Agencies’ improper payments increase; Obama to issue executive order

Improper payments by federal agencies increased to $98 billion in fiscal 2009, up from $72 billion in 2008, prompting the White House to issue an executive order to combat such errors.

Office of Management and Budget Director Peter Orszag said Monday the increase reflected two primary factors -- better measurement of erroneous payments, and the fact that federal outlays have increased as a result of the response to the recession.

"A constant error rate applied to an expanded base will cause numbers to go up," he said.

The improper payment rate for the Medicare fee-for-service program jumped significantly, from 3.6 percent to 7.8 percent. Orszag said that increase was primarily a reflection of stricter measurement. For example, he said, an illegible signature from a doctor was now more likely to trigger a classification of improper payment than it has in the past. But Orszag acknowledged that an almost 5 percent jump in improper payments under the Medicare Advantage program, where private insurance companies offer coverage to Medicare beneficiaries, was not a result of methodological changes.

Regardless of the reasons for increases, Orszag said they were unacceptable.

"We can no longer tolerate these errors, mistakes and misdeeds," Orszag said. "Every dollar misspent is a dollar not going to help an unemployed worker, a family in need of help buying groceries, or a senior who relies on Medicare to stay healthy."

Orszag said that within the next week, President Obama will issue an "aggressive" executive order to address improper payments. It will include three components: increased transparency and public participation, accountability at the agency level and incentives for compliance.

The order will require agencies to create improper payments dashboards on their websites, with information on error rates and outstanding payment issues. Agencies will also be required to appoint a Senate-confirmed official to be primarily accountable for erroneous payments.

"As we work with agencies to find the right accountable official, we will not be locked on to the [chief financial officer] necessarily," said Danny Werfel, acting controller of OMB's Office of Federal Financial Management, who is awaiting confirmation by the Senate. "We want the person best positioned, and that might be an assistant secretary over a program [or] the deputy commissioner of a bureau. We'll have a broad view of the agency to make sure we get the right person. In many cases, it will not be the CFO."

Currently, agencies are required to set goals for addressing improper payments, but those targets do not necessarily need to involve reductions. Under the executive order, agencies will be explicitly required to reduce improper payments and have their targets approved by their inspector general.

"If agencies don't succeed in reducing improper payments two years in a row, the agency's Cabinet official and the responsible Senate-confirmed official will come in to speak to the director of OMB -- which is me -- and lay out a plan for how they will succeed," Orszag said.

The executive order will boost the resources available for states to invest in the integrity of federally funded programs administered by states. It will expand nationwide a Medicare pilot program which has recovered more than $90 million in improper payments in three states through the use of audits aimed at recovering funds.

Contractors will be required to "become part of the solution," Orszag said. Currently, if the government discovers an overpayment or other improper payment to a contractor, the vendor must pay back the government without interest or penalty. The executive order will subject contractors to debarment, suspension and financial penalties if they fail to disclose overpayments.