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OMB FY 2017 Budget Guidance – Agencies Told to Cut More

While the FY 2016 federal budget appropriations bills are working their way through Congress, the Office of Management and Budget (OMB) is looking to FY 2017 and has again directed agencies to submit lower discretionary budgets.

Following their normal budget process and timelines, federal agencies are beginning to prepare their FY 2017 budgets, which will not be submitted to Congress until February 2016 to take effect that October, more than 16 months from now.  As is customary for this time of year, OMB issued a memo with specific budget preparation guidance for FY 2017 to outline any new or specific parameters that agencies are to follow.

Discretionary Budget Requirements

Key provisions in OMB’s guidance to agencies for their FY 2017 budget submission include:

  • A five percent reduction below the agency’s net discretionary total for FY 20 17 as stated in the FY 2016 Budget (unless otherwise directed by OMB)
    • The 5 percent reduction is to apply equally to defense and non-defense programs. Agencies that are split between the two may not reduce one area more than 5 percent to offset the other area.
  • Requirement to sufficiently fund ongoing Presidential priorities
  • Inclusion of a separate section that identifies recommendations on how they will continue efforts to increase effectiveness and reduce fragmentation, overlap, and duplication
  • Identifying additional investments in programs that support their missions, especially programs with strong evidence of effectiveness. However, the agency’s total net discretionary for FY 2017 may not exceed the FY 2017 total provided in the FY 2016 budget request. Agencies should separately identify and rank these investments by priority.

As in previous years, agencies are to exclude the following:

  • Shifting costs to other parts of the Federal budget
  • Reclassifying existing discretionary spending to mandatory
  • Reductions to mandatory spending to be enacted in appropriations bills
  • Across-the-board reductions
  • Enacting new user fees to offset existing spending, (although agencies may submit these separately as alternative ways to achieve the guidance level.)

Other Parameters

In addition to the directives above, agencies are instructed to continue to support the President's Management Agenda (PMA) focused on agency effectiveness and efficiency as well as government-funded data and research efforts and workforce improvements. In support of the PMA, OMB wants agencies to focus on

  • Implementing CAP goals
  • Using data-driven management reviews (e.g. FedStat)
  • Supporting Agency Digital Service Teams
  • Reducing their real property footprint
  • Reducing improper payments
  • Enhancing shared services
  • Implementing the DATA Act and FITARA.

Further, OMB wants agencies to prioritize institutionalizing the use of data and evidence to drive better decision-making and achieve greater impact at their agencies.

While there are no surprises or major changes in how OMB is directing agencies to develop their budgets over recent years, it seems that the number and complexity of requirements continues to grow.

Federal Improper Payment Rate Rises for First Time in Five Years

The federal improper payment rate rose from 3.5% of program outlays in FY 2013 to 4.5% in FY 2014, amounting to $124.7 billion up nearly $19 billion from FY 2013.

The federal government hasn’t seen a rise in the improper payment rate since FY 2009 when improper payments rose 5.4% over the FY 2008 rate.  According to, the improper payment goal for FY 2014 was 3.19% of total program outlays. 

According to a recent GAO report on fragmentation, overlap, duplication, and improper payments, the rate increase was primarily due to estimates for Medicare, Medicaid, and the Earned Income Tax Credit, which account for over 76% of the government-wide estimate.  The improper payment totals span 124 federal programs across 22 agencies. 

Comptroller General Gene Dodaro told the Senate Budget Committee last week that the government has made progress in addressing program duplication and fragmentation.  “For the first time in recent years, the government-wide improper payment estimate significantly increased.”

GAO has made numerous recommendations it asserts could improve program management and help reduce improper payments such as improving the use of prepayment edits in Medicare and requiring states to audit Medicaid payments to and by managed care organizations.

Attention has been focused on improper payments for a number of years resulting in the enactment of the 2002, 2010 and 2012 improper payments acts.  Until this past fiscal year, agencies have made headway in rooting out waste, fraud and abuse leading to a decline in improper payments and improper payment rates.  However, agencies continue to face challenges, such as statutory limitations and compliance issues, in reducing improper payments.

OMB is in the process of updating some of its guidance to help agencies more easily identify improper payments.  OMB is updating Circular A-123 to include GAO standards for internal management control assessments to limit fraud.  The new Appendix C of A-123 will do the following:  

  • Reconcile most recent improper payment act requirements (IPERIA)  
  • Consolidate and streamline reporting requirements  
  • Provide more detailed categorization of improper payments and establish a taxonomy  
  • Add on an internal control framework for addressing improper payments


In an interview with Federal News Radio, OMB Controller David Mader stated, "OMB will be working closely with several of the departments over the course of 2015 to see if we can better understand what is driving the improper payment rate, and then stepping back and saying to ourselves, 'can we mitigate that risk, because it is a risk, by changing business processes, introducing technology, bringing in new data to look at and/or do we need some legislative fixes?'"


Feds Continue to Lower Improper Payment Rates

In a blog post on December 20th, OMB announced that improper payment rates had declined for a fourth year in a row, dropping from 5.42% in FY2009 to 3.53% in FY2013.  According to OMB, improper payment rates dropped from 3.74% in FY2012 when factoring in DoD commercial payments. 


Improper payments occur when funds go to the wrong recipient, payment is made in the wrong amount, documentation is not available to support a payment, or the recipient uses funds in an improper manner.  Cutting federal waste has been a priority for the Obama administration since day one.  Four years ago, President Obama signed an executive order directing agencies to cut improper payments by $50 billion by the end of FY2012.  The administration was $3 billion short of reaching its $50 billion goal, but had the government-wide error rate not decreased from FY2009 levels, the government would have made over $47 billion more in improper payments over the three year period.


To further thwart waste, fraud, and abuse, the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA) was signed into law in early 2013 which reinforces and accelerates the Administration’s “Do Not Pay” efforts, requiring all federal agencies to check the “Do Not Pay” list before issuing payments and awards.


Over the past year, agencies reduced improper payment rates in major programs across the government, including Medicaid, Medicare Advantage (Part C), Unemployment Insurance, the Supplemental Nutrition Assistance Program (SNAP - Food Stamps), Pell Grants, and two Social Security programs – Supplemental Security Income (SSI) and Retirement, Survivors, and Disability Insurance. 


Agencies are implementing innovative techniques to prevent improper payments.  For example, the SSI program is using new methods to verify bank account balances and ensure beneficiaries meet program asset thresholds before issuing benefits payments.  For benefits programs administered at state and local levels, federal agencies are working with states to implement more program integrity measures to reduce improper payments.  For example, specialized federal program integrity staff provide support to states to combat Medicaid provider waste, fraud, and abuse.  The administration is also advancing data analytics and improved technology to prevent improper payments before they happen. 


As an analyst, I must express some disappointment at the fact that hard data has not yet been released to support OMB’s blog. only contains improper payments data through FY2012.  And the FY2012 improper payment percentage shown on the site apparently does not contain DoD commercial payments, because the percentage is actually higher than what OMB reported in its blog, 4.35% versus 3.74%.  I don’t question the fact that improper payments have decreased from FY2012 to FY2013.  That assertion follows the trend of decline over the last few years.  However, having detailed data to analyze would help to further substantiate government efforts and reduction claims.

Even at a reported rate of 3.53% in improper payments, equating to over $100 billion per year, the government has continued room for improvement and contractor assistance.  The market remains ripe for contractor support such as prescreening, ID authentication, data warehousing, data authentication, analytics, predictive modeling, forensic accounting, and fraud case management to reduce improper payments.