Improper payments laws create ineffective compliance efforts that do little to stop fraud, waste and abuse

To many Americans, government and waste go together like peanut butter and chocolate. The perception of government as hemorrhaging money from rampant mismanagement has eroded public trust in government. Moreover, as tax and spending cuts dominate the political news cycle, agencies are constantly having to consider how to deliver more with less.

It’s for these reasons a spotlight has been shone, for the better part of two decades, on improper payments. A litany of statutes has been enacted since 2002 that direct agencies to estimate the amount of payments they have made improperly and develop strategies to reduce them.

{mosads}Under the Improper Payments Information Act, twice amended, agencies are required to identify programs susceptible to significant improper payments, estimate the amount of their improper payments, and notify Congress of the steps being taken to address root causes.

In November 2009, President Obama signed an executive order that required the director of the Office of Management and Budget (OMB) to work with agencies to identify “high-priority” programs, establish annual targets for reducing improper payments under those programs, and submit a report to the agency’s inspector general detailing how the agency planned to meet those targets. The executive order also required agencies to publish data on improper payment estimates and targets. Twenty programs were identified as “high priority.”

For fiscal year 2017, the Government Accountability Office (GAO) estimated federal improper payments at $140 billion. According to the Congressional Research Service (CRS), the 20 high-priority programs accounted for 96 percent of the $141 billion reported improper payments in 2017. CRS estimates that in future years, high-priority programs will account for 9 out of every 10 dollars reported as improper payments. Yet across government, due to statutory requirements, 4 percent of the programs not among the 20 high-priority program list spend millions just on compliance. 

And then there’s the issue of how agencies are complying with the statutes, which the GAO has repeatedly documented as lacking. Agencies struggle with four basic things: 1) developing reliable methods for estimating improper payments; 2) collecting data to verify eligibility for payments; 3) dedicating necessary resources to conduct the tasks required by law; and 4) a compliance mindset that reduces the whole enterprise to a check-the-box activity.

The GAO has reported extensively on the first issue, finding a host of reliability issues with how agencies are estimating and reporting their improper payments, casting real doubt on the accuracy of the $141 billion figure. The second issue— the lack of eligibility verification— is the prevailing root cause of improper payments overall. A perusal of OMB’s high-risk program website reveals that for nearly every high-risk program, inability to verify data was listed as a root cause. The last two issues are linked — a lack of resources and a viewpoint that the whole exercise is simply to keep oversight entities off their backs — which means agencies are simply going through the motions.

{mossecondads}Ironically, improper payment statutes don’t require agencies to reduce their improper payments. The vast majority of these federal agencies are engaging in costly, check-the-box efforts that simply intended to estimate and report on the amount of money they disbursed improperly. The executive order required targets, but the data show nearly half of the high-priority programs have seen no improvement.

In fact, CRS reported that the error rates for seven programs have increased since they first began reporting data, the error rate for one “high-priority” program has remained unchanged, and while the error rates for twelve “high-priority” programs have decreased, the decline has been less than 10 percent for five “high-priority” programs. More troubling, CRS analysis shows that for one of these programs, the earned income tax credit, the error rate has remained virtually unchanged over 13 years of reporting and the error rate for unemployment insurance increased from 10.3 percent to 12.5 percent during that same timeframe.

What’s clear is that the many hundreds of programs that make up the 10 percent – 15 percent of the total estimated improper payments are spending vast amounts of money that could be better served elsewhere. The large and growing field of data analytics has been shown to have real, tangible effects on identifying and preventing waste, fraud and abuse.

For example, the Centers for Medicare and Medicaid Services (CMS) reported a $4.59 billion decrease in estimated improper payments in the “high-priority” Medicare Fee for Service program from 2017 to 2018. To do this, among other things, CMS relied on its Fraud Prevention System, a comprehensive data analytics platform that enables the agency to ensure applicable coverage, payment, and coding rules are met before services are rendered, a capability most federal agencies lack.

Since 2002, improper payment statutes have effectively placed importance on the need to focus on program integrity across government. Now that the foundation has been laid, lawmakers would be well served to revisit the requirements, and relieve the vast majority of federal agencies from the burdensome and ineffective estimation and reporting requirements. Instead, Congress should focus legislative efforts on assisting the highest-priority programs with tangible solutions, including helping them collect and use data to verify the accuracy of payments before they are made, identify trends in the data, and implement targeted efforts to stop improper payments.

Linda Miller leads the fraud risk mitigation practice at Grant Thornton, LLP. Ms. Miller was the principal author of GAO’s Framework for Managing Fraud Risks in Federal Programs and served on the task force for the COSO/ACFE Fraud Risk Management Guide.