Agencies report more improper payments, take steps to address them

Major federal agencies reported about $55 billion in erroneous payments for fiscal 2007, according to the Government Accountability Office. While the estimate was up about $14 billion from 2006, GAO said agencies are making strides in reporting, and with continued effort should lower the number of improper payments.

The Office of Management and Budget applauded the improvement in agencies' reporting and other financial markers in November.

OMB added that in 2007, 13 more programs were included in the reporting from the previous year and almost 86 percent of high-risk programs reported, compared to 81 percent in 2006.

GAO's review (GAO-08-377r) found that eight high-risk programs were responsible for 88 percent of improper payments. Such payments are defined as those mistakenly made to ineligible recipients or as a result of fraud or other error.

The increase in improper payments in fiscal 2007 is almost entirely attributable to one component of the Medicaid program, its fee-for-service element, which reported for the first time. It accounted for $13 billion in improper payments, based on six months' worth of claims processed by the states, rather than a complete year's worth of claims. The Health and Human Services Department told GAO that it anticipated being able to report on a comprehensive error rate for Medicaid payments, including managed care eligibility components rather than just fee-for-service, for fiscal 2008.

HHS has struggled to develop improper payment estimates for a number of programs that are administered at the state level, and GAO conceded that this type of reporting is complicated.

"We recognize that measuring improper payments for state-administered programs and designing and implementing actions to reduce or eliminate them are not simple tasks … communication, coordination and cooperation among federal agencies and the states will be critical factors in estimating national improper payment rates and meeting [2002 Improper Payment Information Act] requirements for state-administered programs," wrote McCoy Williams, GAO managing director of financial management and assurance.

HHS is not the only agency still working to develop improper payment estimates. GAO reported that the fiscal 2007 estimate did not include data from 14 risk-susceptible programs with outlays of $170 billion. Nine of these fall under the Homeland Security Department and were only recently identified as risk-susceptible. GAO considered the identification of programs as an important step toward proper reporting and prevention of improper payments. Twelve of the 14 programs that did not report estimates aim to do so for 2008. The other two did not report target implementation dates.

In November, Danny Werfel, acting controller for OMB's Office of Federal Financial Management, said the majority of errors identified in the 13 programs reporting for the first time in 2007 were instances in which there was insufficient documentation to verify the accuracy of a claim or propriety of a payment. "Errors in these 13 programs will decrease significantly after correcting the root cause of the insufficient documentation errors," Werfel said.

GAO said implementing reporting requirements will need continued attention and oversight.

"Preventing, identifying and recovering improper payments, in that order, are what is needed across federal government to manage, and ultimately minimize, such payments," Williams said.