New Improper Payments Elimination and Recovery Law Awaits President’s Signature

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.  Nearly three years ago, President Obama signed an executive order directing agencies to cut improper payments by $50 billion by the end of FY2012.  Since that time, the percentage of improper payments to total program outlays has declined from 5.4% in FY2009 to 4.3% in FY2012, but the administration was $3 billion short of reaching its $50 billion goal.  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 past three years. 

In July 2010, the president signed into law the Improper Payments Elimination and Recover Act of 2010, which amended the 2002 act of the same name.  The current IPERIA legislation continues to build on the former legislation by adding responsibilities to OMB, federal agencies, and their inspector generals in order to better manage payment practices and reduce the incidence of improper payments.  The new act will make changes to data-sharing protocols among federal agencies to facilitate the identification of improper payments.

A summary of the IPERIA 2012 legislation is presented below:

• Requires the Director of OMB to
  •  Identify, annually, a list of high-priority federal programs for greater levels of oversight and review. 
  • Coordinate with agencies responsible for administering high-priority programs to establish annual targets and semi-annual or quarterly actions for reducing improper payments. 
  • Provide guidance to agencies for improving estimates of improper payments.
• Requires federal agencies to report annually to their Inspectors General on any high-dollar improper payments identified. 
• Requires OMB to make such reports available to the public on a central website. 
• Requires the Inspectors General to
  • Review the assessment of the level of risk associated with agency programs and the quality of the improper payment estimates and agency methodologies in making such estimates. 
  • Review the oversight or financial controls to identify and prevent improper payments.  
  • Submit recommendations to Congress for improving improper payment information and estimation methodology.
• Requires federal agencies to review prepayment and preaward procedures and available databases to determine program or award eligibility and prevent improper payments before releasing any federal funds. Included among the databases that agencies shall review:
  • Death Master File of the Social Security Administration (SSA)
  • General Services Administration (GSA) Excluded Parties List System
  • Debt Check Database of the Department of the Treasury
  • Credit Alert System or Credit Alert Interactive Voice Response System of the Department of Housing and Urban Development (HUD)
  • List of Excluded Individuals/Entities of the Office of Inspector General of the Department of Health and Human Services (HHS)
• Establishes the Do Not Pay Initiative, which shall include the use of the previously mentioned databases and any other databases designated by OMB. Directs OMB to report annually on the operation of the Initiative, with an evaluation of whether the Initiative has reduced improper payments or awards, and provide the frequency of corrections or identification of incorrect database information. 
• Requires OMB to establish a working system for prepayment and preaward review that includes the Do Not Pay Initiative. Requires each agency to review, not later than June 1, 2013, all of its payments and awards for all programs established through the working system.
• Authorizes agency heads and Inspectors General to enter into computer matching agreements to assist in the detection and prevention of improper payments. Requires OMB to issue guidance to agencies in implementing matching agreements and to establish procedures for correcting data in the Do Not Pay Initiative database.
• Requires the Attorney General to report on using data on the conviction and incarceration status of individuals to identify and prevent improper payments by federal agencies.
• Requires OMB to establish and report to Congress on a plan for improving the quality, accuracy, and timeliness of death data maintained by SSA.
• Directs OMB to determine current and historical rates and amounts of recovery of improper payments and targets for recovering improper payments, including specific information on amounts and payments recovered by recovery audit contractors.

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 as federal agencies work to implement the new legislation.  Contractors should look for opportunities in high risk programs such as Medicare, Medicaid, Unemployment Insurance, Earned Income Tax Credit, Supplemental Security Income, and the Supplemental Nutrition Assistance Program.