The Problem

In fiscal year 2010, improper payments made by the federal government totaled $125 billion. Under the direction of the Office of Management and Budget (OMB), agencies have identified the programs that are susceptible to significant improper payments, and measured, or are putting in place measurement plans, to determine the estimated amount of improper payments.  By identifying and measuring the problem, and determining the root causes of error, the government is able to focus and prioritize its resources so that corrective action plans can be thoughtfully developed and successfully carried out.

Programs Susceptible to Significant Improper Payments

In fiscal year 2010, 18 agencies identified 79 programs that are susceptible to significant improper payments based on risk assessments of all federal programs. Generally, these programs are deemed “risk-susceptible” if they have improper payments greater than $10 million and over 2.5 percent of all payments made under that program. The agency responsible for such a program is required to report to the President and the Congress the annual amount of estimated improper payments, along with steps taken and actions planned to reduce them, in their annual Performance and Accountability Report (PAR) or Agency Financial Report (AFR).

What Causes Improper Payments?

An improper payment can happen for a number of reasons. Knowing the causes of program error is essential. By understanding the causes of improper payments, agencies can better implement policies and procedures to reduce errors without negatively impacting the people who should be receiving payments from the government.

While improper payments can have many causes, the federal government has categorized root causes of error. The three categories are:

1. Documentation and Administrative Errors:

   The agency administering the program lacks supporting documentation necessary to verify the accuracy of the recipient’s claim for federal benefits. Errors in this category may be caused by incorrect inputting, classifying, or processing of applications or payments by a federal agency, state agency, or third party who is not the beneficiary.

2. Authentication and Medical Necessity Errors:

   The agency administering the program is unable to confirm that the recipient meets all of the requirements for receiving payment; the verifying information does not exist or is not accessible. Errors in this category may, for example, be caused by providing a service that was not medically necessary given a patient’s condition, such as providing a power wheelchair to a patient that does not need a wheelchair.

3. Verification Errors:

   Errors caused by the failure to verify recipient information, including earnings, income, assets, or work status, even though verifying information does exist and is accessible. These errors could also be due to beneficiaries failing to report correct information to an agency, such as an unemployment insurance beneficiary failing to notify the agency when he has returned to work and is no longer eligible for unemployment insurance payments.

What are Federal Agencies Doing?

Analysis shows that once an agency measures and reports program errors, it is able to implement corrective actions to reduce errors in subsequent years. The government can achieve the greatest return on investment for the taxpayer by focusing efforts on reducing improper payments in the highest risk programs, otherwise known as “high-error programs.” In pursuing reforms, the government must balance its responsibilities for reducing improper payments with the goal of providing fast and accurate payments to millions of beneficiaries.

Also, by strengthening financial management controls so that agencies can better detect and prevent improper payments, the government can better ensure that taxpayer dollars are spent wisely and efficiently.