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United States Government Accountability Office Washington, DC 20548 January 23, 2008 The Honorable Tom Carper Chairman The Honorable Tom Coburn Ranking Member Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security Committee on Homeland Security and Governmental Affairs United States Senate Subject: Improper Payments: Federal Executive Branch Agencies’ Fiscal Year 2007 Improper Payment Estimate Reporting In the fourth year of implement
    GAO-08-377R Improper Payments   United States Government Accountability Office Washington, DC 20548  January 23, 2008The Honorable Tom CarperChairmanThe Honorable Tom CoburnRanking MemberSubcommittee on Federal Financial Management, Government Information,Federal Services, and International SecurityCommittee on Homeland Security and Governmental AffairsUnited States SenateSubject:  Improper Payments: Federal Executive Branch Agencies’ Fiscal Year 2007  Improper Payment Estimate Reporting In the fourth year of implementation of the Improper Payments Information Act of 2002 1 (IPIA), major executive branch agencies reported a total improper paymentestimate of about $55 billion for fiscal year 2007. (See the enclosure for furtherdetails.) This increase from the prior year estimate of $41 billion 2 was primarilyattributable to a component of the Medicaid program reporting improper paymentsfor the first time totaling about $13 billion for fiscal year 2007. We view this increasedreporting as a positive step to improve transparency over the full magnitude of improper payments across the federal government. As you requested, the objective of this report is to provide summary data and preliminary analysis of the improper payment estimates reported by federal executivebranch agencies (federal agencies) in their fiscal year 2007 performance andaccountability reports (PAR) or annual reports. We obtained this information duringour audit of the U.S. Consolidated Financial Statements for the fiscal year endingSeptember 30, 2007. 3 We reviewed improper payment information reported in thefiscal year 2007 PARs or annual reports by 30 of the 35 federal agencies, including 1 Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). 2 In their fiscal year 2007 performance and accountability reports or annual reports, certain federalagencies updated their fiscal year 2006 improper payment estimates to reflect changes since issuanceof their fiscal year 2006 PARs or annual reports. These updates decreased the governmentwideimproper payment estimate for fiscal year 2006 from $42 billion to $41 billion. 3 See GAO’s report on its audit of the federal government’s fiscal year 2007 financial statements thatwas incorporated in the  2007     Financial Report of the United States Government published by theDepartment of the Treasury.   government corporations, that the Department of the Treasury determined to besignificant to the U.S. government’s consolidated financial statements. The remaining5 agencies are either federal corporations with a different year-end reporting date orhad not issued their PAR or annual reports as of the end of our fieldwork for theconsolidated audit.Of the 30 agencies included in our review, 21 agencies reported improper paymentestimates in their PAR. Of the remaining 9 agencies that did not report estimates, 8reported they did not have any programs or activities susceptible to significantimproper payments, and the reporting for another agency did not include anyinformation about whether it had programs susceptible to significant improper payments. We did not independently validate the data reported in these agencies’PARs or annual reports. However, consistent with our reporting objective, we are providing agency-reported data as descriptive information that will inform interested parties about the relative magnitude of governmentwide improper payments andother improper payment-related information. We believe the data to be sufficientlyreliable for this purpose. We provided a draft of this report to the Office of Management and Budget (OMB) for its review and comment. OMB provided technicalcomments that we incorporated as appropriate. We conducted this performance auditfrom November 2007 to January 2008, in accordance with generally acceptedgovernment auditing standards. Those standards require that we plan and performthe audit to obtain sufficient, appropriate evidence to provide a reasonable basis forour findings and conclusions based on our audit objectives. We believe that theevidence obtained provides a reasonable basis for our findings and conclusions basedon our audit objectives.The fiscal year 2007 estimate of about $55 billion represents improper payments for78 programs in 21 