oversight

Financial Management: Increased Attention Needed to Prevent Billions in Improper Payments

Published by the Government Accountability Office on 1999-10-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman of the Committee
                 on Governmental Affairs, U.S. Senate



October 1999
                 FINANCIAL
                 MANAGEMENT

                 Increased Attention
                 Needed to Prevent
                 Billions in Improper
                 Payments




GAO/AIMD-00-10
Contents



Letter                                                                                          5


Appendixes             Appendix I:   Executive Departments and Agencies Covered by
                         the CFO Act                                                           46
                       Appendix II: Agencies/Programs/Activities With Reported
                         Improper Payments Included in the Agencies’ Fiscal Year 1998
                         Financial Statements                                                  47
                       Appendix III: Assessment of Performance Plans for Those
                         Agencies Reporting Improper Payments                                  56
                       Appendix IV: Comments From the Office of Management and
                         Budget                                                                58
                       Appendix V:   GAO Contact and Staff Acknowledgements                    60


Related GAO Products                                                                           61


Tables                 Table 1: Agencies and Programs that Reported Improper
                         Payments                                                              16


Figures                Figure 1: Trends in Certain Federal Expenditures: Fiscal
                         Years 1978 Through 2004                                               12
                       Figure 2: Improper Payments Returned to DFAS by DOD
                         Contractors for Fiscal Years 1994 Through 1998                        19
                       Figure 3: Internal Control Weaknesses Cause Improper
                         Payments for 17 Programs                                              22
                       Figure 4: Program Design Issues for the Agencies Reporting
                         Improper Payments for 17 Programs                                     30
                       Figure 5: Reporting Improper Payments Within the Framework
                         of the CFO and Results Acts                                           39
                       Figure 6: Degree to Which 17 Programs Addressed Improper
                         Payments                                                              40




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Contents




Abbreviations

ACF        Administration for Children and Families
AFDC       Aid to Families with Dependent Children
AID        Agency for International Development
C&P        Compensation and Pension Program
CFO        Chief Financial Officer
CRP        Conservation Reserve Program
CSRS       Civil Service Retirement System
DCIA       Debt Collection Improvement Act
DFAS       Defense Finance and Accounting Service
DI         Disability Insurance
DOD        Department of Defense
DOL        Department of Labor
ED         Department of Education
EITC       Earned Income Tax Credit
FASAB      Federal Accounting Standards Advisory Board
FCIC       Federal Crop Insurance Corporation
FECA       Federal Employees’ Compensation Act
FEGLI      Federal Employees’ Group Life Insurance
FEHBP      Federal Employees’ Health Benefits Program
FEMA       Federal Emergency Management Agency
FERS       Federal Employees’ Retirement System
FFMSR      Federal Financial Management System Requirements
FICA       Federal Insurance Contributions Act
FNS        Food and Nutrition Service
FSP        Food Stamp Program
GAO        General Accounting Office
GMRA       Government Management Reform Act
HCFA       Health Care Financing Administration
HHS        Department of Health and Human Services
HUD        Department of Housing and Urban Development
IG         Inspector General
IRS        Internal Revenue Service
JFMIP      Joint Financial Management Improvement Program
NRCS       Natural Resources Conservation Service
OASI       Old Age and Survivors Insurance
OIG        office of inspector general
OMB        Office of Management and Budget
OPM        Office of Personnel Management
PCIE       President’s Council on Integrity and Efficiency
PHA        Public Housing Authority



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SECA       Self-Employment Contributions Act
SSA        Social Security Administration
SSI        Supplemental Security Income
STAR       Systematic Technical Accuracy Review
TANF       Temporary Assistance for Needy Families
USDA       United States Department of Agriculture
VA         Department of Veterans Affairs
VBA        Veterans Benefits Administration




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Page 4   GAO/AIMD-00-10 Improper Payments
United States General Accounting Office                                                   Accounting and Information
Washington, D.C. 20548                                                                         Management Division



                                    B-282920                                                                                  Leter




                                    October 29, 1999

                                    The Honorable Fred Thompson
                                    Chairman, Committee on Governmental Affairs
                                    United States Senate

                                    Dear Mr. Chairman:

                                    The federal government—the largest and most complex organization in the
                                    world—annually expends hundreds of billions of dollars for a variety of
                                    grants, transfer payments, and procurement of goods and services. As the
                                    steward of taxpayer dollars, the federal government is accountable for how
                                    it spends those funds and is responsible for safeguarding against improper
                                    payments—that is, payments made for unauthorized purposes or excessive
                                    amounts, such as overpayments to program recipients or contractors and
                                    vendors. Reported estimates of improper payments total billions of dollars
                                    annually. Viewed in the simplest context, improper payments are an
                                    inefficient use of taxpayers’ funds. Specifically, for programs with
                                    legislative or regulatory eligibility criteria, improper payments indicate that
                                    agencies are spending more than necessary to meet program goals.
                                    Conversely, for programs with fixed funds, any waste of federal funds
                                    translates into serving fewer recipients or accomplishing less
                                    programmatically than could be expected.

                                    Because of concerns regarding improper payments in light of the projected
                                    future growth of federal expenditures, you asked us to (1) quantify, where
                                    possible, amounts reported by agencies as improper payments in their
                                    fiscal year 1998 financial statements prepared pursuant to the Chief
                                    Financial Officers Act of 1990 (CFO Act),1 (2) identify additional types of
                                    federal programs at risk of disbursing improper payments, (3) determine
                                    reported causes of improper payments prevalent across government, and
                                    (4) assess the extent to which agencies are addressing improper payments
                                    in their performance plans under the Government Performance and Results




                                    1
                                     The CFO Act, as expanded by the Government Management Reform Act of 1994 (GMRA),
                                    requires 24 major departments/agencies to prepare and have audited agencywide financial
                                    statements. See appendix I for a list of the 24 CFO Act agencies.




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                   Act of 1993 (Results Act).2 We also considered the impact of potential Year
                   2000 computing problems on improper payments.



Results in Brief   In their fiscal year 1998 financial statement reports, nine agencies
                   collectively reported improper payment estimates of $19.1 billion.3 These
                   improper payment estimates relate to 17 major programs4 that expended
                   approximately $870 billion.5 The programs and related improper payment
                   estimates include:

                   •   Medicare Fee-for-Service ($12.6 billion),
                   •   Supplemental Security Income ($1,648 million),
                   •   Food Stamps ($1,425 million),
                   •   Old Age and Survivors Insurance ($1,154 million),
                   •   Disability Insurance ($941 million),
                   •   Housing subsidies ($857 million), and
                   •   Veterans Benefits, Unemployment Insurance, and others ($514 million).

                   Also included are the Agency for International Development (AID),
                   Medicaid, and the Federal Crop Insurance Corporation. AID and the
                   agencies administering these programs acknowledged making improper
                   payments in their fiscal year 1998 financial statements, but did not disclose
                   specific dollar amounts.

                   While financial statement disclosures draw attention to the need to address
                   this problem, the full extent of the government’s improper payments is not
                   known. Improper payments are much greater than have been disclosed
                   thus far in agency financial statement reports, as shown by our prior audits
                   and those of agency inspectors general (IG). These audit reports identified
                   additional agencies that made improper payments, such as the departments


                   2
                    The Results Act requires agencies to prepare annual performance plans that include
                   performance goals and measures, strategies, and resources required to achieve performance
                   goals, and procedures to verify and validate performance information.
                   3
                    This includes $14.9 billion in improperly paid expenses and an additional $4.2 billion of
                   receivables that these agencies expect to collect.
                   4
                    For purposes of this report, major programs include those that disburse $1 billion or more
                   annually. Loan programs were not included in the scope of this review. See appendix II for a
                   description of these agencies or their programs.
                   5
                   This amount primarily consists of programs’ fiscal year 1998 net outlays.




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of Defense (DOD) and Education (ED) and the Internal Revenue Service
(IRS). For example, audits have disclosed that between fiscal years 1994
and 1998, DOD contractors returned to the government $984 million that
had been erroneously paid to them.

Agencies are not performing comprehensive quality control reviews—
internal studies or reviews—for certain programs to determine the
propriety of program expenditures. As a result, the full extent of the
problem—and possible solutions to it—is unknown. Comprehensive
quality control reviews could also identify the causes of improper
payments, which range from inadvertent errors to fraud and abuse.
Improper payments can result from incomplete or inaccurate data used to
make payment decisions, insufficient monitoring and oversight, or other
deficiencies in agency information systems and weaknesses in internal
control. This risk is inherently increased in programs involving (1) complex
program regulations, (2) an emphasis on expediting payments, and (3) a
significant volume of transactions. Audit reports note that other federal
programs and activities for which agencies did not report improper
payments experience the same kinds of problems as agencies that have
acknowledged improper payments—problems that are major causes
leading to improper payments. Thus, these programs also risk making
improper payments.

Working with the Office of Management and Budget (OMB), some agencies
are taking steps to mitigate this risk by focusing attention on identifying,
reporting, and reducing improper payments through the discipline of
annual audited financial statements and the development of performance
goals6—management reforms created by the Congress in the CFO Act and
the Results Act. For example, the Department of Health and Human
Services (HHS) has identified, reported in its financial statements, and
substantially reduced improper payments in its $177 billion Medicare Fee-
for-Service program. For fiscal year 1996, through the process of preparing
audited financial statements, HHS estimated $23.2 billion in improper
payments—its first such estimate of the extent of this long-standing serious
problem. HHS’ analysis of improper Medicare payments helped lead to the
implementation of several initiatives to identify and reduce such payments.
For fiscal year 1998, its estimate was significantly less—$12.6 billion.
Future annual estimates of improper payments will provide further


6
 Performance goals are presented in agency performance plans, which are the vehicles
agencies use to define their expected results for the fiscal year.




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information on the nature of the problem and the progress of these
initiatives.

In another case, the Department of Housing and Urban Development
(HUD) has also identified improper payments in its housing subsidy
programs. For fiscal year 1998, HUD reported $857 million in improper
payments. Similarly, the Department of Agriculture (USDA) disclosed
$1.4 billion in food stamp overissuances. USDA, HUD and HHS estimated
improper payments by implementing methodologies that use statistical
sampling. For certain other programs—particularly programs whose
administration varies state-by-state—implementing a statistically valid
methodology will not be easy. Without a baseline measurement of the
extent of improper payments, agencies lack the information needed to
address improper payments. By analyzing the characteristics of cases
identified as having improper payments, agencies can then identify the
circumstances and root causes leading to improper payments. This
provides a foundation for developing sound strategies to mitigate improper
payments in their programs.

However, agencies responsible for 13 of the 17 programs having made
improper payments—many of which we identified in our High-Risk and
Performance and Accountability series issued earlier this year7—did not
include specific performance goals or strategies to comprehensively
address these payments in their fiscal year 2000 performance plans under
the Results Act. This may indicate inadequate attention to developing
mechanisms to comprehensively address this serious problem. Thus, some
agencies have not fully demonstrated the accountability Congress called
for in the CFO and Results Acts. Without a systematic measurement of the
extent of the problem, the establishment of expected results, and the
periodic measurement and reporting on these results, agency management
lacks the means to determine (1) whether the problem is significant enough
to require corrective action or (2) the success of efforts implemented to
reduce improper payments.

As the federal budget grows, more taxpayer dollars are placed at risk, thus
increasing the urgency for identifying and preventing these types of

7
 High-Risk Series: An Update (GAO/HR-99-1, January 1999) and Performance and
Accountability Series: Major Management Challenges and Program Risks (GAO/OCG-
99-22SET, January 1999). These 2 series of reports outline actions needed to improve the
performance and accountability of, and manage the risk relating to, our national
government.




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             payments and providing complete accountability to taxpayers. Finally,
             unless corrected, potential Year 2000 computing problems could have a
             costly, widespread impact on these programs—including the extent to
             which improper payments are made.

             We are making recommendations to the Director of OMB directed at
             developing and implementing a methodology for annually estimating and
             reporting improper payments and for addressing improper payments in
             agencies’ annual performance and strategic plans and performance reports.
             In commenting on a draft of this report, OMB agreed that its focus on
             improper payments should be expanded.



Background   Annually, the federal government expends hundreds of billions of dollars
             for a variety of grants, transfer payments, and procurement of goods and
             services. Because of its size, complexity, weak control environment, and
             insufficient preventive controls, the federal government risks disbursing
             improper payments. Agency-specific studies and audits have indicated that
             improper payments are a widespread and significant problem. They occur
             in a variety of programs and activities including those involving contract
             management, financial assistance benefits—such as Food Stamps and
             Veterans Benefits—and tax refunds. However, some overpayments, by their
             nature, are not considered improper payments, such as routine contract
             price adjustments.8

             Legislative efforts have focused on improving the federal government’s
             control environment. For example, under the Federal Managers’ Financial
             Integrity Act of 1982 and the Federal Financial Management Improvement
             Act of 1996, agency managers are responsible for ensuring that adequate
             systems of internal controls are developed and implemented. An adequate
             system of internal controls, as defined by the Comptroller General’s
             internal control standards, which are issued pursuant to the Financial
             Integrity Act, should provide reasonable assurance that an agency is
             effectively and efficiently using resources, producing reliable financial



             8
              For example, a routine contract price adjustment allows for the payment of an expense at a
             provisional rate until the actual cost information is available and audited. When the actual
             cost is lower than that provisionally paid, an overpayment has occurred. These amounts
             may be offset in future payments or returned directly to the government. This type of
             overpayment is not considered an improper payment.




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reports, and complying with applicable laws and regulations.9 Accordingly,
cost-effective internal controls should be designed to provide reasonable
assurance regarding prevention of or prompt detection of unauthorized
acquisition, use, or disposition of an agency’s assets.

Recent legislation has provided an impetus for agencies to systematically
measure and reduce the extent of improper payments. For example, with
the advent of the CFO Act, GMRA, and the Results Act, agencies are
challenged to increase attention on identifying and addressing improper
payments. The CFO Act, as expanded by GMRA, requires 24 major
departments/agencies to prepare and have audited agencywide financial
statements, which are intended to report an agency’s stewardship over its
financial resources—including how it expended available funds. The Office
of Management and Budget’s Bulletin 97-01, Form and Content of Agency
Financial Statements, provides implementing guidance on these CFO Act
requirements. In addition, the CFO Act sets expectations for agencies to
routinely produce sound cost and operating performance information.
Effective implementation of this requirement would enable managers to
have timely information for day-to-day management decisions. The CFO
Act also requires OMB to prepare and annually revise a governmentwide 5-
year financial management plan and status report that discusses the
activities the executive branch plans to and has undertaken to improve
financial management in the federal government. Additionally, each agency
CFO is responsible for developing annual plans to support the
governmentwide 5-year financial management plan.

