September 12, 2000
Mr. David Mosso
Chairman
Federal Accounting Standards Advisory Board
441 G Street, NW
Room 6K17V
Washington, DC 20548
Dear Mr. Mosso:
As you know, the problem of improper payments in federal programs is
immense. In its most recent tally of improper payment estimates, the General
Accounting Office (GAO) found that 20 major programs made almost $21 billion in
incorrect payments. In its report, GAO wrote that "improper payments are
much more widespread than agency financial statement reports have disclosed
thus far." For example, according to a recent report by the Inspector
General for Tax Administration, overpayments in the Earned Income Tax Credit
program could total an additional $9 billion annually.
This GAO report, which was done at my request, (Financial Management:
Improper Payments Reported in Fiscal Year 1999 Financial Statements
(GAO/AIMD-00-261R)) demonstrates that the problem has worsened from last year
and that too few agencies are reporting their improper payments. GAO notes that
only 12 agencies have taken the initiative to disclose improper payment
estimates of $20.7 billion for 20 of their programs in their fiscal year 1999
financial statements.
A year ago, when I first asked GAO to address the improper payments problem,
GAO tallied reported improper payments at $19.1 billion. In that report, GAO
warned that the methodologies used by some agencies to estimate improper
payments do not always result in complete estimates and that many other
agencies have not attempted to identify or estimate improper payments.
Consequently, GAO recommended that the Office of Management and Budget
"develop and issue guidance to executive agencies to assist them in (1)
developing and implementing a methodology for annually estimating and reporting
improper payments for major federal programs and (2) developing goals and
strategies to address improper payments in their annual performance
plans."
Following up on this GAO recommendation, I wrote to OMB Director Jack Lew a
year ago and asked that he "issue the guidance necessary to require
agencies to (1) estimate and report improper payments and (2) develop goals and
strategies for improving programs in which improper payments are made." In
his response to me, Director Lew wrote that he intended to "develop
improved methodologies for estimating improper payments for major
programs" and "issue general guidance to agencies." Regrettably,
OMB has not acted on either of these recommendations. I hope the Federal
Accounting Standards Advisory Board will take the necessary action to ensure
that GAO’s recommendations are implemented.
Disclosing overpayment levels and then undertaking specific and measurable
performance commitments to reduce them provides the discipline and incentive
agencies need to take these problems seriously. More importantly, such
commitments make agencies accountable to Congress and the public. The progress
of the Health Care Financing Administration (HCFA) in reducing Medicare
overpayments proves this point. While Medicare overpayments are still much too
high, they have dropped by almost one half since HCFA began disclosing
estimated overpayment levels in its financial statements and adopting specific
overpayment reduction goals in its Results Act performance plans.
Because of the critical importance of this issue to the Congress and the
public and because of the variation in reporting improper payment estimates by
the 24 Chief Financial Officer (CFO) Act agencies, I am requesting that FASAB
undertake a project to determine such reporting and disclosure requirements. My
expectation is that beginning with the FY 2000 financial statements, all 24 CFO
Act agencies that have estimated improper payments would be disclosing these
amounts and having this information audited, as is now the case for the
Medicare Fee-for-Service program. A number of options exist for disclosing
improper payment estimates. At a minimum, all agencies should be making the
necessary evaluations to estimate improper payments.
I understand the difficulty some agencies may have in developing appropriate
methodologies for preparing such estimates. However, only when we have some
sense of the extent of the problem can we begin to solve it.
Thank you for your consideration of this request. If you have any questions
regarding the information provided in this letter, please do not hesitate to
contact me directly.
Sincerely,
Fred Thompson
Chairman
FT/rjs
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