Bill would press agencies to reduce improper payments

A bill introduced today in the Senate would more strictly enforce a law to identify and collect overpayments to beneficiaries of federal programs such as Social Security, Medicare and unemployment insurance, and introduce new penalties for agencies that do not comply.

The bill, introduced by Sen. Tom Carper, D-Del., chairman of the Subcommittee on Federal Financial Management, Government Information, Federal Services and International Security, would amend the Improper Payments Information Act of 2002 by levying financial penalties on agencies that do not fully comply with the law.

The act requires agencies to report annually to the Office of Management and Budget the amount of payments issued in error, such as mistakenly or fraudulently paying more than a beneficiary is entitled to or paying individuals who are no longer in a program or are not eligible. The law focuses on at-risk agencies -- those that have issued improper payments totaling 2.5 percent of a program's outlays and $10 million or more in improper payments. OMB audits such agencies.

However, Carper's bill would expand the definition to include an agency that fulfils either of the two conditions. Under the old definition, a $50 billion program with less than $1.25 billion in overpayments would not be considered at risk and therefore not audited, said Sen. Tom Coburn, R-Okla., ranking minority member of the subcommittee.

Carper also would impose penalties for noncompliance. If an inspector general finds that the agency is not reporting its improper payments, the head of the agency has the authority to transfer available funds from any part of the agency to the program to pay for oversight of improper payments. If the IG rules the agency has not complied in a second consecutive year, the head of the agency is required to transfer the funds. If the agency is not in compliance for a third consecutive year, any program not in compliance must transfer 5 percent of its appropriations to the Treasury.

"This legislation is designed to fix the problem," Carper said. "It improves transparency; the reporting threshold is too low as it is." The amount of the federal government's improper payments increased by 34 percent in fiscal year 2007 to $55 billion, up from $41 billion in fiscal 2006, according to an OMB report released Thursday. OMB officials attributed much of the increase to the fact that 14 additional agencies reported on their payments. The fee-for-service component of Medicaid accounted for the largest share of the newly reported improper payments -- $12.9 billion. Overall, nine programs accounted for 90 percent of errors, including unemployment insurance, the food stamp program, the free lunch program and Social Security.

"I'm shocked at the amount of money that agencies waste each year on avoidable errors, and these lost federal dollars grow each year," Carper said.

About 20 percent of all improper payments, or $11 billion, can be attributed to data entry mistakes by federal employees or by systems issuing the wrong amount, said Danny Werfel, acting controller for the Office of Federal Financial Management at OMB. Included in these errors are payments for which the agency does not have documentation to validate the accuracy of the payment, although the payment could be correct.

About 27 percent of the errors occur when checks are sent to individuals no longer eligible, such as a recipient of unemployment insurance who finds a job but continues to receive unemployment benefits. "This category is one where agencies can move forward and verify the information against a third party data source, such as the national register of new hires, and are not doing it enough," Werfel said.

Most of the overpayment errors occur when eligibility cannot be verified by a third party. For example, Werfel said those qualifying for the Earned Income Tax Credit, which requires that a parent live with a child for six months in order to claim the child as a dependent, cannot be verified. "Medical necessity is another area that's hard to validate," he said. "We wanted to distinguish between errors where there is a path forward and a way to verify the information, and cases where we may need to potentially reform the programs themselves."

Werfel said means-tested programs are the most difficult to audit, because eligibility is complex and extremely difficult to verify who is eligible.

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