A Government Accountability Office report found that the federal government racked up more than $124 billion in improper payments in 2014, $19 billion above the previous year.
The Oct. 1 report found that the surge in payments came almost exclusively from Medicare, Medicaid, and Earned Income Tax Credit programs, which account for 75 percent of improper payments across the federal government.
"Federal spending in Medicare and Medicaid is expected to significantly increase, so it is critical that actions are taken to reduce improper payments in these programs," the report said.
Improper payments include things like overpayments, underpayments or payments made for goods and services not received.
GAO estimated that since agencies began reporting improper payments in 2003, $1 trillion in federal funding has been lost to the issue.
The report called for greater compliance from government agencies, citing findings that five federal programs with more than $1 billion in improper payments were noncompliant with federal law for three years.
U.S. Comptroller General Gene Dodaro testified before the Senate Committee on Finance on Oct. 1 to address the report's findings as well as GAO's recommendations.
"Reducing improper payments is critical to safeguarding federal funds and could help achieve cost savings and improve the government's fiscal position," Dodaro said in testimony.
The report noted that Medicaid and Medicare accounted for $77.4 billion in improper benefits in 2014. To fix the problem, GAO suggested the Centers for Medicare and Medicaid improve Medicare automated audits, track postpayment recovery audit activities, remove Social Security numbers from Medicare cards to help prevent fraud and other reforms.
GAO recommended improving efficiency and oversight for Medicaid, including tracking liability for third-party insurers. CMS concurred with the recommendations and, in some cases, was already working on implementation plans for them.
The other big source of improper payments identified in the report was from the Earned Income Tax Credit, a refundable tax credit for low- to moderate-income earners, particularly those with children.
The report identified $17.7 billion in improper payments related to EITC, largely to due to the credit being incorrectly claimed on tax returns.
"As we have reported, a root cause of EITC noncompliance is that eligibility is determined by taxpayers themselves or their tax return preparers and that IRS's ability to verify eligibility before issuing refunds is limited," the report said.
Dodaro said that while the some fraud could play a role in improper EITC payments, the complexity of tax law has led to mistaken applications, which perpetuate improper payments.
"Complexity is definitely the heart of the problem here with the error rates," he said. "We're not suggesting they be made more complex. What we are suggesting is that Congress regulate paid tax preparers."
Dodaro cited Oregon's practice of regulating paid tax preparers, which originated in the 1970s, and pointed to a 2008 study that found Oregon tax returns are 72 percent more likely to be accurate than a comparable return from paid preparers in other states.
Read the report here.