Agencies chip away at improper payments

Federal agencies have made significant progress in reducing the rate of improper payments to individuals and businesses, and they plan to expand their efforts during the coming year, White House officials announced Tuesday.

During fiscal year 2010, the governmentwide improper payment rate -- checks sent in error, disbursed to the wrong person, or obtained through fraud -- declined to 5.49 percent, a drop from 5.65 percent in 2009, said Office of Management and Budget Controller Danny Werfel. The rate decline equates to roughly $3.8 billion in avoided erroneous payments over the previous year.

The Obama administration wants to reduce governmentwide improper payments by $50 billion by Sept. 30, 2012.

The latest data is based on annual financial reports agencies submitted to OMB on Monday. The information is available at

The data show that eight of the 10 programs most responsible for improper payments, including Medicare and Medicaid, reduced their erroneous payments rates last year. Only the Social Security Administration's Old Age, Survivors and Disability Insurance program, a program for the elderly, and the Labor Department's unemployment insurance program, saw increases.

Since the economic downturn has created a higher demand for unemployment insurance and Medicaid benefits, however, the value of improper payments governmentwide actually increased from $110 billion in fiscal 2009 to $125 billion in fiscal 2010.

"This is an unfortunate result of the recession and of basic math: the more that is paid out, the more paid out in error, even if the overall rate declines," OMB interim Director Jeffrey Zients wrote in a blog post Tuesday.

At least one lawmaker was disappointed with the new data. "It is unthinkable that we have come to accept having a bureaucracy that has institutionalized waste, fraud and abuse to the point where $125 billion in improper payments were made last year," said Rep. Darrell Issa, R-Calif., the ranking member of the House Oversight and Government Reform Committee. "The first place we should look to make progress on higher costs, increased debt and a stagnant economy is inward at how taxpayer dollars are being spent," he said, adding more should be done to prevent erroneous payments.

The data show agencies recouped nearly $687 million in improper payments issued in fiscal 2010 -- the highest amount to date. Most of those funds were recovered through payment recapture audits, which use outside experts to root out mistaken disbursements.

The administration wants to recoup at least $2 billion in erroneous payments between 2010 and 2012. Werfel said agencies are "right on target" to meet the goal.

As an incentive, agencies are allowed to keep 25 percent of recovered funds for a federal financial management program; 25 percent for the program's original purpose and 5 percent for the inspector general's office. The remainder will be returned to the general treasury to lower the national debt.

The Improper Payments Elimination and Recovery Act, which President Obama signed in July, greatly enhanced the use of payment recapture audits and intensified the scrutiny on agencies that fail to reduce errors. Obama also called for expanded use of the audits in a March memorandum.

On Tuesday, OMB issued interim guidance to agencies to begin implementing the new authorities outlined in the legislation. The bill expands the types of payments that can be reviewed and lowered the threshold of annual outlays that triggers payment recapture audits.

Agencies now must review their programs and activities to identify new areas where the audits can be initiated. They also must estimate the value of funds that potentially can be recovered during the next two to four years, the guidance said.

In addition, agencies should develop an audit plan that describes their total recovery efforts. If not, they must submit a timetable for doing so.

Final guidance, including specific instructions on which programs should be reviewed under payment recapture audit programs, is expected to be issued in January 2011.

Building on its efforts to develop a federal Do Not Pay List, the administration has launched a website that eventually will serve as a clearinghouse to identify ineligible recipients of federal funds.

The site,, is being piloted by the Veterans Affairs Department, which has a high cross-section of contractor and benefits payments. It allows users to simultaneously search the General Services Administration's Excluded Parties List System of suspended or debarred companies, a Social Security database of deceased individuals, and the Bureau of Prison's list of incarcerated prisoners. "It's all about making the process more efficient," Werfel said.

The website won't be available to the public because of privacy concerns. The Recovery Accountability and Transparency Board, which oversees stimulus funds, is providing technical assistance. The portal eventually will be expanded to include Treasury Department data on delinquent taxpayers.

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