The Results Act seeks to improve the effectiveness and efficiency of the
federal government by requiring that agencies develop strategic and annual
performance goals and report on their progress in achieving these goals.
Agency strategic plans are required to include the agency’s mission
statement; identify long-term general goals, including outcome-related
goals and objectives; and describe how the agency intends to achieve these
goals. Agencies are required to consult with the Congress when developing
their strategic plans and consider the views of other interested parties. In
their annual performance plans, agencies are required to set annual goals,
covering each program activity in an agency’s budget, with measurable
target levels of performance. Agencies are also required to issue annual
performance reports that compare actual performance to the annual goals.


9
 Standards for Internal Control in the Federal Government, Exposure Draft (GAO/AIMD-
99-21.3.1, May 1999).




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Together, these plans and reports are the basis for the federal government
to manage for results. The Results Act is supported by the development of
federal cost accounting standards under the CFO Act, which require
agencies to identify the costs of government activities.10 These standards
can lead to and support linking costs with achieving performance levels.
This can give managers information for assessing the full costs of goods,
services, and benefits compared to program outputs and results. Such
information can provide the basis for agencies to develop performance
goals to monitor and track improper payments as well as strategies for
preventing such future disbursements.

The risk of improper payments and the government’s ability to prevent
them will continue to be of concern in the future. Under current federal
budget policies, as the baby boom generation leaves the workforce,
spending pressures will grow rapidly due to increased costs of Medicare,
Medicaid, and Social Security.11 Other federal expenditures are also likely
to increase. Thus, absent improvements over internal controls, the
potential for additional or larger volumes of improper payments will be
present. Figure 1 illustrates the reported and projected trends in federal
expenditures, excluding interest on the public debt, for fiscal years 1978
through 2004.




10
 Statement of Federal Financial Accounting Standards No. 4, Managerial Cost Accounting
Standards; Managerial Cost Accounting System Requirements, Federal Financial
Management System Requirements (FFMSR) 8, Joint Financial Management Improvement
Program (JFMIP), February 1998; The Managerial Cost Accounting Implementation Guide,
Chief Financial Officers Council and JFMIP, February 1998.
11
 Federal Debt: Answers to Frequently Asked Questions—An Update (GAO/OCG-99-27, May
28, 1999) and Medicare and Budget Surpluses: GAO’s Perspective on the President’s
Proposal and the Need for Reform (GAO/T-AIMD/HEHS-99-113, March 10, 1999).




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Figure 1: Trends in Certain Federal Expenditures: Fiscal Years 1978 Through 2004

Dollars in billions



2,000



                 Other
1,800

                 Social Security

1,600
                 Defense


                 Medicare
1,400

                 Medicaid

1,200




1,000




   800




   600




   400




   200




      0


        1978     1980       1982   1984   1986   1988   1990   1992   1994    1996   1998    2000    2002   2004


         Fiscal year




                                                         Note: Expenditures for fiscal years 1999-2004 are projections.
                                                         Source: Budget of the United States Government, Fiscal Year 2000, “Historical Tables.”


                                                         Historically, the recovery rates for certain programs identified as having
                                                         improper payments have been low. Therefore, it is critical that adequate
                                                         attention be directed to strengthen controls to prevent improper payments.



Scope and                                                This report is based on our reviews of available major agencies’ fiscal year
                                                         1998 financial statement reports prepared under the CFO Act, as expanded
Methodology                                              by GMRA. We reviewed these reports to identify amounts of reported
                                                         improper payments. We also identified and reviewed recent GAO reports to
                                                         identify additional types of programs at risk. We supplemented our review
                                                         with IG reports from CFO Act agencies and other information obtained
                                                         from a variety of sources, such as agency studies. In addition, we reviewed
                                                         these data sources to discern the causes of improper payments. For the
                                                         nine agencies that reported improper payments in their financial statement
                                                         reports, we reviewed the agencies’ Results Act performance plans for fiscal
                                                         year 2000 to determine the extent to which the plans addressed improper
                                                         payments. We relied on recent GAO reports and guidance to consider any



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impact from potential Year 2000 computing problems on improper
payments. In selected cases, we interviewed agency CFO and IG personnel.
Because of the nature of improper payments, our review would not capture
all reported instances of such payments.12 As requested, relevant GAO
reports covering our work in these areas for the past 4 fiscal years are
listed at the end of this report.

To gather information on existing financial statement and performance
reporting criteria, we reviewed relevant professional literature, including
the American Institute of Certified Public Accountants’ Codification of
Statements on Auditing Standards and the Federal Accounting Standards
Advisory Board’s (FASAB) Statements of Federal Financial Accounting
Concepts and Standards. In addition, we reviewed OMB Bulletin 97-01,
Form and Content of Agency Financial Statements and OMB Circular A-11,
Part 2, Preparation and Submission of Strategic Plans, Annual Performance
Plans, and Annual Program Performance Reports.

We performed our work from June 1998 through August 1999. Our work
was conducted in accordance with generally accepted government auditing
standards. We provided a draft of this report for comment to the Director of
the Office of Management and Budget (OMB). These comments are
presented and evaluated in the “OMB Comments and Our Evaluation”
section and reprinted in appendix IV.




12
  For example, to the extent that individuals who owe the federal government for certain
programs and/or activities receive other federal benefits and payments, such amounts
constitute missed opportunities for collection. If outstanding amounts are owed to the
government for one type of program or activity, these amounts could be collected through
either offsetting or levying other federal benefits and payments. Along these lines, the Debt
Collection Improvement Act (DCIA) of 1996 calls for the centralization and aggressive
pursuit of delinquent nontax federal receivables, including delinquent loans and other forms
of payment owed the federal government. The Department of the Treasury is developing a
mechanism to pursue collection of outstanding federal receivables as mandated by DCIA,
including the ability to offset tax refunds and levy federal benefits and payments to recover
other amounts owed the federal government. However, it was beyond the scope of this
report to consider the magnitude of payments that might otherwise be offset or levied to
recover other delinquent amounts owed or to review Treasury’s efforts to implement DCIA.
See Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty Assessments Are Owed
(GAO/AIMD/GGD-99-211, August 2, 1999).




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Improper Payments          Agency-specific studies performed by GAO, IGs, and others indicate that
                           improper payments are a widespread and significant problem. However,
Are Widespread Across      efforts by agencies to develop comprehensive estimates have varied. Nine
Government, but the        agencies have taken the initiative to disclose improper payments for 17 of
                           their programs in their financial statement reports, which has resulted in
Full Extent Is             the disclosure of important information for oversight and decision-making.
Unknown                    At the same time, the methodologies used by some agencies to estimate
                           improper payments do not always result in complete estimates, and many
                           other agencies have not even attempted to identify or estimate improper
                           payments. As a result, the full extent of improper payments
                           governmentwide is largely unknown, which hampers efforts to reduce such
                           payments. Ascertaining the full extent of improper payments
                           governmentwide is critical to determining related causes. Obtaining these
                           data would give agencies baseline information for making cost-effective
                           decisions about enhancing controls to minimize improper use of federal
                           resources.


Nine Agencies Reported     Nine of the CFO Act agencies that had issued their fiscal year 1998 audited
Improper Payments, but     financial statements as of the end of our field work,13 acknowledged
                           making improper payments. For fiscal year 1998, HHS,14 USDA, and HUD
Estimates Are Incomplete
                           collectively reported improper payments of $14.9 billion as part of their
                           program expenses in their financial statement reports. HHS’ estimated
                           improper Medicare benefit payments constitute $12.6 billion of this
                           amount, which represents 7.1 percent of the $177 billion in Fee-for-Service
                           payments processed in fiscal year 1998. USDA disclosed $1.4 billion in food
                           stamp overissuances or approximately 7 percent of its annual program cost
                           of $20.4 billion. HUD’s excess housing subsidy payments totaled
                           $857 million, or 4.6 percent of its rental assistance payments for this $18.6
                           billion program. These agencies have made significant progress in
                           estimating and reporting improper payments for these programs by
                           implementing methodologies that use statistical sampling. However,
                           implementing a statistically valid methodology will pose challenges to
                           agencies for certain programs.


                           13
                            Four of the 24 CFO Act agencies—the departments of Education and State, the
                           Environmental Protection Agency, and the Small Business Administration had not issued
                           audited financial statements for fiscal year 1998 as of the end of our field work.
                           14
                            HHS also reported $6.5 million in improper payments for its Administration for Children
                           and Families programs that spent $32 billion in fiscal year 1998.




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The disclosure methods used by HHS, USDA, HUD, and the other six
agencies varied. Some agencies, such as the Social Security Administration
(SSA), reported known improper payments as receivables and provided
explanatory disclosures in the notes accompanying their financial
statements. Other agencies disclosed explanatory information in other
sections of their financial statement reports, such as in management’s
discussion and analysis or in supplemental data sections. In addition,
reporting within agencies for different programs also varied. For example,
USDA disclosed improper payments of $1.4 billion for the Food Stamp
Program, but only acknowledged making improper payments without
providing a specific amount for its Federal Crop Insurance Corporation
(FCIC).

Three of the nine agencies reported improper payments as expenses for 4
programs, while five agencies reported them as accounts receivable for 10
programs. Three agencies acknowledged making improper payments, but
did not quantify the dollar amounts for three programs. Eleven of the CFO
Act agencies did not report any information related to improper payments
in their financial statement reports. Such inconsistent financial reporting
makes it difficult to quantify the extent of the problem governmentwide
and indicates a need for more guidance. To address this issue, OMB is
contemplating revising its guidance to provide uniform reporting and
disclosure of improper payments by management. In addition, OMB has
made error reduction in the distribution of benefits a Priority Management
Objective,15 which is monitored by the OMB Director. OMB works with
agencies on an individual basis to address these issues in ways most
appropriate to the individual programs. For example, OMB is working with
ED and the Department of the Treasury to examine ways to implement new
statutory authorization for IRS verification of income of student aid
applicants, in accordance with existing tax and privacy laws.

Table 1 lists the nine agencies and the manner in which they reported
improper payments in their fiscal year 1998 financial statement reports for
the 17 programs identified. See appendix II for a description of these
agencies and/or their programs.




15
 Priority Management Objectives focus the administration’s efforts to meet some of the
government’s biggest management challenges. They are specific management initiatives
covering a wide range of concerns—ranging from meeting the Year 2000 computer challenge
to implementing the restructuring of IRS.




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Table 1: Agencies and Programs that Reported Improper Payments

                                                                                   Reported in financial statements
    Department or                                         As a fiscal year 1998            As part of multiyear
       Agency           Program                           expense                          accounts receivable          Othera
Agency for              Not specifically identifiedb                                                                    X
International
Development (AID)
Department of           Federal Crop Insurance                                                                          X
Agriculture             Corporation
                        Food Stamp Program                X
Department of Health    Various Programs under            X
and Human Services      the Administration for
                        Children and Families
                        Medicare Fee-for-Service          X
                        Medicaid                                                                                        X
Department of Housing Housing Subsidy                     X
and Urban             Programs
Development
Department of Labor     Federal Employees’                                                 X
(DOL)                   Compensation Act
                        Unemployment Insurance                                             X
Office of Personnel     Federal Employees’ Group                                           X
Management (OPM)        Life Insurance
                        Federal Employees’ Health                                          X
                        Benefits
                        Retirement                                                         X
Social Security         Disability Insurance                                               X
Administration
                        Old Age and Survivors                                              X
                        Insurance
                        Supplemental Security                                              X
                        Income
Department of the       Drawbacks and Refunds                                              X
Treasury − Customs
Department of           Veterans Benefits                                                  X
Veterans Affairs (VA)


                                               a
                                                Acknowledged within the financial statement report, but no amount specifically included.
                                               b
                                                This represents a combination of programs at AID for which improper payments were not separately
                                               reported.
                                               Source: GAO analysis based on a review of the CFO Act agencies’ fiscal year 1998 financial statement
                                               reports.




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The extent of the problem for certain of these agencies’ programs is
unknown because agencies are not performing comprehensive quality
control reviews to estimate the range and/or identify rates of improper
payments. For example:

• SSA reported $2.5 billion in gross receivables as overpayments related
  to its Supplemental Security Income (SSI) program—a $27 billion
  program annually providing cash assistance to about 7 million
  financially needy individuals who are aged, blind, or disabled. These
  receivables consist of amounts specifically identified over multiple
  years based on SSA’s discussions with recipients and the results of its
  efforts in matching data provided by recipients with information from
  other federal and state agencies, such as IRS 1099 information, VA
  benefits data, and state-maintained earnings and employment data. SSA
  reports a statistically based accuracy rate for new SSI awards of 92.5
  percent.16 However, this accuracy rate does not consider the medical
  eligibility of recipients. Since the majority of SSI program dollars are
  historically directed to recipients with medical disabilities, refining the
  methodology to factor in any questions concerning medical risk is
  critical to determining improper payments within this program.
  According to SSA’s year 2000 performance plan, SSA is developing a
  comprehensive mechanism for quantifying dollar errors related to SSI
  disability benefit payments. However, no timing for implementation has
  yet been determined.
• Although HHS reported $12.6 billion in improper payments for its
  $177 billion Medicare Fee-for-Service program based on a statistically
  valid sample, it has not attempted to estimate improper payments for
  the $98 billion Medicaid program. The HHS IG reported17 that the Health
  Care Financing Administration (HCFA)—the HHS agency responsible
  for overseeing the Medicaid program—has no comprehensive quality
  assurance program or other methodology in place for estimating
  improper Medicaid payments. Administered by state agencies, Medicaid
  provided health care services to approximately 33 million low-income


16
 This represents the fiscal year 1997 initial payment accuracy rate as reported in SSA’s fiscal
year 1998 Accountability Report.
17
 Report on the Financial Statement Audit of the Health Care Financing Administration for
Fiscal Year 1998 (Department of Health and Human Services’ Office of Inspector General
Audit Report, CIN A-17-98-00098, February 26, 1999).




