Strengthening Financial Integrity of Federal Agencies

Members of Congress and the White House, no matter what party affiliation, agree that agencies need to reduce their wasteful spending. A major portion of wasteful government spending is a broad category known as “improper payments,” which are payments made in the wrong amount, to the wrong people, or for the wrong reason. They result from insufficient financial accountability, and divert dollars from where they are needed.

Yet, the federal government still struggles to commit the resources and leadership required to curb this hemorrhaging and ineffective use of taxpayer dollars.

Agencies and programs throughout the federal government are the sources of improper payments.

In 2015, the Government Accountability Office (GAO) highlighted payments made by many agencies to people who should have been determined ineligible because they had died. That same year, GAO determined that, over the course of several years, as much as $1.3 billion in incorrect Medicare payments were made to ineligible health care providers with bogus addresses, including empty lots and even a fast food restaurant. In 2016, the Department of Agriculture noted $218 million in federal crop insurance overpayments that year. The Pentagon admitted that, for fiscal year 2016, it overpaid by more than $100 million to commercial vendors and more than $400 million for travel pay.

The growth of and limited progress in solving this issue stem from inaccurate and incomplete reporting, lackluster efforts to detect and prevent improper payments, and, possibly, intentional obfuscation by various agencies. The good news is that there are some straightforward steps agencies and the Trump Administration can and should take to address this waste. In fact, there are laws on the books that give authority to, or even require, agencies to take action, although some of these actions haven’t been implemented.

A key milestone occurred in 2003, when Congress passed a law requiring federal agency Chief Financial Officers to report estimates of improper payments to Congress each fall. The hope was that if the government had more information about its misspending, it would be able to more effectively prevent such losses. However, the latest estimate from fiscal year 2016 showed $144 billion in misspending that year—an all-time high.

Congress has enacted additional laws aimed at the problem, starting with the bipartisan Improper Payments Elimination and Recovery Act of 2010. That law requires that agencies provide accurate and complete annual estimates of wasteful spending using statistically valid procedures. Congress also passed a law in 2013 requiring that all federal payments be screened for basic errors—such as payments being made to deceased recipients. A subsequent law in 2015 refined that screening process. And just last year, Congress required all agencies to develop basic accounting controls aimed at spotting and thwarting fraud in agency programs.

Will these laws make a difference? Only if all federal agencies take the laws seriously and make their implementation a high priority—which has not always been the case. For example, 15 agencies have yet to fully comply with the requirement of estimating and reducing their levels of improper payments. Also troubling, very few agencies list adequate plans to eliminate identified risks and vulnerabilities leading to improper payments.

Congress could do more, as well. There are several laws that have proven antiquated and that clearly need to be updated, including statutes—some written in the 1970s—that govern the sharing of critical data helpful for spotting waste and fraud between federal agencies.

There are a number of agencies that are making progress, however.

Medicare payments made to dead beneficiaries was a long-standing problem until recently. But that and the earlier mentioned problem with bogus Medicare billing addresses have largely been fixed due to some diligent work by the Centers for Medicare and Medicaid Services. Likewise, the Office of Personnel Management is working with its Inspector General to identify improper payments made to deceased federal retirees. And the improper payment numbers for programs such as the Department of Agriculture’s Natural Resource Conservation Service saw substantial improvements.

A few agencies are also making use of advance data analysis tools to ferret out improper payments. In a notable move forward, the federal government has established a government-wide system to share data on ineligible contractors who are disbarred from federal service due to fraud or other reasons. Additionally, the Center for Medicare and Medicaid Services continues to develop and refine a robust program to fight Medicare waste and fraud, including a data analysis software system for the goal of preventing improper payments before they are made. The Department of Defense has made some use of a similar software system. However, most agencies have not made effective use of data analysis systems.

So, what else can be done? There are a number of steps that would make a difference:

• Complete the Estimates. All federal agencies should correctly and completely estimate their improper payments. And when there are barriers preventing agencies from completing the estimates, Congress should grant the necessary legal authority to work through those barriers. Most importantly, the Department of Defense, whose spending is roughly half the discretionary budget of the federal government and whose estimates the GAO and its own IG call “unreliable,” should comply with this basic requirement.
• Eliminate Root Causes. Agencies should do a much better job detailing the steps and timelines for not only identifying, but also eliminating the root causes of its improper payments. This is required by current law, but only haphazardly implemented. The Administration could issue new guidance to ensure consistent implementation.
• Share Best Practices. The Administration should quickly establish robust and high-level working groups for sharing proven solutions in order to better detect and prevent improper payments and fraud across all federal agencies. This would include sharing of advanced data analysis techniques. Some agencies have begun to share best practices, but this is not happening consistently across the federal government.
• Stop Fraud. The Fraud Reduction and Data Analytics Act, passed by Congress last year, aims to prevent fraud by requiring agencies to use stronger financial tools and practices. The Administration should promulgate the required guidance to federal agencies—which is now overdue.
• Empower the Inspectors General. Congress and the Administration should ensure that the federal Inspectors General have the resources, information, and authority needed to do their jobs spotting waste and fraud. The Inspector General Empowerment Act of 2016 should be fully implemented and adhered to.

These steps would exponentially increase the ability of the government to combat improper payments.

Ultimately, improper payments is a complex problem that adversely affects taxpayers every year. The federal government needs to improve the accuracy and completeness of improper payment identification and estimation. Most importantly, we must ensure that agencies work harder to identify and address the root causes that lead to these payment errors. The Trump Administration, which has touted the importance of tackling waste, fraud, and abuse, should make curbing improper payments and implementing the mandated solutions a high priority.

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Reports by the Project On Government Oversight on Improper Payments:

• Federal Improper Payments Are Significant, Costing Taxpayers Billions (July 12, 2016)
• Data Matching Barriers Prevent Inspectors General From Reaching Full Potential (October 12, 2016)
• Improper Payment Recovery Processes, Necessary (Yet Neglected) Triage (October 31, 2016)