agencies, an increase from the 20 agencies and 60 programs thatmade up the fiscal year 2006 estimate. The $55 billion estimate also represents about2 percent of total fiscal year 2007 federal executive branch agencies’ governmentoutlays of almost $2.8 trillion and largely consists of improper payments made ineight programs (as shown in fig. 1). Collectively, the eight programs account forabout $48 billion or approximately 88 percent of the total estimate. Page 2 GAO-08-377R Improper Payments    Figure 1: Fiscal Year 2007 Improper Payment Estimates by Program (dollars in billions) $1.4$2.5$1.8$3.2$4.1$6.7$10.8$11.4$12.9 Source: GAO analysis of agencies’ fiscal year 2007 PARs or annual reports. National School Lunch ProgramFood Stamp ProgramOld Age Survivors’ InsuranceUnemployment InsuranceSupplemental Security IncomeMedicare fee-for-serviceEarned Income Tax CreditMedicaidOther  The largest estimate was related to the Department of Health and Human Services’(HHS) Medicaid program with estimated improper payments of about $13 billion.However, the $13 billion improper payment estimate relates only to the fee-for-service component of the Medicaid program 4 and is based on 6 months of fee-for-service claims 5 processed by the states, rather than a complete fiscal year. 6 HHSreported that in fiscal year 2008, it expects to report a comprehensive nationalMedicaid error rate that includes not only its fee-for-service, but also its managedcare, 7 and eligibility components.Our review found that some agencies still have not developed improper paymentestimates for all of their programs and activities identified as susceptible tosignificant improper payments. As shown in table 1, the fiscal year 2007 totalimproper payment estimate did not include any amounts for 14 programs, with fiscal year 2007 outlays totaling about $170 billion. 4 Fee-for-service is a traditional method of medical services under which providers are paid for eachservice rendered. 5 The fiscal year 2007 Medicaid estimate is based on fiscal year 2006 processed claims. 6 Generally, OMB requires agencies to use a 12-month reporting period when estimating improper payments. 7 Managed care is any system of delivering health services through a specified network of doctors andhospitals that agree to comply with the care approaches established by a care-management process. Page 3 GAO-08-377R Improper Payments      Table 1: Risk-Susceptible Programs That Did Not Report Improper PaymentEstimates for Fiscal Year 2007 Agency—programFiscal year 2007 outlays(dollars in billions)Target date forreportingimproper paymentestimate 1 Dep a rtment of He a lth a nd H u m a n S ervice s — Child C a re a ndDevelopment F u nd a $ 4.9 20082 Dep a rtment of He a lth a nd H u m a n S ervice s — Medic a re Adv a nt a ge75.1 Did not reportt a rget d a te3 Dep a rtment of He a lth a nd H u m a n S ervice s — Medic a re Pre s criptionDr u g Benefit49.3 Did not reportt a rget d a te4 Dep a rtment of He a lth a nd H u m a n S ervice s — S t a te Children' s He a lthIn su r a nce Progr a m a 6.3 20085 Dep a rtment of He a lth a nd H u m a n S ervice s — Tempor a ry A ss i s t a ncefor Needy F a milie s a 17.3 20086 Dep a rtment of Homel a nd S ec u rity — Feder a l EmergencyM a n a gement Agency — A ss i s t a nce to Firefighter s Gr a nt s  0.5 20087 Dep a rtment of Homel a nd S ec u rity — Feder a l EmergencyM a n a gement Agency — Homel a nd S ec u rity Gr a nt Progr a m0.8 20088 Dep a rtment of Homel a nd S ec u rity — Feder a l EmergencyM a n a gement Agency — Infr as tr u ct u re Protection Progr a m0.12 20089 Dep a rtment of Homel a nd S ec u rity — Feder a l EmergencyM a n a gement Agency — N a tion a lFlood In su r a nce Progr a m1.5 200810 Dep a rtment of Homel a nd S ec u rity — Feder a l EmergencyM a n a gement Agency — P u blicA ss i s t a nce Progr a m s  5.1 200811 Dep a rtment of Homel a nd S ec u rity — Immigr a tion a ndC us tom s Enforcement — Detention a nd Remov a l Oper a tion s  1.2 200812 Dep a rtment of Homel a nd S ec u rity — Immigr a tion a ndC us tom s Enforcement — Inve s tig a tion s  1.1 200813 Dep a rtment of Homel a nd S ec u rity — Tr a n s port a tion S ec u rityAdmini s tr a tion — Avi a tion S ec u rity — P a yroll2.9 200814 Dep a rtment of Homel a nd S ec u rity — United S t a te s Co as tG ua rd--Milit a ry P a yroll3.5 2008 Total $ 169.6 S o u rce: GAO' s   a n a ly s i s of a gencie s ' fi s c a l ye a r 2007 PAR s or a nn ua l report s . a OMB req u ired progr a m to su bmit improper p a yment inform a tion prior to governmentwide IPIAreporting req u irement s . S ee footnote 8 of thi s report for a det a iled de s cription. Page 4 GAO-08-377R Improper Payments  
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