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                              individuals. The IG recommended that HCFA work with the states to
                              develop a methodology to determine the range of improper payments in
                              the Medicaid program. However, developing a statistically valid
                              methodology to estimate Medicaid improper payments poses a
                              challenge. Other state-administered or intergovernmental programs also
                              face difficulties in developing estimates due to the variable nature of the
                              programs and the need to gain the cooperation of state and local
                              government officials nationwide. HCFA has recently drafted a strategy
                              for discussing this issue with states.


Other Programs and         Previous audits conducted by GAO and IGs have identified several other
Activities Have Improper   agencies, such as DOD, ED, and IRS that had improper payments. As
                           illustrated in figure 2, between fiscal years 1994 and 1998, DOD contractors
Payments or Are at Risk
                           voluntarily returned $984 million that DOD’s Defense Finance and
                           Accounting Service (DFAS) erroneously paid them—resulting from
                           inadvertent errors, such as paying the same invoice twice or misreading
                           invoice amounts. As a result, the contractors, as opposed to DOD, were
                           determining the existence and amount of erroneous payments. As part of
                           its stewardship duties, DOD is responsible for making these
                           determinations. However, DOD has not yet made a comprehensive estimate
                           of improper payments to its contractors, and there are likely more
                           overpayments that have yet to be identified and returned. With an annual
                           budget of over $130 billion in purchases involving contractors, DOD would
                           benefit from estimating the magnitude of improper payments.




                           Page 18                                       GAO/AIMD-00-10 Improper Payments
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Figure 2: Improper Payments Returned to DFAS by DOD Contractors for Fiscal Years
1994 Through 1998




Source: DOD Contract Management: Greater Attention Needed to Identify and Recover Overpayments
(GAO/NSIAD-99-131, July 19, 1999).


ED is another agency with improper payments. ED’s student financial
assistance programs have been designated as high risk18 since our
governmentwide assessment of vulnerable federal programs began in 1990.
ED provides over $8 billion in grants to assist over 4 million students in
obtaining postsecondary education. As discussed in our January 1999




18
     High-Risk Series: An Update (GAO/HR-99-1, January 1999).




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Performance and Accountability Series,19 ED-administered student
financial aid programs have a number of features that make them
inherently risky. They provide grants to a population composed largely of
students who would not otherwise have access to the funds necessary for
higher education. ED estimates20 that $78.9 million, or 1 percent, was
misspent by grantees in fiscal year 1997; however, an ED IG report21
indicates that this estimate may be incomplete. A more complete estimate
would allow ED to identify areas of greater risk and target corrective
actions.

Also, the Earned Income Tax Credit (EITC) program—a refundable tax
credit available to low income, working taxpayers—has historically been
vulnerable to high rates of invalid claims. During fiscal year 1998, IRS
reported that it processed EITC claims totaling over $29 billion, including
over $23 billion (79 percent) in refunds.22,23 Of the 290,000 EITC tax returns
with indications of errors or irregularities that IRS examiners reviewed,
$448 million (68 percent of the $662 million claimed) was found to be
invalid during fiscal year 1998. The IRS has not disclosed any estimated
improper payments in its financial statement reports. IRS examinations of
tax returns claiming EITC are important control mechanisms for detecting
questionable claims and providing a deterrent to future invalid claims.
However, because examinations are often performed after any related
refunds are disbursed, they are less efficient and effective than preventive
controls designed to identify invalid claims before refunds are made. OMB
has worked with IRS to start a 5-year compliance initiative to minimize
losses in this area. This initiative is intended to increase taxpayer
awareness, strengthen enforcement of EITC requirements, and research
sources of EITC noncompliance. EITC compliance efforts include a
significant focus on pre-refund fraud/error prevention and detection. For


19
 Major Management Challenges and Program Risks: Department of Education (GAO/OCG-
99-5, January 1999).
20
   Fiscal Year 1997 Department of Education Financial Statement Audit (Department of
Education OIG Audit Report ACN 17-70002, June 15, 1998).
21
 Accuracy of Student Aid Awards Can Be Improved By Obtaining Income Data From the
Internal Revenue Service (Department of Education OIG Audit Report ACN 11-50001,
January 29, 1997).
22
     EITC claims do not always result in refunds. They may also reduce tax assessments.
23
   Financial Audit: IRS’ Fiscal Year 1998 Financial Statements (GAO/AIMD-99-75, March 1,
1999).




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example, the EITC compliance initiative includes recalculation of
erroneous overclaims, identification of questionable returns, and initiation
of many EITC audits, all of which should occur prior to issuing refunds.
However, our work has shown that even in cases where IRS has identified
potentially erroneous claims, it released refunds prior to completing the
reviews.

Other types of federal programs and activities that undergo audits also risk
making improper payments. Internal control deficiencies and other
problems similar to those prevalent in programs that have acknowledged
improper payments suggest that additional federal financial assistance
programs, contract management activities, and other miscellaneous
programs may also be particularly vulnerable to disbursing improper
payments. For example, USDA’s IG reported24 that the Natural Resources
Conservation Service (NRCS) exhibited significant control weaknesses
when determining if farmers qualified for annual payments under the
Conservation Reserve Program (CRP). CRP, which disbursed $1.7 billion in
fiscal year 1998, provides incentives and financial assistance to farmers and
ranchers to retire environmentally sensitive land from production. Due to
these control weaknesses, the USDA IG noted that CRP risked making
incorrect decisions. These incorrect decisions could result in USDA
disbursing improper payments. Without a measurement of the extent of
improper payments, it is difficult to assess the appropriate level of
management attention needed to mitigate these program risks.

Once agencies have implemented methodologies to estimate the amount of
improper payments, they can use this information to develop error rates.
Agencies may find it useful to compute the dollar amount of errors as a
percentage of program outlays, and the number of transaction errors as a
percentage of the total number of transactions processed. Management
could then use these error rates to evaluate whether further action is
needed to address improper payments.




24
 United States Department of Agriculture Office of Inspector General’s Semi-Annual
Report, October 1 − March 31, 1998.




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Internal Control             Pervasive deficiencies in internal control across the federal government
                             result in the payment of federal funds for purposes other than those
Weaknesses Cause             originally intended. For example, several agencies face challenges in
Improper Payments            ensuring adequate controls for assessing beneficiaries’ initial and
                             continued eligibility due to ineffective data sharing and sources of
                             information. Also, some agencies have insufficient oversight and
                             monitoring mechanisms, such as site visits and reviews of appropriate
                             documentation, to ensure the validity of payments—particularly for federal
                             financial assistance programs. Systems deficiencies also contribute to
                             improper payments when accurate or timely data are not always available
                             for payment decisions. Figure 3 illustrates our categorization of internal
                             control weaknesses that contribute to improper payments within the 17
                             programs where agencies reported improper payments.



                             Figure 3: Internal Control Weaknesses Cause Improper Payments for 17 Programs

                             Programs


                                   17

                                                        10
                                                                                 7                     7




                                       0
                                           Inadequate eligibility        Insufficient      System deficiencies

                                                   controls         oversight/monitoring




                             Note: Six of the17 programs have two or more internal control weaknesses reported in this chart.
                             Source: GAO analysis based on prior IG and GAO reports.




Internal Controls Over       As highlighted in our reviews of GAO and IG reports, ensuring adequate
Eligibility Determinations   controls over determining beneficiaries’ eligibility often proves difficult for
                             many agencies. Initial and/or continued eligibility determination problems
Are Often Inadequate
                             were noted for 10 of the 17 programs that reported improper payments. For
                             instance, initial eligibility for HUD’s Section 8 and Public Housing
                             programs—providing $18.6 billion in rental assistance for lower income
                             families in fiscal year 1998—is primarily based on an applicant’s self-




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reported income. According to HUD’s IG,25 HUD regulations require owners
and housing authorities to verify the information provided, but this process
often lacks effective controls to ensure that verifications are adequately
performed. In addition, the IG reported that recipients do not always report
complete or accurate information. Consequently, improper payments have
occurred. To improve HUD’s procedures for verifying participant’s income
and correct this long-standing problem, the HUD IG recommended the
following actions: (1) on-site reviews to assess first hand the housing
subsidy administrator’s control environment, (2) confirmations with third
parties, and (3) computerized income verification matching to IRS and SSA
records. As discussed in our January 1999 Performance and Accountability
Series,26 HUD unveiled a multifaceted plan to identify households’
unreported and/or underreported income in fiscal year 1998. The plan
includes steps to (1) further expand HUD’s computer matching efforts,
(2) strengthen recertification policies and procedures, (3) ensure that
HUD’s information systems have accurate and complete data on tenants,
(4) institute penalties, and (5) perform monitoring and oversight functions.
OMB is also working with HUD in reducing payment errors in rental
assistance due to recipient underreporting of income.

In another example, the DOL is challenged to correctly identify eligible
recipients for its Unemployment Insurance (UI) program, which in fiscal
year 1998 provided over 7 million unemployed workers with about $20
billion in temporary financial support to facilitate re-employment. The DOL
IG reported27 that state-administered claims offices, responsible for
determining eligibility requirements, have ineffective controls to verify
information provided by claimants. Claimants declaring themselves to be
U.S. citizens are not screened for immigration legal status, which in some
cases has resulted in improper payments. For example, ineligible
individuals, including illegal aliens, were paid millions of dollars over an
approximate 2-year time frame because states did not perform up-front
verification of social security numbers provided by claimants. OMB has


25
 Fiscal Year 1998 Department of Housing and Urban Development Financial Statement
Audit (Department of Housing and Urban Development Office of Inspector General Audit
Report 99-FO-177-0003, March 29, 1999).
26
 Major Management Challenges and Program Risks: Department of Housing and Urban
Development (GAO/OCG-99-8, January 1999).
27
 Verification of Social Security Numbers Could Prevent Unemployment Insurance
Payments to Illegal Aliens (U. S. Department of Labor Office of Inspector General Final
Audit Report No. 04-98-001-03-315, March 2, 1998).




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worked with DOL to secure a congressional authorization for an integrity
initiative focused on reducing benefit overpayments and improving UI tax
compliance.

Our analysis of GAO and IG reports also showed that, as with initial
eligibility determinations, agencies’ controls are insufficient to ensure the
continuing eligibility of beneficiaries for 8 of the 10 programs with
eligibility determination problems. For example, SSA is mandated to
perform reviews for continued eligibility for program benefits to aid in
preventing fraud, waste, and abuse in the Disability Insurance (DI)
program—a program to provide a continuing income base for more than
6 million disabled workers and eligible members of their families. However,
acknowledged delays in performing these continuing disability reviews
have undermined the effectiveness of this control.28 Because SSA disburses
approximately $50 billion in disability benefit payments annually, it is
critical that these reviews be performed promptly; otherwise, beneficiaries
who are no longer eligible for this program may inappropriately receive
benefits. SSA has a multiyear plan to become current with all disability
reviews by 2002.29

Since 1996, the HUD IG has reported30 that HUD’s housing subsidy
programs experience improper payments when beneficiaries’ income
status changes and they do not notify housing authorities to adjust their
benefits. Various legal, technical, and administrative obstacles impede
housing authorities from ensuring that tenants report all income sources
during the periodic determination to assess continuing eligibility. HUD has
encouraged housing authorities to computer match with state agencies to
detect unreported income, since housing authorities lack the legislative


28
 Fiscal Year 1998 Social Security Administration Financial Statement Audit (Social Security
Administration Office of Inspector General Report Number A-13-98-51036, November 20,
1998) and Fiscal Year 1997 Social Security Administration Financial Statement Audit (Social
Security Administration Office of Inspector General Report Number A-13-97-51012,
November 21, 1997).
29
 Social Security Disability: SSA Making Progress in Conducting Continuing Disability
Reviews (GAO/HEHS-98-198, September 18, 1998).
30
 Housing and Urban Development Audit of Fiscal Year 1998 Financial Statements (Housing
and Urban Development OIG Audit Report 99-FO-177-0003, March 29, 1999); Housing and
Urban Development Audit of Fiscal Year 1997 Financial Statements (Housing and Urban
Development OIG Audit Report 98-FO-177-0004, March 20, 1998); and Housing and Urban
Development Audit of Fiscal Year 1995 Financial Statements (Housing and Urban
Development OIG Audit Report 96-FO-177-0003, August 16, 1996).




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                            authority to access IRS and SSA data. However, little progress has been
                            made in this area, since most housing authorities do not have the systems
                            expertise to effectively implement this technique.

                            In May 1998, the President’s Council on Integrity and Efficiency (PCIE)31
                            issued a report32 to highlight the need for increased cooperation among
                            federal agencies in sharing income/financial resource information about
                            federal program beneficiaries in an effort to improve controls over
                            eligibility verification. For example, the report indicated that the DOL IG’s
                            ability to ensure eligibility of Unemployment Insurance Program recipients
                            could be enhanced by verifying employment status of those recipients with
                            IRS or SSA wage records. Currently, DOL’s IG must coordinate with states,
                            requiring subpoena authority in some cases, to obtain this information
                            from states. Also, governmentwide, there is no omnibus authority for
                            efficiently and effectively obtaining access to some data. We have work
                            ongoing on this issue and will report at a later date.


Oversight and Monitoring    Our analysis of GAO and IG reports showed that insufficient federal
Controls Are Insufficient   monitoring and oversight of program expenditures exist in 7 of the 17
                            programs where agencies reported improper payments. Effective federal
                            monitoring assesses the quality of performance over time. It includes
                            regular management and supervisory activities, such as periodic
                            comparisons of expected and actual results and reconciliation of data to its
                            source. Generally, activities such as site visits, reviews of progress and
                            financial reports filed by contractors and grantees, and reviews of
                            contracts and grant agreements are techniques often used by federal
                            officials to oversee and monitor programs.

                            The lack of sufficient oversight and monitoring controls can lead to
                            improper payments by fostering an atmosphere that invites fraud. For




                            31
                             The PCIE is comprised of all presidentially appointed IGs and members from OMB, the
                            Federal Bureau of Investigation, the Office of Special Counsel, and the Office of
                            Government Ethics.
                            32
                             Eligibility Verification Needed to Deter and Detect Fraud in Federal Government Benefit
                            and Credit Programs, PCIE, May 1998.




