal dollars that just disappear

By Dustin Siggins

The federal government could purchase every American household an iPhone X with the money it lost last year through improper payments.

A new report calculates that government waste at $1,116 per U.S. household  in 2017.

 A Government Accountability Office (GAO) press release estimated the dollar value of improper federal payments in 2017 at $141 billion.

“We can, and we must, do better,” said Senator Tom Carper (D-DE) to prevent improper payments. He told the American Media Institute that two bills which passed the Senate Homeland Security and Governmental Affairs Committee on June 13 “will help us better manage the longstanding problem of improper payments across government and help to ensure we are being good stewards of taxpayer dollars.”

The two bills -  the Stopping Improper Payments to Deceased People and the Payment Integrity Information Act of 2018 - aim to help agencies identify deceased people still receiving payments while introducing reforms aimed, according to a statement from Carper’s office, at tackling  “key drivers of improper payments, such as fraud and eligibility determinations in state-managed federal benefits programs.”

Improper payments are under-or-over-payments – mostly overpayments – made by accident or fraudulently. Programs with the highest error rates are a Veterans Affairs program, the Earned Income Tax Credit, and the National School Breakfast Program. Medicare Fee-For-Service and Medicaid have the highest dollar amounts lost to improper payments — $36.2 billion and $36.7 billion, respectively.

Agencies have been required to report such discrepancies since 2002. GAO Director of Financial Management and Assurance Beryl Davis told the American Media Institute that OMB did not provide a formal government-wide error rate estimate in 2017. In the annual Financial Report Of The United States Government, OMB explained that it was discontinuing “aggregate improper payment data” to focus on “program-by-program improper payment data.”

The full federal budget isn’t examined for improper payments in part because of existing law which limits spending that can be scrutinized. Davis told Economics21 last year that the law “defines significant improper payments as gross annual improper payments (i.e., the total amount of overpayments and underpayments) exceeding (1) both 1.5 percent of program outlays and $10 million of all program or activity payments made during the fiscal year reported or (2) $100 million (regardless of the improper payment percentage of total program outlays).”


Davis told the American Media Institute that GAO has “work in process on agencies’ improper payment risk assessments and agencies’ compliance with” a 2012 law which requires federal agencies to review processes and risk for improper payments. Davis said GAO will have a report on agency Inspectors General assessments “likely in the November or even December time frame.”

GAO’s last report on the Inspectors General assessments was published just over a year ago. It found that “15 of the 24 Chief Financial Officers Act of 1990 (CFO Act) agencies were reported by their inspectors general (IG) as noncompliant under” the 2012 law for Fiscal Year 2015. Those 15 agencies’ programs “accounted for…about 96 percent of the reported $136.7 billion government-wide improper payment estimate for fiscal year 2015,” the report continued. Just as GAO has concerns with the improper payment error rate, the agency declared that “inconsistent IG compliance determinations in the IGs’…compliance reports may present potentially misleading information.”

That $141 billion in improper payments is likely an underestimate because the federal government’s spending in Fiscal Year 2017 totaled $3.98 trillion – 22 percent more than the examined $3.12 trillion. Likewise, a GAO analysis (see table below) which examined $2.5 trillion of spending through 10 programs inside seven federal agencies found $112 billion in improper payments. The total dollars examined total 62.5 percent of federal spending.

Another barrier to calculating the extent of the problem is that many federal agencies do not have reliable internal controls and estimates.

Just Facts, a think tank, released a report which calculated that the Office of Management & Budget’s (OMB) PaymentAccuracy.gov estimate of improper payments is based upon examining $3.12 trillion in federal spending.

OMB’s 2016 error rate included the Pentagon’s Defense Finance and Accounting Service Commercial Pay Program. GAO disputed the program’s inclusion in the estimate due to concerns about whether the OMB method of analysis was reliable.

“[The GAO report ] doesn’t include programs for which the government has not produced improper payment data,” says James Agresti the President of Just Facts.


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