The White House will issue an executive order this week to rein in erroneous payments, which ballooned to $98 billion in 2009, up from $72 billion in 2008.

The order seeks to hold both agencies and contractors more accountable for reporting and overpayments, underpayments or payments lacking sufficient documentation.

Contractors will come under particular scrutiny, and will face suspension, debarment or financial penalties under the executive order if they fail to promptly report and return such improper payments — even when the error is the government's fault.

But contractors represent only about 1 percent of the problem, receiving an estimated $1 billion in improper payments in 2009. Most of the improper payments are made to individuals or institutions under programs such as Medicare, Social Security, veterans benefits, school and education programs, and unemployment insurance. Medicaid and Medicare account for $55 billion — more than half — of the improper payments made in 2009.

The White House blames the increase in improper payments on improved detection and increased federal spending during the economic downturn, Office of Management and Budget Director Peter Orszag said last week.

The improper payments represent 5 percent of the $2 trillion worth of programs measured last fiscal year. Orszag said it's not clear what percentage of the improper payments were due to fraud. In some cases, new reporting requirements mean something as innocent as a doctor's illegible signature can be chalked up as an erroneous payment, he said.

The White House's executive order is expected to require agencies to:

• Establish a Web site to disclose and track a program's total improper payments. The Web site will include error rates by agency and program, and an e-mail address the public can use to report suspected waste, fraud and abuse.

• Report on errors more frequently. For example, rather than annual reporting of how many improper payments were made and by how much they are reduced, agencies might choose to report twice a year or quarterly.

• Designate a Senate-confirmed official to be accountable for meeting improper payment reduction targets. If the agency misses targets two years in a row, the agency's head, chief financial officer and inspector general must explain to OMB why the agency missed its goals and how it will meet them in the future.

• Employ new management techniques, such as forensic auditing, to detect and prevent improper payments.

• Share data with other agencies about entities or individuals that received benefits they were not eligible for. This will prevent that entity or person from getting benefits improperly from other programs.

• Create plans to reduce program errors.

The White House requested $1.9 billion in so-called "program integrity" funding in the 2010 budget, much of which is still pending before Congress. If the funding is approved, managers at numerous agencies can use that money to promote the goals outlined in the executive order, said Kenneth Baer, OMB communications director.

The executive order also will offer incentives to encourage payment recipients to be more accountable. For example, the government will reimburse state and municipal agencies the costs associated with monitoring and recovering improper payments made under benefit programs, such as housing vouchers or school nutrition programs, Orszag said.

The Labor Department, which runs the unemployment insurance program, is working on draft legislation to authorize such incentives for states, which are responsible for disbursing unemployment benefits. Called the Unemployment Compensation Integrity Act, the bill would allow states to retain up to 5 percent of the improperly paid benefits they recover. That recovered money would fund oversight activities, such as expanded use of national employment databases to spot beneficiaries who have returned to work. In addition, the bill would allow states to levy fines of up to 15 percent of the improper payment when a person fraudulently obtains unemployment benefits.

Increased burden on contractors

Contractors will face stiffer penalties under the executive order if they knowingly receive improper payments and do not return them. Penalties could include suspension, debarment and fines.

Currently, contractors just have to pay back the sum without interest or penalty if the mistaken payment is discovered. Those mistaken payments include overpayments, double payments or payments for services not rendered. By imposing stiff penalties, like fines, interest payments or suspension and debarment actions, OMB will create a strong incentive for contractors to vigilantly monitor their government payments, said Danny Werfel, the controller of OMB's Office of Federal Financial Management.

"The way it works today is, if we give a contractor money that they have not earned and they never report it to us, but we just so happen to find it through an audit, all they have to do is make us whole," Werfel explained. "There are no additional damages on top of that. And that's what the executive order would pursue as a way of incentivizing contractors to immediately tell us where we made an error, so they're part of the solution and not part of the problem."

For contractors this could create new problems, said Larry Allen, president of the Coalition for Government Procurement.

Billing and payment mistakes happen in the normal course of doing business, he said. When mistakes are spotted, the solution frequently is to give the government credit toward the next payment rather than returning the money, Allen said.

The order could remove this option, and that could drive up government costs where the White House intended to produce savings, Allen said. "Having the money and invoices going back and forth will create more work," he said.

"All this does is take common sense out of the equation," he said.

Further, the government already has tools to hold contractors accountable when they fail to return or otherwise reimburse the government for overpayments, said Alan Chvotkin, vice president of the Professional Services Council. Remedies include terminating a contract or withholding a future payment.

In addition, by imposing fines and threatening suspension or debarment, the order presumes that any overpayment is contractor wrongdoing, rather than a mistake, Allen said.

"It puts the burden on the contractor to catch mistakes that are the government's," Allen said.

The order is one of several government actions that puts the onus on contractors to police procurement.

Other actions include mandatory self-reporting of suspected wrongdoing to the Justice Department and a proposed rule mandating contractors to certify their employees are free of personal conflicts of interest.