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instance, both we and the HHS IG have reported33 that HCFA’s insufficient
oversight of the Medicare program hampered it from preventing improper
Medicare payments. To fulfill its primary mission of providing health care
coverage for approximately 39 million aged individuals, Medicare pays
contractors to process claims for health care services. These contractors
are responsible for all aspects of claims administration and serve as HCFA’s
front line of defense against fraud and abuse. Yet, vulnerabilities in
contractors’ procedures for paying Medicare claims have provided a lax
environment. This environment permitted unscrupulous providers
opportunities to obtain additional unjustified payments.34 These activities
include billing for services never rendered, misrepresenting the nature of
services provided, duplicate billing, and providing services that were not
medically necessary. Although HCFA’s most recent estimate of improper
payments in its $177 billion Medicare Fee-for-Service program amounted to
$12.6 billion, this estimate did not consider improper payments made as
part of another $33 billion Medicare Managed Care program.35 Therefore,
the impact of insufficient monitoring and oversight on improper payments
could be more extensive than current estimates indicate. To enhance
HCFA’s oversight function, the HHS IG recommended that HCFA perform
risk assessments of contractor functions to identify those functions that
significantly affect the improper payment of claims. This would enable
HCFA to target areas and strengthen related controls.

The Agency for International Development (AID), which spent $5.2 billion
in fiscal year 1998 to provide assistance to developing countries, also




33
 Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their Effectiveness or
Integrity (GAO/HEHS-99-115, July 14, 1999); Medicare: Improprieties by Contractors
Compromised Medicare Program Integrity (GAO/OSI-99-7, July 14, 1999); and Department
of Health and Human Services’ Office of Inspector General Semi-Annual Report to the
Congress: April 1, 1998 − September 30, 1998.
34
   Department of Health and Human Services: Management Challenges and Opportunities
(GAO/T-HEHS-97-98, March 18, 1997); Report on the Financial Statement Audit of the Health
Care Financing Administration for Fiscal Year 1998 (Department of Health and Human
Services’ Office of Inspector General Audit Report Common Identification Number (CIN):
A-17-98-00098, February 26, 1999); and Improper Fiscal Year 1998 Medicare Fee-for-Service
Payments (Department of Health and Human Services’ Office of Inspector General Audit
Report CIN: A-17-99-00099, February 9, 1999).
35
 Medicare beneficiaries have the option of enrolling in prepaid health care plans (typically
health maintenance organizations) that are commonly referred to as managed care plans.




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suffers from insufficient monitoring and oversight. We reported36 that AID
does not have accurate information to ensure that its operations and
programs are being managed cost-effectively and efficiently. In addition,
AID’s IG reported37 weaknesses in monitoring relief and rehabilitation
activities. For example, mission employees in Rwanda, who were asked to
monitor relief and rehabilitation activities, did not have basic
documentation they needed to monitor relief efforts, such as copies of
grant agreements, progress reports, and financial status reports. The
impact of this control deficiency on improper payments was not quantified.

Based on previous GAO38 and IG reports, insufficient oversight and
monitoring is also present in other programs that have improper payments
but did not report them. For example, according to the ED IG,39 audits
performed under the Single Audit Act are ED’s principal control for
ensuring that student financial assistance funds were being disbursed to
eligible students in proper amounts. However, the IG noted that ED did not
(1) ensure that all audit reports were received, (2) follow-up on problems
identified, or (3) have a systematic process in place to measure trends in
the misspending by grantees. The IG recommended that the department
(1) complete the development of an ongoing process to identify
missing/delinquent audit reports, (2) take corrective actions against
delinquent audit report filers, and (3) develop a systematic methodology to
quantify costs to measure the effectiveness of monitoring efforts and
trends among institutions. The IG also recommended that the department
use a risk management model to determine how to effectively deploy
limited monitoring resources. Without this type of information, the
department is unable to make cost-benefit decisions to determine whether
to strengthen preventive internal controls.




36
   Major Management Challenges and Program Risks: Agency for International Development
(GAO/OCG-99-16, January 1999).
37
 Agency for International Development’s Office of Inspector General Semi-Annual Report
to the Congress: April 1, 1997 − September 30, 1997.
38
 For example, Defense Health Care: DOD Needs to Improve Its Monitoring of Claims
Processing Activities (GAO/T-HEHS-99-78, March 10, 1999), and Medicare HMO Institutional
Payments: Improved HCFA Oversight, More Recent Cost Data Could Reduce Overpayments
(GAO/HEHS-98-153, September 9, 1998).
39
     See footnote 19.




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Systems Deficiencies Exist   Deficiencies in agencies’ automated systems, or the lack of systems,
                             prevent personnel from accessing reliable and timely information, which is
                             integral to making disbursement decisions. As a result, improper payments
                             frequently occur because agency personnel lack needed information, rely
                             on inaccurate data, and/or do not have timely information. Agency systems
                             deficiencies have been identified in prior GAO and IG reports for 7 of the 17
                             programs reporting improper payments. For example, we reported40 that
                             interstate duplicate participation in the Food Stamp Program goes
                             undetected because there is no national system to identify participation in
                             more than one state. While states may currently learn of some duplicate
                             participation from SSA or through their own matching efforts with
                             neighboring states, they rely primarily on applicants and clients to
                             truthfully identify who resides in their households. USDA’s Food and
                             Nutrition Service (FNS) manages the Food Stamp Program through
                             agreements with state agencies. Because USDA’s most current annual
                             estimate41 indicates that food stamp overissuances account for over 7
                             percent of the program’s $20 billion in annual benefit expenses, it is critical
                             that action be taken to strengthen systems and related controls. FNS is
                             considering whether to establish a central system to help ensure that
                             individuals participating in the Food Stamp Program are not being
                             improperly included in more than one state.

                             System deficiencies are also a factor for agency programs that did not
                             disclose improper payments. For example, DOD’s payment process suffers
                             from nonintegrated computer systems that require data to be entered more
                             than once in different systems, sometimes manually, which increases the
                             possibility of erroneous or incomplete data. Also, DOD contracts may have
                             from 1 to over 1,000 accounting classification reference numbers which
                             involve extensive data entry, also increasing the chance for errors. As
                             previously discussed, DOD contractors returned about $984 million
                             between fiscal years 1994 and 1998 to the DFAS in Columbus, Ohio, as a




                             40
                              Food Stamp Overpayments: Households in Different States Collect Benefits for the Same
                             Individuals (GAO/RCED-98-228, August 6, 1998).
                             41
                                USDA Food and Nutrition Service’s Fiscal Year 1998 Financial Statements (USDA OIG
                             Audit Report No. 27401-14-HY, February 1999).




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result of duplicate and erroneous payments.42 We also reported43 that
pervasive weaknesses in access controls in the Air Force vendor payment
system application including inadequate separation of duties and other
internal control deficiencies resulted in fraudulent payments and left DOD
vulnerable to abuse. While no internal control system at DOD, or any other
agency, can guarantee the elimination of improper payments and the
prevention of fraud, resolving DOD’s systems problems and designing
effective solutions to reduce related risks are of critical importance,
particularly since DOD expenditures comprise nearly half of the federal
government’s discretionary spending. We made several recommendations
to resolve these deficiencies, such as suggesting that DOD limit vendor
payment system access levels to those appropriate for the user’s assigned
duties. DOD has a number of initiatives underway to help ensure that
payments are proper—including the development of a standard core
system for procurement. However, the new system is not scheduled to be
fully implemented for several years.

Similar to DOD, ED also lacks a fully functional integrated database to
administer over $7 billion in federal student financial aid programs.44 As a
result, it remains vulnerable to losses because the department and schools
often do not have accurate, complete, and timely information on program
participants needed to effectively and efficiently operate and manage its
programs. We have reported45 that a lack of common identifiers for
students and institutions makes it difficult to track them across systems.
Because each system uses different combinations of data fields to uniquely
identify, access, and update student records, duplicate student records
have been identified in key systems. Many of ED’s student financial aid
systems were developed independently over time by multiple contractors.
Consequently, ED relies on various contractors to operate its numerous
systems using different hardware and software. We recommended46 that

42
 DOD Contract Management: Greater Attention Needed to Identify and Recover
Overpayments (GAO/NSIAD-99-131, July 19, 1999).
43
 Financial Management: Improvements Needed in Air Force Vendor Payment Systems and
Controls (GAO/AIMD-98-274, September 28, 1998).
44
     See footnote 19.
45
 Department of Education: Multiple, Nonintegrated Systems Hamper Management of
Student Financial Aid Programs (GAO/T-HEHS/AIMD-97-132, May 15, 1997).
46
 Student Financial Aid Information: Systems Architecture Needed to Improve Programs’
Efficiency (GAO/AIMD-97-122, July 29, 1997).




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                         ED (1) develop and enforce a departmentwide systems architecture and
                         (2) ensure that the developed systems architecture addresses systems
                         integration, common identifiers, and data standards. The Office of Student
                         Financial Assistance has developed its Modernization Blueprint to guide
                         the development of an integrated financial aid delivery system, which ED
                         officials stated depicts the first 3 years of a continuing process of
                         modernizing its system.



Program Design Issues    Often, the nature of a program can contribute to the disbursement of
                         improper payments. Many programs have complex program regulations,
Contribute to Improper   and several emphasize expediting payments or have high volumes of
Payments                 transactions to process. These program design issues inherently increase
                         the potential for improper payments, yet such payments are virtually
                         impossible to eliminate. However, strengthening business practices and
                         developing targets or goals for reducing improper payments can mitigate
                         the risk of improper payments occurring. Also, measuring progress in
                         relation to such targets or goals may serve as a measure of the
                         effectiveness of an agency’s improper payment reduction program.
                         According to our analysis of GAO and IG reports, program design issues
                         were present in programs with improper payments as illustrated in figure 4.



                         Figure 4: Program Design Issues for the Agencies Reporting Improper Payments for
                         17 Programs

                         Programs
                              17
                                               11

                                                                      6
                                                                                            4


                                0
                                    Complex regulations     Speed of service      Large volume of
                                                                                    transactions

                         Note: Five of the 17 programs have 2 or more program design issues.
                         Source: GAO analysis based on prior work performed on these programs.




                         Page 30                                                   GAO/AIMD-00-10 Improper Payments
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                               Some agencies currently have programs that use targets or goals to aid in
                               reducing improper payments. One example is the Medicaid program,
                               wherein states are responsible for determining the eligibility of
                               beneficiaries and disbursing related federal funds. According to HHS
                               regulations,47 states must have a payment error rate no greater than 3
                               percent due to errors in eligibility determinations or HHS may disallow
                               medical assistance payments. Another example is the Food Stamp Program
                               administered by state agencies under USDA regulations. In this program,
                               USDA may pay 50 percent of each state’s cost of administering the
                               program. To encourage states to reduce their payment error rates, the
                               program includes an incentive. This incentive allows USDA to increase the
                               50 percent reimbursement for administrative costs, by as much as 10
                               percent, to a total of 60 percent based on reductions in states’ error rates
                               below 6 percent and on other conditions. State agencies also may be
                               required to make payments to USDA if their payment error rate exceeds
                               USDA’s national performance measure.48 State agencies may be required to
                               invest in improving their administration of the program rather than making
                               refunds.


Complex Program                Program complexity inherently increases the risk of improper payments.
Regulations Increase Risk of   Previous GAO and IG reports disclosed this condition for 11 of the 17
                               programs with reported improper payments. For example, the complexity
Improper Payments
                               of state Medicaid programs provide challenges for federal oversight
                               because of the variations in managing these programs on a state-by-state
                               basis. Medicaid—the primary source of health care for 12 percent of the
                               U.S. population—provides matching grants to states based on formulas
                               encompassing states’ per capita income. States have a variety of options for
                               program administration. They can elect to administer the program at the
                               state or county level. Also, they can operate a fee-for-service program, a
                               managed care program, or some combination of the two. States may also
                               elect to operate their claims processing systems directly or contract with
                               private vendors. Because of the size of this program—it disbursed nearly
                               $98 billion in federal funds during fiscal year 1998—it is critical that HCFA
                               comprehensively estimate its improper payments to assess its risk and
                               determine appropriate actions to strengthen oversight controls. Such



                               47
                                    42 C.F.R. § 431.865(c).
                               48
                                    7 U.S.C. § 2025(c); and 7 C.F.R. § 275.1.




                               Page 31                                          GAO/AIMD-00-10 Improper Payments
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                           actions would help to ensure that HCFA is fulfilling its stewardship
                           responsibilities for this program.

                           Block grants present unique challenges to providing adequate
                           accountability for federal funds. Block grants give states flexibility to adapt
                           funded activities to fit state and local needs and devolve major
                           responsibilities to the states themselves to oversee these programs.49 Under
                           the Temporary Assistance for Needy Families (TANF) block grant, states
                           are authorized to collectively spend up to $16.5 billion annually to provide
                           assistance to needy families and promote work activities. To implement
                           TANF, states and localities determine the range of services and eligibility
                           criteria.

                           Many states manage the TANF, Food Stamp, and Medicaid programs
                           through local offices, and depending upon the state, the same staff may be
                           determining eligibility and benefit levels for all three programs. These
                           programs’ eligibility rules and income tests are complex and differ from
                           one another; thus, although all three programs consider assets and
                           household income and size, the extent to which they do so varies. A
                           requirement that recipients notify the staff when their income changes
                           further complicates eligibility determinations—staff must use three sets of
                           eligibility criteria to recalculate benefit levels. Given the complexity and
                           diversity of eligibility rules among these three programs, it is a challenge at
                           all levels of government to adequately oversee these programs, and
                           improper payments are sometimes made.50


Speed of Service Issues,   Many programs’ missions emphasize speed of service. As a result, errors
Coupled With Resource      are more likely to occur, resulting in improper payments. We considered
                           this condition to exist for 6 of the 17 programs with reported improper
Constraints, Impact
                           payments. It is also present in agencies that had improper payments but did
Improper Payments          not report them. For example, IRS’ ability to successfully meet the financial
                           management challenges it faces must be balanced with the competing
                           demands placed on its resources by its customer service and tax law
                           compliance responsibilities. IRS is mandated to process tax refunds within
                           45 days of receipt of a tax return. If the refund is not processed within this

                           49
                            Block Grants: Issues in Designing Accountability Provisions (GAO/AIMD-95-226,
                           September 1, 1995).
                           50
                            Welfare Benefits: Potential to Recover Hundreds of Millions More in Overpayments
                           (GAO/HEHS-95-111, July 20, 1995).




