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How agencies can get a leg up in stopping improper payments

Jun. 9, 2012 - 11:23AM   |  
By WENDY MORRIS and RUFUS JOHNSON   |   Comments

The Improper Payments Elimination and Recovery Act (IPERA) was implemented in July 2010 with the goal of reducing improper payments by $50 billion by 2012. IPERA expanded payment types for review and lowered dollar thresholds when compared with earlier law.

Requirements to conduct program risk assessments and to recover improper payments have become critically important, yet agencies have flexibility on how and when to conduct the assessments and payment-recapture audits.

With more than a year passed since IPERA’s enactment, the results of agencies’ compliance activities are in, and the findings indicate some common challenges. As agencies review their performance in advance of the next audit, a few tips may help performance this year:

Integrate IPERA requirements into day-to-day business. By doing this, agencies have an opportunity to recognize an array of direct and residual benefits. For example, agencies can achieve cost savings by eliminating the need for external auditors and internalizing measurement and control procedures. Ingraining easily repeatable practices into agency operations can result in reduced improper payments and increased recoveries. Improved internal controls over payment accuracy can reduce time allocated to assessment and recovery procedures, allowing staff to focus on more pressing issues.

In December 2011, MorganFranklin conducted an independent review of all agencies’ self-reported data and found some encouraging signs. Several agencies launched reviews into existing payment-monitoring processes. For example, the Interior Department included pre- and post-transaction reviews of travel voucher audits and invoice payment reviews. The Education Department incorporated payment recapture activities into its A-123 internal controls reviews.

Develop strong corrective action plans. Identifying improper payments is only part of the challenge. There is strong incentive in the current budgetary climate to reduce improper payments and recover additional funds. The challenge is determining how to effectively take corrective action. This is accomplished by understanding the root causes of the issues and creating meaningful, measurable and actionable plans.

A meaningful plan will, by necessity, result in measurable outcomes. Defining metrics encourages accountability and reduces stagnation, as many agencies already know where problems exist. An actionable plan can be broken down into individual steps for performance by staff and monitoring by management. Agencies may also identify dependencies that need to be addressed — such as required coordination with other agencies or additional information technology or human resources.

Based on review of agency financial reports and performance and accountability reports, the most impressive corrective actions shared common characteristics, such as well-organized and clearly documented plans; clearly defined root causes; specific actions identified to remediate issues; target completion dates; and assignments to responsible parties.

Get back to basics with internal controls. Effective prevention and detection of improper payments requires strong internal controls. A review of the 24 agency financial reports and performance and accountability reports revealed that the most frequent cause of improper payments was documentation and administrative error — specifically, mathematical errors, untimely or inaccurate data entry, and lack of supporting documentation.

Errors could be avoided through implementation of effective preventive and detective controls. As a result of these root causes, a number of agencies went further than simply performing the procedures laid out by IPERA, and also ramped up internal controls. For example, the Commerce Department limited access to vendor contact information and areas of the financial system. And the Office of Personnel Management updated internal requirements and payment-review procedures to help recognize and eliminate payment errors.

Wendy Morris is a director and Rufus Johnson is a senior associate at MorganFranklin Corp.

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