Grassley, Baucus Seek More Accurate Government Improper Payment Rates
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, today expressed concern that the Office of Management and Budgethas issued guidance to government agencies that likely will result in the understatement of improperor erroneous payments the agencies made for services and other items. The senators want Congressand taxpayers to receive an accurate accounting of improper payment rates.
The text of the senators’ letter today to the Office of Management and Budget follows.
January 9, 2004
Via mail and telefax (202) 395-3729
The Honorable Joshua B. Bolten
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
Dear Mr. Bolten,
We are writing to express our concern about guidance issued by the Office of Management and Budget to assist agencies in implementing the Improper Payments Act of 2002 (Act) P.L. 107-300. OMB’s guidance appears to ease agency reporting of improper payments by eliminating the needfor risk assessments if an agency concludes that improper payments do not exceed 2.5 percent and$10 million of program spending. The statute itself required agency risk assessments and correctiveaction plans to be completed on all programs and activities where improper payments are estimatedto exceed $10 million. OMB also issued supplemental guidance to the Social Security Administration(SSA) to address the reporting of improper payments that are considered to be “unavoidable.”Specifically, OMB decided that payments determined to be “unavoidable” would no longer need tobe reported as improper payments.
This guidance appears to change the parameters of what is and is not reported. Moreover,it appears that OMB guidance will artificially reduce improper/erroneous payment figures. In otherwords, the improper payment figures that will eventually be reported to the public will look better,and feel better, than they really are, and the public and the Congress will have a less accurateunderstanding of the integrity of our federal programs.
Federal agencies are responsible for managing tens of thousands of programs and activitiesand expending hundreds of billions of dollars annually to address the needs of the American public.As implementers of these programs and activities, agencies have a stewardship responsibility and, assuch, must take all reasonable actions to design, implement and manage them in a manner whichensures that program objectives are met and that controls exist to safeguard federal funds fromimproper or erroneous payments. In the past several years the General Accounting Office (GAO) andOMB reported partial estimates of erroneous payments amounting to tens of billions of dollarsannually; these reports have also noted that government-wide estimates of improper payments donot exist.
The Improper Payments Information Act of 2002 (Act) was enacted on November 26, 2002,to address this problem. It requires all federal agencies to estimate improper payments in theirprograms and activities and to report these amounts to the Congress annually. The Act gave OMBa significant role in its implementation, by requiring OMB to issue agency guidance on how toimplement its provisions. OMB issued this guidance in May 2003 and has been working withagencies to clarify the Act’s requirements and respond to agency questions on implementation andreporting issues.
Because of the magnitude and implications of improper payments government-wide, and theimplications of OMB’s guidance, it is critical that agencies take their responsibilities under the Actseriously. Agency reports must be the epitome of honest and complete disclosure on the amountsof improper payments occurring, their causes, barriers to eliminating these causes, planned actionsto reduce or eliminate these payments, and the results of those actions.
We consider the reports required by the Act to provide critical information that will assist inthe Committee’s oversight and monitoring of federal programs and activities, as well as the Congress’evaluation of agency management and control over federal funds. The information on improperpayments is critical to Congress’ understanding of existing problems and its ability to legislate toreduce improper payment levels. Only with careful analysis of this information can we ensure themost effective, efficient and economical operation of federal programs.
In light of the importance of the improper payment issue, and the concerns that we have expressed regarding the implementation of the guidance recently issued by OMB, we would appreciate receiving responses to the attached questions.
Thank you in advance for your attention to this matter. We would appreciate receivingOMB’s responses by January 28, 2004.
Charles E. Grassley
IMPROPER PAYMENT QUESTIONS
1. OMB’s Improper Payments Information Act guidance issued on May 21, 2003, called for all agencies covered by Section 57 of OMB Circular A-11 to continue reporting improper payment information as required in previous years. Please describe whether or not the agencies covered by Section 57 provided to OMB all of the information required by Section 57 for the past three-year period.
a. For each agency identified, please summarize the information provided to OMB, includingthe amounts of improper payments, causes and results of corrective action(s), if any.
b. Please identify each agency covered by Section 57 that did not provide OMB with all the required information and each program for which the information was not provided. Please describe the nature of each reporting deficiency, and any action(s) OMB took to correct the deficiency.
2. The Improper Payments Information Act requires agencies to report improper payments to Congress each year. When these payments are estimated to exceed $10 million or more in any program or activity, agencies are required to report additional information as well. However, OMB guidance modifies this reporting requirement by adding an additional requirement: that improper payments exceed both 2.5 percent and $10 million.
a. Please explain in detail OMB’s justification for imposing the 2.5 percent standard.
b. Please list the agencies and programs that have previously reported improper paymentsunder Section 57 of Circular A-II that would not meet the two-prong OMB guidancestandard, in other words how much of the previously reported improper payments exceed the$10 million threshold, but not the 2.5 percent threshold?
3. Please explain why 2.5 percent of program spending on improper payments is a reasonable threshold for additional reporting requirements, especially given that much smaller percentages could amount to hundreds of millions or billions of dollars in improper payments in programs such as Medicare or SSA’s OASI and DI programs?
4. GAO has reported that the principal cause of improper payments is a breakdown in systems ofinternal controls. The Federal Manager’s Financial Integrity Act (FMFIA) has required annualexecutive agency reviews and reporting on internal controls since about 1984. OMB was heavilyinvolved in FMFIA’s implementation across the government. Why is it that the problems that causeimproper payments weren’t previously identified and corrected? Are agencies taking their FMFIAreview and reporting responsibilities seriously?
5. What is OMB doing to ensure that federal agencies take proactive measures to improve weakinternal controls and implement safeguards to ensure against improper payments?
1. OMB provided SSA with supplemental guidance on improper payments reporting that establishesa distinction between “avoidable” and “unavoidable” payments – terms that have not been part of thegeneral improper payment lexicon. Why did OMB decide to adopt this distinction in this context?
2. For items considered to be “unavoidable”, we understand that OMB guidance would not requireagencies to report that information to the Congress under the Improper Payments Information Act.Is our understanding correct? Would so-called “unavoidable” improper payment statistics becollected at all? Would they be reported to OMB?
3. What dollar impact does the introduction of this avoidable/unavoidable distinction have on theamounts of improper payments reported by SSA for 2003? What would the improper payment rateor amount be for SSA for 2003 under 2002 improper payment definitions?
4. If statutory or regulatory provisions require agencies to make payments that the agency otherwisewould consider improper, why shouldn’t an agency communicate this to the Congress so that theCongress can consider appropriate legislative solutions?
5. Is SSA the only agency where “unavoidable” and “avoidable” improper payment distinctions arise?If not, which other agencies have raised these issues and what has OMB’s response to them been?
6. Another area classified as “unavoidable” is payment made for Title II based on earnings estimatesbecause of program design requirements. Again, why should this information not be reported,tracked, and updated to identify agency actions to recover improperly paid amounts and identify thestatus of corrective actions?
7. Why shouldn’t “Undetected Error” amounts be reported since it appears that they would representamounts that were paid that should not have been paid – are these not improper payments?
8. OMB’s SSA-specific guidance for the category “Undetected Error” concluded that OASI, DI,and SSI should not include estimates of these amounts as improper payments unless SSA hadevidence that a specific type of erroneous payment was made. Wouldn’t the statistical sampling yourequire in other guidance provide the estimates of these payments? If so, why not report the results?
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