                           Page 32                                             GAO/AIMD-00-10 Improper Payments
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time, IRS must remit interest payments to the taxpayer. However, IRS’
systems were not designed to handle this volume of information within
these time frames. Further, we reported51 that IRS lacks critical preventive
controls, such as comparing the information on tax returns to third-party
data such as W-2s (Wage and Tax Statements) in a timely manner. As a
result, the agency is unable to identify and correct discrepancies between
these documents that allow duplicate refunds to be issued. Although IRS
has detective (post-refund) controls in place, they often occur months after
the returns are submitted and processed. Insufficient preventive controls
expose the government to potentially significant losses due to
inappropriate disbursement of refunds. According to IRS records, IRS’
investigators identified over $17 million in alleged fraudulent refunds that
had been disbursed during the first 9 months of calendar year 1998.
However, the full magnitude of improper payments disbursed by IRS is
unknown.

The Federal Emergency Management Agency’s (FEMA) Disaster Relief
program is another example of how providing service—in this case,
providing assistance to disaster victims—as quickly as possible increases
the risk of improper payments being made. FEMA provided over
$2.2 billion in disaster relief in fiscal year 1998 to assist individuals,
families, communities, and states in responding to and recovering from
disasters, such as floods, hurricanes, and tornadoes. FEMA has set
demanding performance goals for its disaster assistance activities, from
acting within 12 hours on requests to supply disaster victims with water,
food, and shelter, to processing disaster housing applications from eligible
individuals within an average of 8 days.52 The IG has noted that achieving
these goals will require FEMA to streamline operations and apply new
technology to reduce waste and duplication of benefits. In past years, the
IG has identified specific cases of individuals filing false claims to obtain
FEMA disaster assistance; however, the full extent of this problem has not
been quantified.

We recognize that delivering services expeditiously while ensuring that the
right amount is paid to the right person poses a significant challenge for
many agencies. Without state-of-the-art information management systems


51
     See footnote 22.
52
 Annual Performance Plan Fiscal Year 2000 (Federal Emergency Management Agency,
February 23, 1999).




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                             and appropriate sharing of data, agency personnel cannot readily access
                             needed information for payment decisions and thus are hampered from
                             preventing improper payments. Due to the diverse nature of programs,
                             consulting with congressional oversight bodies would assist agencies when
                             establishing targets and goals to reduce improper payments without
                             impairing service delivery and be an important means of obtaining
                             agreement with the Congress as to expected results for each program.


Large Volumes of             A significant volume of claims or payments is also a factor that contributes
Transactions Increase Risk   to improper payments, especially when compounded with resource
                             constraints. Large volumes of claims were identified in 4 of the 17
of Improper Payments
                             programs with reported improper payments. For example, in a single year,
                             Medicare contractors process over 800 million claims with limited time for
                             processing. IRS is another agency with large volumes of activity. For
                             instance, in fiscal year 1998, it processed 1.4 billion tax and information
                             returns, with 88 million involving refunds. Given the high volume of
                             transactions, inadvertent clerical errors are more likely and they could
                             result in improper payments.



Potential Year 2000          While implementing effective internal controls is and will be an ongoing
                             concern, the Year 2000 problem53 presents a unique challenge to ensuring
Problem Increases the        effective payments controls. Many of the federal government’s computer
Need for Effective           systems were originally designed and developed 20 to 25 years ago, are
                             poorly documented, and use a wide variety of computer languages, many of
Internal Controls            which are obsolete. Some applications include thousands, tens of
                             thousands, and even millions of lines of code, each of which must be
                             examined for date-format problems. Moreover, federal programs are also
                             vulnerable to Year 2000 risks stemming from items outside of their control,
                             such as the Year 2000 compliance of critical business partners. Unless
                             corrected, Year 2000 failures may have a costly, widespread impact on
                             federal, state, and local governments—including the extent to which
                             improper payments are made.


                             53
                              The Year 2000 problem is rooted in how dates are recorded and computed. For the past
                             several decades, computer systems typically used two digits to represent the year, such as
                             “99” for 1999, in order to conserve electronic data storage and reduce operating costs. In this
                             format, however, 2000 is indistinguishable from 1900 because both are represented as “00.”
                             As a result, if not modified, systems or applications that use dates or perform date- or time-
                             sensitive calculations may generate incorrect results beyond 1999.




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                       These many risks increase the possibility that Year 2000 induced failures
                       could result in increased number and amounts of improper payments as
                       agencies attempt to sustain their core business functions. Further,
                       nonexistent or ineffective internal controls, as previously discussed,
                       increase this risk. Accordingly, the federal government could potentially
                       distribute additional improper payments.

                       While the Year 2000 problem increases the risk of improper payments, as
                       we reported54 earlier this year, it also provides the opportunity to
                       institutionalize valuable lessons, such as the importance of reliable
                       processes and reasonable controls. Our Year 2000 enterprise readiness
                       guide55 calls on agencies to develop and implement policies, guidelines, and
                       procedures in such critical areas as configuration management,56 quality
                       assurance, risk management, project scheduling and tracking, and
                       performance metrics. To address the Year 2000 problem, several agencies
                       have implemented such policies. For example, HCFA has implemented
                       policies and procedures related to configuration management, quality
                       assurance, risk management, project scheduling and tracking, and
                       performance metrics for its internal systems.



Most Agency            As previously discussed, nine agencies acknowledged making improper
                       payments in 17 programs for fiscal year 1998. These agencies’ fiscal year
Performance Plans Do   2000 performance plans, under the Results Act, included performance
Not Comprehensively    goals and strategies that address key internal control weaknesses in four
                       programs. For nine programs, the respective agencies did not
Address Improper       comprehensively address improper payments in their plans. Improper
Payments               payments were not addressed at all for the remaining four programs.
                       Appendix III contains our assessment of the extent to which each agency
                       reporting improper payments addressed them in its performance plan. For
                       these and other agencies at risk, the first step in addressing improper
                       payments is to identify the magnitude of these payments. Agencies can
                       then analyze the characteristics of these cases to identify the


                       54
                        Year 2000 Computing Crisis: Defense Has Made Progress, but Additional Management
                       Controls Are Needed (GAO/T-AIMD-99-101, March 2, 1999).
                       55
                            Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14, September 1997).
                       56
                        Configuration management is the continuous control of changes made to a system’s
                       hardware, software, and documentation throughout the development and operational life of
                       the system.




                       Page 35                                               GAO/AIMD-00-10 Improper Payments
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circumstances and root causes leading to the improper payments. Using
this analysis, agencies can make cost-benefit decisions on systems and
other internal control improvements to mitigate the risk of improper
payments and implement performance goals to manage for results.

The use of appropriate performance goals relating to improper payments
can focus management attention on reducing such payments. For example,
HHS has reported a national estimate of improper payments in its Medicare
Fee-for-Service benefits since fiscal year 1996. For fiscal year 1998, HHS
reported estimated improper payments of $12.6 billion, or more than 7
percent, in Medicare Fee-for-Service benefits—down from about $20
billion, or 11 percent, reported for fiscal year 1997 and $23.2 billion, or 14
percent, for fiscal year 1996. As discussed earlier, HCFA would also benefit
from identifying improper payments and establishing related performance
goals for its $98 billion Medicaid program.

Analysis of improper Medicare payments, as part of the financial statement
preparation and audit process, helped lead to the implementation of
several initiatives intended to identify and reduce improper payments.
These initiatives included prepayment reviews of selected claims, an
increase in the overall level of prepay and postpay claims reviews, and
medical reviews of providers identified as having nonstandard billing
practices. Annual estimates of improper payments in future audited
financial statements will provide information on the progress of these
initiatives.

Without a systematic measurement of the extent of the problem,
management cannot determine (1) if the problem is significant enough to
require corrective action, (2) how much to invest in internal controls or
(3) the success of efforts implemented to reduce improper payments. In
fiscal year 1998, VA piloted a new measurement system to determine the
accuracy of veterans’ benefit payments—the Systematic Technical
Accuracy Review (STAR) system. Using the STAR system, the Veterans
Benefits Administration (VBA)—a component of VA—determined that its
regional offices were accurate only 64 percent of the time when making
initial benefit decisions. This measure indicated that VBA should focus
additional attention on ensuring that correct decisions are made the first
time. Using the 64 percent as a baseline, VBA established a goal of
achieving a 93 percent accuracy rate by fiscal year 2004. Although it is too
early to determine whether VBA’s efforts to meet its accuracy improvement
goal will be successful, the new STAR system represents an important step




Page 36                                       GAO/AIMD-00-10 Improper Payments
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forward by VBA in identifying and correcting the causes of errors and
having a baseline against which to measure results and progress.

Currently, there is no governmentwide guidance on how to develop
mechanisms for identifying and estimating improper payments, which
would help agencies to identify whether a need exists to address improper
payments in their annual strategic and performance planning processes.
Developing such mechanisms would enable each agency’s management to
better understand the full extent of its problem. With these mechanisms in
place, appropriate cost-beneficial corrective actions could be designed and
implemented.

Although no governmentwide guidance exists for identifying and
estimating improper payments, the CFO and Results Acts provide a
framework for OMB and agencies to report on efforts to minimize improper
payments. Under the CFO Act, OMB is required to prepare and annually
revise a governmentwide 5-year financial management plan and status
report that discusses the activities the executive branch has undertaken to
improve financial management in the federal government. Each agency
CFO is responsible for developing annual agency-specific plans to support
the governmentwide 5-year financial management plan. The CFO Act also
requires OMB to provide the governmentwide 5-year plan and status report
to appropriate congressional committees. This reporting process keeps the
appropriate congressional committees informed of agencies’ efforts to
improve accountability and stewardship over federal funds.

As discussed earlier, under the Results Act, agencies are required to
prepare strategic plans that identify goals and objectives at least every 3
years. Complementing the strategic plans are annual performance plans
that set annual goals with measurable target levels of performance, and
annual performance reports that compare actual performance to the
annual goals. The Results Act also requires that OMB annually prepare a
governmentwide performance plan as a part of the President’s budget. The
agency performance plans are the foundation for OMB’s governmentwide
plan.

The framework afforded by the CFO and Results Acts suggests that
agencies have a variety of mechanisms for reporting on improper
payments, depending upon the magnitude or significance of those




Page 37                                      GAO/AIMD-00-10 Improper Payments
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payments. OMB calls57 for mission-critical management problems—those
which prospectively and realistically threaten achievement of major
program goals—to be discussed in agencies’ strategic plans and also in
their annual performance plans under the Results Act. In our view,
improper payments can reasonably be considered mission-critical
problems for certain programs, including the 17 programs with reported
improper payments discussed in this report. For example, for programs
providing financial assistance benefits, such as the Food Stamp Program,
maintaining integrity and accuracy in the payment of benefits is critical to
the missions of the programs. For those agencies where these payments
are not deemed mission critical, an appropriate vehicle for managing
improper payments would be agency 5-year financial management plans
developed under the auspices of the CFO Act, or other vehicles such as
action plans. Figure 5 shows how the CFO and Results Acts provide a
broad structure under which agencies can report the status of their efforts
to reduce improper payments.




57
 Preparation and Submission of Strategic Plans, Annual Performance Plans and Annual
Program Performance Reports, OMB Circular A-11 Part 2, OMB/Executive Office of the
President (Washington, D.C., July 1999).




Page 38                                            GAO/AIMD-00-10 Improper Payments
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Figure 5: Reporting Improper Payments Within the Framework of the CFO and
Results Acts



                        Assess extent


                         of improper


                          payments




                 Planning Under CFO Act                      Reporting Under CFO Act
                                                       Incorporate results and revised plan into
            Develop goals and strategies to
                                                       governmentwide Federal Financial
            resolve improper payments in
                                                       Management Status Report, financial
            agency's 5-year financial
                                                       statement report, and 5-year financial
            management plan or other agency-
                                                       management plan or report as
            specific action plan.
                                                       appropriate for vehicle used.




                        Are improper
                                              No
                                                                 No further reporting
                     payments mission-
                                                                  under the Results
                    critical management
                                                                          Act.
                          problems?




                      Yes
               Planning Under Results Act
          Address improper payments in the
                                                           Reporting Under Results Act
          agency strategic plan in consultation with


          congressional oversight committees.
                                                       Report measures and results in agency's


                                                       annual performance report.

          Develop goals and strategies to address


          improper payments in agency's annual


          performance plan.




Note: The planning and reporting stages become iterative as management assesses the relative
success of internal controls employed to minimize improper payments.
Source: GAO analysis of Results Act and CFO Act reporting requirements.


We evaluated the extent to which agencies that reported improper
payments in their financial statement reports also addressed improper
payments in their fiscal year 2000 performance plans. HHS, SSA, VA, and
OPM are four agencies that comprehensively addressed improper
payments using this framework. These agencies’ performance plans
included both performance goals and strategies for minimizing improper



Page 39                                                      GAO/AIMD-00-10 Improper Payments
B-282920




payments for the Medicare Fee-for-Service, Old Age and Survivors
Insurance, Veterans Benefits, and Federal Employees’ Life Insurance
programs. As shown in figure 6, these programs represent 24 percent of
those that reported improper payments or 61 percent of the total program
dollars for the 17 programs. In contrast, 7 of the 17 programs (42 percent)
did not or only cursorily addressed improper payments in their
performance plans, and 34 percent addressed them in a moderate (i.e., less
than comprehensive) manner. Some of the nine agencies we reviewed may
have addressed these issues in their 5-year financial management,
component, or other agency action plans. However, only HHS’ performance
plan contained a reference or “pointer” to another plan that addressed
improper payments. Because some agencies do not appear to be
addressing improper payments in their performance plans, they may not
consider the prevention of improper payments a priority or focus adequate
attention on this issue.



Figure 6: Degree to Which 17 Programs Addressed Improper Payments


 Comprehensive                                       None
      24%                                            24%




    Moderate                                          Cursory
      34%                                              18%
Source: GAO analysis based on review of agency fiscal year 2000 performance plans.
Legend:
None: Agency performance plan does not address the issue of improper payments for this program.
Cursory: Agency performance plan addresses the need to minimize improper payments but does not
provide any substantive performance goals or strategies to minimize improper payments in this
program.
Moderate: Agency performance plan has either performance goals to address improper payments or
strategies to minimize improper payments in this program, but not both, or lacks a comprehensive
approach.
Comprehensive: Agency performance plan has performance goals and strategies that address key
internal control weaknesses to minimize improper payments in this program.




