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Improper payment rate falls, but some trouble persists

Jan. 23, 2013 - 11:17AM   |  
By SEAN REILLY   |   Comments
“We have successfully reduced error rates in major programs all across the government,” OMB Controller Danny Werfel said recently.
“We have successfully reduced error rates in major programs all across the government,” OMB Controller Danny Werfel said recently. (Military Times)

Eager to find savings, the Obama administration and Congress are stepping up pressure on agencies to reduce the tens of billions of dollars mistakenly paid each year to individuals, contractors, and state and local governments.

By the White House’s reckoning, that push has already paid off. For fiscal 2012, the improper payment rate — a measure of improper payments as a proportion of most federal payments — was 4.35 percent, down from 5.42 percent three years earlier. The estimated amount of improper payments dipped as well, from almost $116 billion in 2011 to about $108 billion last year, according to Office of Management and Budget data.

“We have successfully reduced error rates in major programs all across the government,” OMB Controller Danny Werfel said in a blog post heralding the latest numbers in November. During the preceding three years, agencies also recaptured $4.4 billion in improper payments to contractors, Werfel said.

Beryl Davis, a senior Government Accountability Office manager, told a House subcommittee in March that more work lies ahead.

“The federal government continues to face challenges in determining the full extent of improper payments,” Davis said. Some agencies have not yet reported estimates for at-risk programs, Davis said, while internal control weaknesses continue to leave agencies vulnerable to making mistakes.

Those concerns remain, Davis said in a recent interview. Combating improper payments “is a long-term strategy,” she said. “You couldn’t solve a problem like this in a year’s time.”

Last year’s estimated error rates, for example, don’t factor in more than $400 billion in Defense Department payments to contractors. The DoD agency that handles those payments only recently developed an approved method for estimating improper payments, OMB spokeswoman Ari Isaacman Astles said in an email, and including those numbers in the governmentwide figures would have represented an “apples-and-oranges comparison” to 2011. Overall, however, the error rate for DoD contractor payments last year was only 0.02 percent, she said.

Improper payments are typically defined as money spent in the wrong amount, for the wrong recipient, or for goods or services not received. Such payments may be the product of an innocent paperwork error or the result of conscious fraud. Only about one-third of improper payments are potentially recoverable, according to Werfel.

The government’s efforts to systematically attack the issue date to 2002, when Congress created a framework for agencies to identify and track funds that went awry. As more programs were evaluated, the volume of estimated improper payments swelled from $45 billion in fiscal 2004 to $110 billion in 2009.

In an executive order in late 2009, President Obama ordered OMB to identify the programs accounting for the bulk of improper payments and then work with agencies to reduce them. The administration also created a website,, that lists program-by-program error rates, complete with the names of the officials in charge of lowering them. Congress the next year passed the Improper Payments Elimination and Recovery Act, requiring agencies to assess all activities to identify those vulnerable to “significant” improper payments. Another bill signed into law this month makes permanent the administration’s online “Do Not Pay” list, intended to head off payments to dead people, federal prison inmates and contractors who have been barred or suspended from federal work.

Under both the executive order and the 2010 act, agency inspectors general are supposed to monitor compliance. Their reports show that agencies are in some cases falling short of requirements.

Of the 13 programs OMB labels as “high error,” for example, five are in the Health and Human Services Department — three Medicare programs, Medicaid and the Children’s Health Insurance Program — with a cumulative total of more than $64 billion in improper payments last year. Tracking down and reducing those expenditures is among the department’s top management challenges, the HHS inspector general said in a report last year.

The department’s detection efforts for both Medicare and Medicaid relied heavily on contractors whose overall performance has been uneven, the report said. It also found that HHS officials had failed to follow instructions in the executive order to identify all particularly “high-dollar” improper payments. And while the error rate for the Medicare Part C program — which provides coverage through private insurers — had dropped, it was still above 10 percent, the review found. From 2009 to 2012, however, the error rates for all five programs dropped, according to OMB.

Another hot spot has been the Labor Department’s unemployment insurance program. Jobless claims ballooned after the economic downturn began in 2007, driving up costs and leaving the program more vulnerable to abuse. An added complication is that state agencies, not the department, handle much of the day-to-day administration. Between 2009 and 2011, the error rate spiked from 10.3 percent to 12 percent.

In response, Labor created a website that displays state-by-state error rates, Chief Financial Officer Jim Taylor said in an interview this month, and provided grants to help states bolster oversight. The national error rate fell to 11.4 percent last year.

“I think it’s a huge success story,” Taylor said. “I think we’ll see even more improvement going forward.”

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