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Government Financials a Mess, Improper Payments Rise Again

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Reported improper payments have reached another all-time high after increasing for the third year in a row, from $137 billion to $144 billion, according to the Government Accountability Office’s (GAO) fiscal year 2016 financial audit of the federal government. The GAO discusses these totals and how the majority of change resulted from increases in outlays of Medicare and other large programs, but that ignores the larger issue: the accuracy of improper payments estimates are still not complete or reliable in many agencies, so these numbers do not fully encompass the scope of the issue.

Improper payments are payments made by the federal government in the wrong amount, to the wrong people, or for the wrong reason. Congress and the executive branch have been trying to determine the extent of this problem since 2002; but a 2016 House Oversight and Government Reform Committee report paints a not-so-bright picture of the government’s progress. Representative Mick Mulvaney (R-SC), President Trump’s nominee for director of the Office of Management and Budget, also highlighted similar issues in his confirmation hearing, specifically discussing agency non-compliance with current laws and the urgent need to solve this issue.

The GAO audit supports both the Oversight Committee’s report and Representative Mulvaney’s testimony, pointing out a number of challenges that hinder the government’s ability to understand the scope of the improper payment problem:

  1. Incomplete, unreliable, or understated estimates
  2. Risk assessments that do not accurately assess a program’s risk to make improper payments
  3. Noncompliance with federal laws that try to address the above

The importance of having complete, reliable, and accurate estimates is pretty clear: without them, we will never be able to identify the true causes of financial mismanagement in the government or find a way to stop it. And even if all the current estimates are accurate, we still aren’t analyzing all relevant programs for improper payments. Having accurate risk assessments is important because improper payment estimates are only required for programs that are found to be at a high risk for them. If risk assessments are incorrect, then programs with significant improper payments may not be getting analyzed for such payments, and thus likely never stop misspending taxpayer money.

These issues are compounded and complicated by the fact that various agencies are not complying with laws already in place to address them. The Oversight Committee reported that 16 agencies failed to comply with improper payment laws in 2015 and that 9 agencies have never complied. The GAO audit found that 18 federal programs at risk for improper payments did not report estimates in 2016 as required by law. Ensuring complete compliance with the laws already in place should be a first, seemingly not-difficult step for the government to take towards fixing the improper payment problem.

Improper payment oversight is not the only fiscal area in which the government is lacking, however.

The GAO was again unable to provide an opinion on the entirety of the government’s financials due to long-standing deficiencies, including:

  1. Persistent financial management problems at the Department of Defense
  2. The government’s inability to account for and reconcile certain transactions
  3. An ineffective process for preparing the consolidated financial statements

The government is and will continue to be unable to provide policymakers with reliable financial and performance data, information that is “crucial for the difficult spending decisions that lie ahead.” Without effective processes to accurately determine the full extent to which financial mismanagement occurs, the federal government has no reasonable assurance that the use of federal funds is occurring effectively, appropriately, or in line with the needs of taxpayers.