Page 40                                                   GAO/AIMD-00-10 Improper Payments
              B-282920




              OMB Circular A-11, Part 2, which serves as implementing guidance for
              agencies in preparing and submitting Results Act strategic and
              performance plans, states that agency plans should include goals for
              resolving mission-critical management problems. Circular A-11 also directs
              agencies to describe actions taken to address and resolve these issues in
              their performance plans by developing performance goals and discussing
              strategies. We have also advocated58 that agencies address mission-critical
              management problems, in their performance plans, by developing
              performance goals and discussing strategies.

              Our analysis indicates that additional guidance on improper payments may
              be helpful to agency managers. Without an appropriate methodology in
              place for estimating and reporting improper payments, the Congress,
              agency managers, and the public are not aware of the full extent of this
              problem. As a result, agency managers cannot effectively use performance
              goals for managing improper payments.



Conclusions   Although reported amounts of improper payments totaled $19.1 billion in
              fiscal year 1998, many agencies are not identifying, estimating, and
              reporting the nature and extent of improper payments. As a result, the
              magnitude is largely unknown. Based on previous audit reports, inadequate
              internal control and program design issues are the primary causes of
              improper payments for numerous federal programs. Compounding this
              problem, some agencies have not recognized the need to address and
              resolve mission-critical improper payment problems by discussing steps
              taken in their strategic plans and incorporating appropriate goals into their
              performance plans.

              Economic and demographic projections indicate that federal expenditures
              in certain programs will grow significantly. With billions of dollars at risk,
              agencies will need to continually and closely safeguard those resources
              entrusted to them and assign a high priority to reducing fraud, waste, and
              abuse. A first step for some agencies will involve developing mechanisms
              to identify, estimate, and report the nature and extent of improper
              payments annually. Without this fundamental knowledge, agencies cannot
              be fully informed about the magnitude, trends, and types of payment errors
              occurring within their programs. As a result, most agencies cannot make

              58
               Agency Performance Plans: Examples of Practices That Can Improve Usefulness to
              Decisionmakers (GAO/GGD/AIMD-99-69, February 26, 1999).




              Page 41                                            GAO/AIMD-00-10 Improper Payments
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                   informed cost-benefit decisions about strengthening their internal controls
                   to minimize future improper payments or effectively develop goals and
                   strategies to reduce them. Consulting with congressional oversight
                   committees on the development of these goals and strategies is also
                   important to obtaining consensus on how to address this multibillion dollar
                   problem.



Recommendations    To assist agencies in estimating and managing improper payments, we
                   recommend that the Director of the Office of Management and Budget,
                   through the Deputy Director for Management and OMB’s Office of Federal
                   Financial Management, within the framework of the CFO and Results Acts:

                   • Develop and issue guidance to executive agencies to assist them in
                     (1) developing and implementing a methodology for annually estimating
                     and reporting improper payments for major federal programs and
                     (2) developing goals and strategies to address improper payments in
                     their annual performance plans.
                   • Require agencies to (1) include a description of steps being taken to
                     address improper payments in their strategic and annual performance
                     plans when the level of improper payments is mission critical and
                     (2) consult with congressional oversight committees, as appropriate, on
                     the projected target levels and goals for estimating and reducing
                     improper payments, as presented in the agencies’ annual performance
                     plan.



OMB Comments and   In commenting on a draft of this report, OMB agreed that its focus on
                   improper payments should be expanded. OMB agreed with our first
Our Evaluation     recommendation calling for guidance to assist agencies in developing and
                   implementing a methodology for annually estimating and reporting
                   improper payments for major federal programs and developing goals and
                   strategies to address improper payments in their annual performance
                   plans.

                   Regarding the first element of our second recommendation, OMB
                   expressed concern that it may be inappropriate for agency strategic plans
                   to always include a general goal or objective for reducing improper
                   payments. OMB said it would expect agencies to include goals or
                   objectives in their strategic plans if the level of improper payments was
                   determined to be mission critical. We agree. As stated in our report, it was



                   Page 42                                       GAO/AIMD-00-10 Improper Payments
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not our intention that goals or objectives for reducing improper payments
be universally included in agency strategic plans. Specifically, within the
framework of the CFO and Results Acts, and as shown in figure 5, judgment
needs to be exercised so that only mission-critical management problems
are addressed in agency strategic and performance plans. To avoid any
misconception regarding this issue, we have clarified our recommendation
accordingly.

With regard to our recommendation to consult with the Congress on
specific goals and targets for improper payments, OMB noted that
congressional consultation is required by the Results Act and said that
agencies interact with the Congress throughout the year as part of the
normal appropriations and oversight processes. OMB stated that this level
of interaction provides the opportunity for both the agency and the
Congress to raise and discuss improper payment issues and should be
adequate. In this regard, it will be important that these interactions take
place. As discussed in our report, several agencies have not reported
improper payments in their performance plans even when they could
reasonably be considered mission critical. OMB’s comments are reprinted
in appendix IV. OMB also provided informal technical comments, which we
have incorporated as appropriate.

As agreed with your office, unless you publicly announce contents of this
report earlier, we will not distribute it until 30 days from its date. Then, we
will send copies to Senator Joseph Lieberman, Ranking Minority Member,
Senate Committee on Governmental Affairs; Representative Dan Burton,
Chairman, and Representative Henry A. Waxman, Ranking Minority
Member, House Committee on Government Reform; Senator Pete V.
Domenici, Chairman, and Senator Frank R. Lautenberg, Ranking Minority
Member, Senate Committee on the Budget; Representative John R. Kasich,
Chairman, and Representative John M. Spratt, Jr., Ranking Minority
Member, House Committee on the Budget. We will also send copies to the
Honorable Jacob J. Lew, Director of the Office of Management and Budget;
the heads of the 24 CFO agencies; and respective agency CFOs and
Inspectors General. Copies will also be made available to others upon
request.




Page 43                                        GAO/AIMD-00-10 Improper Payments
B-282920




This report was prepared under the direction of Gloria L. Jarmon, Director,
Health, Education, and Human Services Accounting and Financial
Management, who may be reached at (202) 512-4476 or by e-mail at
jarmong.aimd@gao.gov if you or your staff have any questions. Staff
contacts and other key contributors to this letter are listed in appendix V.

Sincerely yours,




Jeffrey C. Steinhoff
Acting Assistant Comptroller General
Accounting and Information Management Division




Page 44                                      GAO/AIMD-00-10 Improper Payments
Page 45   GAO/AIMD-00-10 Improper Payments
Appendix I

Executive Departments and Agencies Covered                                            Appendx
                                                                                            ies




by the CFO Act                                                                         Appendx
                                                                                             Ii




              Department of Agriculture
              Department of Commerce
              Department of Defense
              Department of Education
              Department of Energy
              Department of Health and Human Services
              Department of Housing and Urban Development
              Department of the Interior
              Department of Justice
              Department of Labor
              Department of State
              Department of Transportation
              Department of the Treasury
              Department of Veterans Affairs
              Agency for International Development
              Environmental Protection Agency
              Federal Emergency Management Agency
              General Services Administration
              National Aeronautics and Space Administration
              National Science Foundation
              Nuclear Regulatory Commission
              Office of Personnel Management
              Small Business Administration
              Social Security Administration




              Page 46                                  GAO/AIMD-00-10 Improper Payments
Appendix II

Agencies/Programs/Activities With Reported
Improper Payments Included in the Agencies’
Fiscal Year 1998 Financial Statements                                                                 Appendx
                                                                                                            iI




Agency for               The U.S. Agency for International Development (AID) was established in
                         1961 pursuant to the Foreign Assistance Act of 1961. AID manages U.S.
International            foreign economic and humanitarian assistance programs and helps
Development              countries recover from disaster, escape poverty, and become more
                         democratic. AID’s mission is to contribute to U.S. national interests by
                         supporting the people of developing and transitional countries in their
                         efforts to achieve enduring economic and social progress and to participate
                         more fully in resolving the problems of their countries and the world. In
                         fiscal year 1998, AID’s total outlays for its various programs were
                         $5.2 billion.



Department of
Agriculture

Federal Crop Insurance   The Federal Crop Insurance Program was established in 1938 by the
Corporation              Federal Crop Insurance Act to protect crop farmers from unavoidable risks
                         associated with adverse weather, plant diseases, and insect infestations.
                         The USDA Risk Management Agency administers the Federal Crop
                         Insurance Program through the Federal Crop Insurance Corporation
                         (FCIC), a government-owned corporation. The federal government retains
                         a portion of the insurance risk for all policies and pays private insurance
                         companies a fee that is intended to reimburse them for the reasonable
                         expenses associated with selling and servicing crop insurance to farmers.
                         In fiscal year 1998, FCIC had over 1 million crop insurance policies in force,
                         with total premiums of $1.9 billion.


Food Stamp Program       The Food Stamp Program (FSP), enacted by the Food Stamp Act of 1964, is
                         the nation’s principal food assistance program. FSP enables low-income
                         households to obtain a more nutritious diet by issuing monthly allotments
                         of coupons or electronic benefits redeemable for food at retail stores.
                         Eligibility and allotment amounts are based on household size and income
                         as well as on assets, housing costs, work requirements, and other factors.
                         In fiscal year 1998, 19.8 million individuals per month were provided food
                         stamps for total annual program costs of $20.4 billion.




                         Page 47                                       GAO/AIMD-00-10 Improper Payments
                        Appendix II
                        Agencies/Programs/Activities With Reported
                        Improper Payments Included in the Agencies’
                        Fiscal Year 1998 Financial Statements




Department of Health    The Administration for Children and Families (ACF), a division of the

and Human Services −
                        Department of Health and Human Services, is responsible for almost 50
                        programs that promote the economic and social well being of families,
Administration for      children, individuals, and communities. Three programs do most of ACF’s
                        spending: TANF, Foster Care, and Head Start.
Children and Families

TANF                    Temporary Assistance for Needy Families (TANF) block grants were
                        created by the Personal Responsibility and Work Opportunity
                        Reconciliation Act of 1996 to replace the Aid to Families with Dependent
                        Children (AFDC) Program. Specified goals of TANF include providing
                        assistance to needy families and ending the dependence of needy parents
                        on government benefits by promoting job preparation, work, and marriage.
                        Over $16 billion in federal assistance is available to states each year
                        through 2002 to fund the TANF program. While states have flexibility over
                        the design and implementation of their welfare programs, they must
                        impose several federal requirements, including work requirements and
                        time limits on aid.


Foster Care             Foster Care was originally created in 1961 under title IV of the Social
                        Security Act. The Foster Care Program is a permanently authorized
                        entitlement program that provides matching funds to states for
                        maintenance of eligible children in foster care homes, private nonprofit
                        child care facilities, or public child care institutions. In fiscal year 1998,
                        over half a million children were supported by the Foster Care Program
                        with total federal outlays of $4.5 billion.


Head Start              The Head Start Program was created in 1965 as part of the war on poverty
                        to improve the social competence of children in low-income families. To
                        support the social competence goal, Head Start programs deliver a broad
                        range of services to children. These services include educational, medical,
                        nutritional, mental health, dental, and social services. Head Start
                        regulations require that at least 90 percent of the children enrolled in each
                        program be from low-income families. ACF awards Head Start grants
                        directly to local grantees who operate programs in all 50 states, the District
                        of Columbia, Puerto Rico, and the U.S. territories. In fiscal year 1998, over
                        800,000 children participated in Head Start programs, and federal outlays
                        totaled $3.3 billion.



                        Page 48                                         GAO/AIMD-00-10 Improper Payments
                           Appendix II
                           Agencies/Programs/Activities With Reported
                           Improper Payments Included in the Agencies’
                           Fiscal Year 1998 Financial Statements




Department of Health
and Human Services −
Health Care Financing
Administration

Medicaid                   Medicaid, established in 1965 by Title XIX of the Social Security Act, is a
                           federal-state matching entitlement program that pays for medical
                           assistance for certain vulnerable and needy individuals and families with
                           low incomes and resources. In 1998, it provided health care assistance to 33
                           million persons, at a cost of about $98 billion to the federal government.
                           The Health Care Financing Administration (HCFA) is responsible for the
                           overall management of Medicaid; however, each state is responsible for
                           managing its own program. Within broad federal statutory and regulatory
                           guidelines, each state: (1) establishes its own eligibility standards,
                           (2) determines the types and range of services, (3) sets the rate of payment
                           for services, and (4) administers its own program.


Medicare Fee-for-Service   Authorized by Title XVIII of the Social Security Act in 1965, Medicare is the
                           nation’s largest health insurance program, covering an estimated 39.6
                           million elderly and disabled at a cost of about $210 billion annually. The
                           Medicare Program is administered by HCFA. While some beneficiaries
                           participate in Medicare’s $33 billion Managed Care program, most receive
                           their health care from the $177 billion Fee-for-Service portion of Medicare.
                           HCFA contracts with over 40 insurance companies to process fee-for-
                           service claims. Although contractors are the program’s front line of defense
                           against fraud, abuse, and erroneous payments, HCFA is responsible for
                           overseeing these contractors and for assuring that claims are paid
                           accurately and efficiently.




                           Page 49                                       GAO/AIMD-00-10 Improper Payments
                           Appendix II
                           Agencies/Programs/Activities With Reported
                           Improper Payments Included in the Agencies’
                           Fiscal Year 1998 Financial Statements




Department of Housing
and Urban
Development

Housing Subsidy Programs   Housing and Urban Development’s (HUD) Public Housing and Section 8
                           programs were established by the U.S. Housing Act of 1937 and the
                           Housing and Community Development Act of 1974 (revising Section 8 of
                           the U.S. Housing Act of 1937), respectively. These programs help eligible
                           low-income families obtain decent, safe, and sanitary housing by paying a
                           portion of their rent.

                           HUD’s Public Housing Program is operated by approximately 3,200 public
                           housing authorities (PHA), which operate under state and local laws and
                           are funded by HUD. Public housing provides affordable shelter for low-
                           income families comprised of citizens or eligible immigrants. Through the
                           operating subsidy program, HUD provides an annual subsidy to help PHAs
                           pay some of the cost of operating and maintaining public housing units. In
                           fiscal year 1998, more than 1.2 million public housing units were under
                           management, with a net cost of about $3.1 billion.

