GAO Found Inconsistent Improper Payment Estimation Methods Among Agencies

Improper payments are defined as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements. Improper payments include overpayments or underpayments that are made to eligible recipients, payments made to ineligible recipients, payments made for ineligible goods or services, and payments for goods or services not received.

Federal improper payments totaled $141B for FY 2017, falling slightly from the previous year. However, agencies use an estimating process to develop their improper payment totals each year. The estimation process is essential to understanding the extent of the problem and to developing corrective actions. Improper payment legislation along with OMB directives provide executive branch agencies with guidance regarding improper payment estimations.  However, agencies are still given flexibility in the estimation process.

Key steps in the estimation process include:  

1. Reviewing all programs and activities and identifying those that may be susceptible to significant improper payments (risk assessment)
2. Developing improper payment estimates for those programs and activities that the agency identified as being susceptible to significant improper payments
3. Analyzing the root causes of improper payments and developing corrective actions to reduce them for those programs and activities that the agency identified as being susceptible to significant improper payments
4. Reporting on the results of addressing the preceding requirements

In GAO’s most recent report, it reviewed specifics for the estimation process for 10 programs across six agencies for FY 2017.  The programs were selected because they showed the largest program outlays for FY 2015 and FY 2016. 

The improper payment estimation process generally involves selecting a sample of program payments (or other items, such as invoices) and reviewing them in order to determine whether the relevant payments were proper. The Improper Payments Information Act of 2002 (IPIA) requires agencies to use statistical approaches for sampling data or an alternative methodology approved by OMB. Eight of the programs GAO reviewed reported using statistically valid sampling approaches and two reported using alternative sampling approaches. Sampled data elements also varied by program due to the nature of the different programs, including payments, medical claims, and tax returns.

Additionally, GAO found the age of the data sampled for 2017 improper payment estimates varied from calendar year 2013 to FY 2017.

Some of the agencies reviewed used processes specifically designed to estimate improper payments, while other agencies used existing evaluations and reporting to estimate improper payments.  Also the six agencies treated the category of “insufficient documentation” differently in identifying and reporting causes of improper payments. As part of the sample process, some agencies attempt to contact a beneficiary.  The treatment of nonresponsive cases as part of the category labeled insufficient documentation, varied by agency. 

The IPIA law dictates that overpayments should be included in calculations of improper payments.  However, in the case of the Earned Income Tax Credit (EITC) program at IRS, GAO discovered that IRS removed overpayments that were recovered, from its calculation of improper payments.

GAO concluded that additional guidance and action from OMB could help address the issues and inconsistencies it identified in the estimation processes.  Specifically, GAO recommends that OMB develop guidance on treatment of nonresponse cases and testing to identify improper payments.  GAO also recommends that DOD and OPM evaluate their estimation processes.  GAO recommends that the IRS revise its methodology to not exclude recovered payments from its improper payments estimate.