                           The Section 8 programs assist low-income families. Residents in subsidized
                           units generally pay 30 percent of their income for rent, and HUD pays the
                           balance. Section 8 has two assistance programs: project-based and tenant-
                           based assistance. Tenant-based assistance is linked to specific individuals;
                           the project-based assistance is linked to housing units. In fiscal year 1998,
                           the Section 8 programs assisted approximately 3 million households and
                           had net costs of $15.5 billion.



Department of Labor

Federal Employees’         Enacted in 1916, the Federal Employees’ Compensation Act (FECA)
Compensation Act           provides workers’ compensation coverage to federal employees for work-
                           related injuries or disease. FECA, administered by the U.S. Department of
                           Labor, authorizes the government to compensate federal employees when
                           they are temporarily or permanently disabled due to injury or disease
                           sustained while performing their duties. In fiscal year 1998, the Department



                           Page 50                                       GAO/AIMD-00-10 Improper Payments
                            Appendix II
                            Agencies/Programs/Activities With Reported
                            Improper Payments Included in the Agencies’
                            Fiscal Year 1998 Financial Statements




                            of Labor received 165,000 federal injury reports and issued benefit
                            payments of more than $1.9 billion.


Unemployment Insurance      Unemployment Insurance, enacted by Title IX of the Social Security Act of
                            1935, as amended, is the nation’s response to the adverse effects of
                            unemployment. The program’s mission is to provide unemployed workers
                            with temporary income support and to facilitate re-employment. By doing
                            so, the program helps stabilize the economy. In fiscal year 1998, over 7
                            million unemployed workers received approximately $20 billion from the
                            program.

                            The program is administered by the states through a network of local
                            claims offices and central offices in each state. These offices also are
                            responsible for the collection of taxes from all subject employers. The
                            program is financed through collections of taxes from employers by both
                            the federal and state governments. In addition, each state is responsible for
                            determining eligibility requirements and levels of compensation, including
                            the length of time benefits are paid.



Office of Personnel
Management

Federal Employees’ Health   The Federal Employees’ Health Benefits Program (FEHBP) was
Benefits Program            established by the Federal Employees Health Benefits Act of 1959 for the
                            purpose of making basic hospital and medical protection available to active
                            federal employees, annuitants, and their families through plans offered by
                            carriers participating in the FEHBP. In fiscal year 1998, there were
                            2.3 million federal civilian employees and 1.8 million annuitants enrolled in
                            the FEHBP. In total, FEHBP covers about 9 million individuals. Annual
                            premiums are over $16.3 billion, with the government paying up to 75
                            percent of the premiums and employees paying the remaining portion.


Federal Employees’ Group    The Federal Employees’ Group Life Insurance (FEGLI) Program was
Life Insurance Program      established in 1954 by the Federal Employees’ Group Life Insurance Act to
                            provide federal employees and annuitants with group term life insurance.
                            The program is administered pursuant to a contract with a life insurance



                            Page 51                                       GAO/AIMD-00-10 Improper Payments
                        Appendix II
                        Agencies/Programs/Activities With Reported
                        Improper Payments Included in the Agencies’
                        Fiscal Year 1998 Financial Statements




                        company. In fiscal year 1998, FEGLI covered 90 percent of eligible
                        employees and annuitants, as well as many of their family members, and
                        had $1.6 billion in net outlays.


Retirement Program      The Retirement Program is a defined benefit retirement plan and includes
                        two components: (1) the Civil Service Retirement System (CSRS), created
                        in 1920 by the Civil Service Retirement Act and (2) the Federal Employees’
                        Retirement System (FERS), established in 1986 by the Federal Employees’
                        Retirement System Act. CSRS is a stand-alone retirement plan intended to
                        pay benefits for long-service federal employees. CSRS covers most federal
                        employees hired before 1984 and is closed to new members. FERS covers
                        most employees first hired after December 31, 1983, and provides benefits
                        to the survivors of deceased FERS annuitants and employees. Using Social
                        Security as a base, FERS provides an additional defined benefit and a
                        voluntary thrift savings plan. OPM administers only the defined benefit
                        component of FERS. In fiscal year 1998, OPM had over $43 billion in
                        outlays, with over 2 million annuitants in CSRS, and approximately 100,000
                        in FERS.



Social Security
Administration

Old Age and Survivors   In 1935, the Social Security Act established a program to help protect aged
Insurance               Americans against the loss of income due to retirement. The 1939
                        amendments added protection for survivors of deceased retirees by
                        creating the Old Age and Survivors Insurance (OASI) Program. Employee
                        and employer payroll tax contributions under the Federal Insurance
                        Contributions Act (FICA) and the Self-Employment Contributions Act
                        (SECA) finance this program. Administration of the program lies with the
                        Social Security Administration (SSA). In fiscal year 1998, SSA directly
                        disbursed $324 billion to approximately 38 million beneficiaries under this
                        program.


Disability Insurance    In 1956, the Social Security Act was amended to protect disabled workers
                        against loss of income due to disability through creation of the Disability
                        Insurance (DI) Program. In 1958, amendments to the act expanded benefits



                        Page 52                                       GAO/AIMD-00-10 Improper Payments
                        Appendix II
                        Agencies/Programs/Activities With Reported
                        Improper Payments Included in the Agencies’
                        Fiscal Year 1998 Financial Statements




                        to include dependents of disabled workers. As a result, the DI Program
                        provides a continuing income base for eligible workers who have qualifying
                        disabilities and for eligible members of their families before those workers
                        reach retirement age. As authorized by the act, workers are considered
                        disabled if they have severe physical or mental conditions that prevent
                        them from engaging in substantial gainful activity. The condition must be
                        expected to last for a continuous period of at least 12 months or to result in
                        death. Once DI beneficiaries reach age 65, they and their families are
                        converted to the OASI Program. The DI Program is financed by employee
                        and employer payroll tax contributions under FICA and SECA. SSA, using
                        assistance from 54 state Disability Determination Services to make
                        required medical and vocational decisions, is responsible for administering
                        the DI Program. In fiscal year 1998, SSA disbursed approximately
                        $48 billion in monthly cash payments to about 6 million beneficiaries.


Supplemental Security   In 1972, amendments to the Social Security Act established the
Income                  Supplemental Security Income (SSI) Program. SSI provides cash assistance
                        to financially needy individuals who are aged, blind, or disabled. General
                        tax revenues finance this program. Many states supplement the federal SSI
                        payment, choosing either to have SSA administer the supplement or to pay
                        it directly. In fiscal year 1998, SSA disbursed approximately
                        $27 billion in federal SSI payments to about 7 million recipients. Also, SSA
                        disbursed approximately $3 billion in state supplemental payments during
                        fiscal year 1998.



Department of the
Treasury

Customs                 Refunds are payments made to importers/exporters for overpayments or
Drawbacks/Refunds       duplicate payments of duties, taxes, and fees when goods are originally
                        imported into the United States. A drawback is a refund of duties and/or
                        excise taxes already paid to Customs on imported goods which were either
                        (1) never entered into the commerce of the United States because they
                        were either re-exported or destroyed under Customs’ supervision, or
                        (2) used (or substituted) in a process to manufacture articles which were
                        exported from the United States or destroyed under Customs’ supervision
                        without being used.




                        Page 53                                       GAO/AIMD-00-10 Improper Payments
                   Appendix II
                   Agencies/Programs/Activities With Reported
                   Improper Payments Included in the Agencies’
                   Fiscal Year 1998 Financial Statements




                   The Congress initially passed legislation authorizing drawbacks in 1789,
                   citing the need to facilitate American commerce and manufacturing.
                   Drawback privileges are provided by the Tariff Act of 1930. The rationale
                   for drawbacks has always been to encourage American commerce or
                   manufacturing, or both. It permits the American manufacturer to compete
                   in foreign markets without the handicap of including in the costs, and
                   consequently in the sales price, the duty paid on imported merchandise.
                   Drawbacks are generally processed in Customs’ port offices across the
                   nation. In fiscal year 1998, net outlays related to drawbacks and refunds
                   were over $1.3 billion.



Department of      In 1930, the Congress consolidated and coordinated various veterans’
                   programs with the establishment of the Veterans Administration. The
Veterans Affairs   Department of Veterans Affairs (VA) was established as a Cabinet level
                   department in March 1989. VA’s mission is to administer the laws providing
                   benefits and other services to veterans and their dependents and the
                   beneficiaries of veterans. The Veterans Benefits Administration (VBA)
                   administers VA’s nonmedical programs, which provide financial and other
                   assistance to veterans, their dependents, and survivors. The compensation
                   and pension (C&P) program is VBA’s largest, and in fiscal year 1998, VA
                   paid approximately $20 billion in C&P benefits to more than 3 million
                   veterans and their survivors.




                   Page 54                                       GAO/AIMD-00-10 Improper Payments
Page 55   GAO/AIMD-00-10 Improper Payments
Appendix III

Assessment of Performance Plans for Those
Agencies Reporting Improper Payments                                                                                                               Appendx
                                                                                                                                                         iI




Department/agency              Activity/program                          Degree to which the performance plan addresses improper
                                                                                                 payments
                                                                     None              Cursory        Moderate             Comprehensive
Agency for International       Not specifically identified           X
Development
Department of Agriculture      Federal Crop Insurance                                                 X
                               Corporation
Department of Agriculture      Food Stamp Program                                                     X
Department of Health and       Administration for Children and       X
Human Services                 Families
Department of Health and       Medicaid                              X
Human Services
Department of Health and       Medicare Fee-for-Service                                                                    X
Human Services
Department of Housing and      Housing Subsidies                                       X
Urban Development
Department of Labor            Federal Employees'                                                     X
                               Compensation Act
Department of Labor            Unemployment Insurance                                  X
Office of Personnel            Federal Employees' Health                               X
Management                     Benefits
Office of Personnel            Federal Employees' Group Life                                                               Xa
Management                     Insurance
Office of Personnel            Retirement                                                             X
Management
Social Security Administration Disability Insurance                                                   X
Social Security Administration Old Age Survivors Insurance                                                                 Xa
Social Security Administration Supplementary Security                                                 X
                               Income
Department of the Treasury     Customs Drawbacks and                 X
                               Refunds
Department of Veterans         Veterans' Benefits                                                                          X
Affairs


                                               a
                                                Although the agency performance plans did not include strategies for these programs, we assessed
                                               them as comprehensive because the related payment accuracy rates were 99.8 percent for both the
                                               Old Age Survivors Insurance and Life Insurance programs. Therefore, it may not be cost-beneficial for
                                               these agencies to design and implement additional strategies to mitigate improper payments.
                                               Source: GAO analysis based on a review of fiscal year 2000 agency performance plans.
                                               Legend:
                                               None: Agency performance plan does not address the issue of improper payments for this program.
                                               Cursory: Agency performance plan addresses the need to minimize improper payments but does not
                                               provide any substantive performance goals or strategies to minimize improper payments in this
                                               program.




                                               Page 56                                                     GAO/AIMD-00-10 Improper Payments
Appendix III
Assessment of Performance Plans for Those
Agencies Reporting Improper Payments




Moderate: Agency performance plan has either performance goals to address improper payments or
strategies to minimize improper payments in this program, but not both, or lacks a comprehensive
approach.
Comprehensive: Agency performance plan has performance goals and strategies that address key
internal controls to minimize improper payments in this program.




Page 57                                                  GAO/AIMD-00-10 Improper Payments
Appendix IV

Comments From the Office of Management
and Budget                                                  Appendx
                                                                  Ii




              Page 58        GAO/AIMD-00-10 Improper Payments
Appendix IV
Comments From the Office of Management
and Budget




Page 59                                  GAO/AIMD-00-10 Improper Payments
Appendix V

GAO Contact and Staff Acknowledgements                                                        Appendx
                                                                                                    i
                                                                                                    IV




GAO Contact        Debra Sebastian, (202) 512-9385



Acknowledgements   Staff making key contributions to this report are Kwabena Ansong, Kay
                   Daly, Margaret Davis, Marie Kinney, Meg Mills, and Ruth Sessions as well
                   many other staff throughout GAO who contributed to selected sections of
                   this report.




                   Page 60                                    GAO/AIMD-00-10 Improper Payments
Related GAO Products


             The following lists prior GAO products dealing with improper payments, or
             overpayments dating back to fiscal year 1996, as requested by the
             Chairman.

             Crop Insurance: USDA Needs a Better Estimate of Improper Payments to
             Strengthen Controls Over Claims (GAO/RCED-99-266, September 22, 1999).

             Medicare: HCFA Oversight Allows Contractor Improprieties to Continue
             Undetected (GAO/T-HEHS/OSI-99-174, September 9, 1999).

             Food Assistance: Efforts to Control Fraud and Abuse in the WIC Program
             Can Be Strengthened (GAO/RCED-99-224, August 30, 1999).

             DOD Information Security: Serious Weaknesses Continue to Place Defense
             Operations at Risk (GAO/AIMD-99-107, August 26, 1999).

             Defense Health Care: Claims Processing Improvements Are Under Way but
             Further Enhancements Are Needed (GAO/HEHS-99-128, August 23, 1999).

             Medicare Fraud and Abuse: DOJ’s Implementation of False Claims Act
             Guidance in National Initiatives Varies (GAO/HEHS-99-170, August 6, 1999).

             Defense Health Care: Improvements Needed to Reduce Vulnerability to
             Fraud and Abuse (GAO/HEHS-99-142, July 30, 1999).

             Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their
             Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).

             Medicare: HCFA Should Exercise Greater Oversight of Claims
             Administration Contractors (GAO/T-HEHS/OSI-99-167, July 14, 1999).

             Department of Energy: Need to Address Longstanding Management
             Weaknesses (GAO/T-RCED-99-255, July 13, 1999).

             Food Stamp Program: Households Collect Benefits for Persons
             Disqualified for Intentional Program Violations (GAO/RCED-99-180, July 8,
             1999).

             Recovery Auditing: Reducing Overpayments, Achieving Accountability, and
             the Government Waste Corrections Act of 1999 (GAO/T-NSIAD-99-213,
             June 29, 1999).




             Page 61                                     GAO/AIMD-00-10 Improper Payments
Food Stamp Program: Relatively Few Improper Benefits Provided to
Individuals in Long-Term Care Facilities (GAO/RCED-99-151, June 4, 1999).

Medicare Subvention Demonstration: DOD Data Limitations May Require
Adjustments and Raise Broader Concerns (GAO/HEHS-99-39, May 28,
1999).

Medicare: Early Evidence of Compliance Program Effectiveness Is
Inconclusive (GAO/HEHS-99-59, April 15, 1999).

Auditing the Nation’s Finances: Fiscal Year 1998 Results Highlight Major
Issues Needing Resolution (GAO-T-AIMD-99-131, March 31, 1999).

Financial Audit: Fiscal Year 1998 Financial Report of the U.S. Government
(GAO/AIMD-99-130, March 31, 1999).

Contract Management: DOD is Examining Opportunities to Further Use
Recovery Auditing (GAO/NSIAD-99-78, March 17, 1999).

Veterans’ Benefits Claims: Further Improvements Needed in Claims-
Processing Accuracy (GAO/HEHS-99-35, March 1, 1999).

Medicare Managed Care: Better Risk Adjustment Expected to Reduce
Excess Payments Overall While Making Them Fairer to Individual Plans
(GAO/T-HEHS-99-72, February 25, 1999).

Direct Student Loans: Overpayments During the Department of Education’s
Conversion to a New Payment System (GAO/HEHS-99-44R, February 17,
1999).

HCFA Management: Agency Faces Multiple Challenges in Managing Its
Transition to the 21st Century (GAO/T-HEHS-99-58, February 11, 1999).

Social Security: What the President’s Proposal Does and Does Not Do
(GAO/T-AIMD/HEHS-99-76, February 9, 1999).

Supplemental Security Income: Long-Standing Issues Require More Active
Management and Program Oversight (GAO/T-HEHS-99-51, February 3,
1999).




Page 62                                     GAO/AIMD-00-10 Improper Payments
Medicare Home Health Agencies: Role of Surety Bonds in Increasing
Scrutiny and Reducing Overpayments (GAO/HEHS-99-23, January 29,
1999).

Financial Management: Problems in Accounting for Navy Transactions
Impair Funds Control and Financial Reporting (GAO/AIMD-99-19,
January 19, 1999).

Supplemental Security Income: Increased Receipt and Reporting of Child
Support Could Reduce Payments (GAO/HEHS-99-11, January 12, 1999).

Internal Controls: Reporting Air Force Vendor Payment System
Weaknesses Under the Federal Managers’ Financial Integrity Act
(GAO/AIMD-99-33R, December 21, 1998).

Contract Management: Recovery Auditing Offers Potential to Identify
Overpayments (GAO/NSIAD-99-12, December 3, 1998).

Student Loans: Improvements in the Direct Loan Consolidation Process
(GAO/HEHS-99-19R, November 10, 1998).

Internal Revenue Service: Immediate and Long-Term Actions Needed to
Improve Financial Management (GAO/AIMD-99-16, October 30, 1998).

DOD Procurement Fraud: Fraud by an Air Force Contracting Official
(GAO/OSI-98-15, September 23, 1998).

Year 2000 Computing Crisis: Progress Made at Department of Labor, But
Key Systems at Risk (GAO/T-AIMD-98-303, September 17, 1998).

Fraud, Waste, and Abuse: The Cost of Mismanagement (GAO/AIMD-
98-265R, September 14, 1998).

Supplemental Security Income: Action Needed on Long-Standing Problems
Affecting Program Integrity (GAO/HEHS-98-158, September 14, 1998).

Welfare Reform: Early Fiscal Effects of the TANF Block Grant (GAO/AIMD-
98-137, August 18, 1998).

Food Assistance: Computerized Information Matching Could Reduce Fraud
and Abuse in the Food Stamp Program (GAO/T-RCED-98-254, August 5,
1998).



Page 63                                    GAO/AIMD-00-10 Improper Payments
Earned Income Credit: IRS’ Tax Year 1994 Compliance Study and Recent
Efforts to Reduce Noncompliance (GAO/GGD-98-150, July 28, 1998).

Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating
and Using Unexpended Balances Are Ineffective (GAO/RCED-98-202, July
22, 1998).

Medicare: Application of the False Claims Act to Hospital Billing Practices
(GAO/HEHS-98-195, July 10, 1998).

Welfare Reform: States Are Restructuring Programs to Reduce Welfare
Dependence (GAO/HEHS-98-109, June 17, 1998).

Head Start: Challenges Faced in Demonstrating Program Results and
Responding to Societal Changes (GAO/T-HEHS-98-183, June 9, 1998).

Medicare: Health Care Fraud and Abuse Control Program Financial Report
for Fiscal Year 1997 (GAO/AIMD-98-157, June 1, 1998).

Medicare Billing: Commercial System Will Allow HCFA to Save Money,
Combat Fraud and Abuse (GAO/T-AIMD-98-166, May 19, 1998).

Computer Security: Pervasive, Serious Weaknesses Jeopardize State
Department Operations (GAO/AIMD-98-145, May 18, 1998).

Medicare: Need to Overhaul Costly Payment System for Medical
Equipment and Supplies (GAO/HEHS-98-102, May 12, 1998).

Social Security: Better Payment Controls for Benefit Reduction Provisions
Could Save Millions (GAO/HEHS-98-76, April 30, 1998).

Food Assistance: Observations on Reducing Fraud and Abuse in the Food
Stamp Program (GAO/T-RCED-98-167, April 23, 1998).

Direct Student Loans: Efforts to Resolve Lender’s Problems With
Consolidations are Under Way (GAO/HEHS-98-103, April 21, 1998).

Supplemental Security Income: Organizational Culture and Management
Inattention Place Program at Continued Risk (GAO/T-HEHS-98-146,
April 21, 1998).




Page 64                                      GAO/AIMD-00-10 Improper Payments
Department of Defense: Financial Audits Highlight Continuing Challenges
to Correct Serious Financial Management Problems (GAO/T-AIMD/NSIAD-
98-158, April 16, 1998).

Medicare Billing: Commercial Systems Could Save Hundreds of Millions
Annually (GAO/AIMD-98-91, April 15, 1998).

Internal Control: Essential for Safeguarding Assets, Compliance with Laws
and Regulations, and Reliable Financial Reporting (GAO/T-AIMD-98-125,
April 1, 1998).

Financial Audit: 1997 Consolidated Financial Statements of the United
States Government (GAO/AIMD-98-127, March 31, 1998).

Head Start Programs: Participant Characteristics, Services, and Funding
(GAO/HEHS-98-65, March 31, 1998).

Supplemental Security Income: Opportunities Exist for Improving Payment
Accuracy (GAO/HEHS-98-75, March 27, 1998).

Food Stamp Program: Information on Trafficking Food Stamp Benefits
(GAO/RCED-98-77, March 26, 1998).

Medicare Home Health Benefit: Congressional and HCFA Actions Begin to
Address Chronic Oversight Weaknesses (GAO/T-HEHS-98-117, March 19,
1998).

CFO Act Financial Audits: Programmatic and Budgetary Implications of
Navy Financial Data Deficiencies (GAO/AIMD-98-56, March 16, 1998).

Medicare: HCFA Can Improve Methods for Revising Physician Practice
Expense Payments (GAO/HEHS-98-79, February 27, 1998).

Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial
Statements (GAO/AIMD-98-77, February 26, 1998).

Medicaid: Early Implications of Welfare Reform for Beneficiaries and
States (GAO/HEHS-98-62, February 24, 1998).

Food Stamp Overpayments: Thousands of Deceased Individuals Are Being
Counted as Household Members (GAO/RCED-98-53, February 11, 1998).




Page 65                                     GAO/AIMD-00-10 Improper Payments
Financial Management: Seven DOD Initiatives That Affect the Contract
Payment Process (GAO/AIMD-98-40, January 30, 1998).

Managing for Results: The Statutory Framework for Performance-Based
Management and Accountability (GAO/GGD/AIMD-98-52, January 28,
1998).

Illegal Aliens: Extent of Welfare Benefits Received on Behalf of U.S. Citizen
Children (GAO/HEHS-98-30, November 19, 1997).

Inspectors General: Contracting Actions By Treasury Office of Inspector
General (GAO/OSI-98-1, October 31, 1997).

Food Assistance: Reducing Food Stamp Benefit Overpayments and
Trafficking (GAO/T-RCED-98-37, October 30, 1997).

DOD Procurement: Funds Returned by Defense Contractors (GAO/NSIAD-
98-46R, October 28, 1997).

Medicare Home Health: Differences in Service Use by HMO and Fee-for-
Service Providers (GAO/HEHS-98-8, October 21, 1997).

Disaster Assistance: Guidance Needed for FEMA’s “Fast Track” Housing
Assistance Process (GAO/RCED-98-1, October 17, 1997).

VA Medical Care: Increasing Recoveries From Private Health Insurers Will
Prove Difficult (GAO/HEHS-98-4, October 17, 1997).

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires
Effective Implementation (GAO/T-HEHS-98-9, October 9, 1997).

Budget Issues: Budgeting For Federal Insurance Programs (GAO/AIMD-
97-16, September 30, 1997).

Medicare Automated Systems: Weaknesses in Managing Information
Technology Hinder Fight Against Fraud and Abuse (GAO/T-AIMD-97-176,
September 29, 1997).

Food Assistance: A Variety of Practices May Lower the Costs of WIC
(GAO/RCED-97-225, September 17, 1997).




Page 66                                       GAO/AIMD-00-10 Improper Payments
Medicare: Control Over Fraud and Abuse Remains Elusive (GAO/T-HEHS-
97-165, June 26, 1997).

Supplemental Security Income: Timely Data Could Prevent Millions in
Overpayments to Nursing Home Residents (GAO/HEHS-97-62, June 3,
1997).

DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions of
Dollars in Waste (GAO/T-NSIAD/AIMD-97-143, May 1, 1997).

Financial Management: Improved Reporting Needed for DOD Problem
Disbursements (GAO/AIMD-97-59, May 1, 1997).

Medicare HMOs: HCFA Can Promptly Eliminate Hundreds of Millions in
Excess Payments (GAO/HEHS-97-16, April 25, 1997).

Social Security Disability: SSA Actions to Reduce Backlogs and Achieve
More Consistent Decisions Deserve High Priority (GAO/T-HEHS-97-118,
April 24, 1997).

Crop Insurance: Opportunities Exist to Reduce Government Costs for
Private-Sector Delivery (GAO/RCED-97-70, April 17, 1997).

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and
Abuse (GAO/T-HEHS-97-114, April 16, 1997).

Contract Management: Fixing DOD’s Payment Problems Is Imperative
(GAO/NSIAD-97-37, April 10, 1997).

Financial Management: Improved Management Needed for DOD
Disbursement Process Reforms (GAO/AIMD-97-45, March 31, 1997).

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded
Providers From Federal Health Programs (GAO/HEHS-97-63, March 31,
1997).

Department of Veterans Affairs: Programmatic and Management
Challenges Facing the Department (GAO/T-HEHS-97-97, March 18, 1997).

Social Security: Disability Programs Lag in Promoting Return to Work
(GAO/HEHS-97-46, March 17, 1997).




Page 67                                    GAO/AIMD-00-10 Improper Payments
Food Stamps: Substantial Overpayments Result From Prisoners Counted
as Household Members (GAO/RCED-97-54, March 10, 1997).

Farm Programs: Finality Rule Should Be Eliminated (GAO/RCED-97-46,
March 7, 1997).

High-Risk Areas: Benefits to Be Gained by Continued Emphasis on
Addressing High-Risk Areas (GAO/T-AIMD-97-54, March 4, 1997).

Supplemental Security Income: Long-Standing Problems Put Program at
Risk for Fraud, Waste and Abuse (GAO/T-HEHS-97-88, March 4, 1997).

Medicare HMOs: HCFA Could Promptly Reduce Excess Payments by
Improving Accuracy of County Payment Rates (GAO-T-HEHS-97-82,
February 27, 1997).

Benefit Fraud With Post Office Boxes (GAO/HEHS-97-54R, February 21,
1997).

Ex-Im Bank’s Retention Allowance Program (GAO/GGD-97-37R,
February 19, 1997).

High-Risk Series (GAO/GGD-97-37R, February 1997).

SSA Disability Redesign: Focus Needed on Initiatives Most Crucial to
Reducing Costs and Time (GAO/HEHS-97-20, December 20, 1996).

Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed
Care (GAO/HEHS-96-184, September 17, 1996).

Supplemental Security Income: SSA Efforts Fall Short in Correcting
Erroneous Payments to Prisoners (GAO/HEHS-96-152, August 30, 1996).

Supplemental Security Income: Administrative and Program Savings
Possible by Directly Accessing State Data (GAO/HEHS-96-163, August 29,
1996).

Unemployment Insurance: Millions in Benefits Overpaid to Military
Reservists (GAO/HEHS-96-101, August 5, 1996).

Department of Education: Status of Actions to Improve the Management of
Student Financial Aid (GAO/HEHS-96-143, July 12, 1996).



Page 68                                     GAO/AIMD-00-10 Improper Payments
                   Executive Guide: Effectively Implementing the Government Performance
                   and Results Act (GAO/GGD-96-118, June 1996).

                   Health Care Fraud: Information-Sharing Proposals to Improve
                   Enforcement Efforts (GAO/GGD-96-101, May 1, 1996).

                   SSA Overpayment Recovery (GAO/HEHS-96-104R, April 30, 1996).

                   Social Security: Issues Involving Benefit Equity for Working Women
                   (GAO/HEHS-96-55, April 10, 1996).

                   Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities
                   (GAO/HEHS-96-18, January 24, 1996).

                   Unsubstantiated DOE Travel Payments (GAO/RCED-96-58R, December 28,
                   1995).

                   Financial Management: Challenges Facing DOD in Meeting the Goals of the
                   Chief Financial Officers Act (GAO/T-AIMD-96-1, November 14, 1995).

                   Fraud and Abuse: Medicare Continues to Be Vulnerable to Exploitation by
                   Unscrupulous Providers (GAO/T-HEHS-96-7, November 2, 1995).

                   DOD Procurement: Millions in Contract Payment Errors Not Detected and
                   Resolved Promptly (GAO/NSIAD-96-8, October 6, 1995).

                   Medicare: Excessive Payments for Medical Supplies Continue Despite
                   Improvements (GAO/T-HEHS-96-5, October 2, 1995).




(916282)   Leter   Page 69                                     GAO/AIMD-00-10 Improper Payments
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