This is the accessible text file for GAO report number GAO-08-377R entitled 'Improper Payments: Federal Executive Branch Agencies' Fiscal Year 2007 Improper Payment Estimate Reporting' which was released on January 24, 2008. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. 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January 23, 2008: The Honorable Tom Carper: Chairman: The Honorable Tom Coburn: Ranking Member: Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security: Committee on Homeland Security and Governmental Affairs: United States Senate: Subject: Improper Payments: Federal Executive Branch Agencies' Fiscal Year 2007 Improper Payment Estimate Reporting: In the fourth year of implementation of the Improper Payments Information Act of 2002[Footnote 1] (IPIA), major executive branch agencies reported a total improper payment estimate of about $55 billion for fiscal year 2007. (See the enclosure for further details.) This increase from the prior year estimate of $41 billion[Footnote 2] was primarily attributable to a component of the Medicaid program reporting improper payments for the first time totaling about $13 billion for fiscal year 2007. We view this increased reporting as a positive step to improve transparency over the full magnitude of improper payments across the federal government. As you requested, the objective of this report is to provide summary data and preliminary analysis of the improper payment estimates reported by federal executive branch agencies (federal agencies) in their fiscal year 2007 performance and accountability reports (PAR) or annual reports. We obtained this information during our audit of the U.S. Consolidated Financial Statements for the fiscal year ending September 30, 2007.[Footnote 3] We reviewed improper payment information reported in the fiscal year 2007 PARs or annual reports by 30 of the 35 federal agencies, including government corporations, that the Department of the Treasury determined to be significant to the U.S. government's consolidated financial statements. The remaining 5 agencies are either federal corporations with a different year-end reporting date or had not issued their PAR or annual reports as of the end of our fieldwork for the consolidated audit. Of the 30 agencies included in our review, 21 agencies reported improper payment estimates in their PAR. Of the remaining 9 agencies that did not report estimates, 8 reported they did not have any programs or activities susceptible to significant improper payments, and the reporting for another agency did not include any information about whether it had programs susceptible to significant improper payments. We did not independently validate the data reported in these agencies' PARs or annual reports. However, consistent with our reporting objective, we are providing agency-reported data as descriptive information that will inform interested parties about the relative magnitude of governmentwide improper payments and other improper payment-related information. We believe the data to be sufficiently reliable for this purpose. We provided a draft of this report to the Office of Management and Budget (OMB) for its review and comment. OMB provided technical comments that we incorporated as appropriate. We conducted this performance audit from November 2007 to January 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The fiscal year 2007 estimate of about $55 billion represents improper payments for 78 programs in 21 agencies, an increase from the 20 agencies and 60 programs that made up the fiscal year 2006 estimate. The $55 billion estimate also represents about 2 percent of total fiscal year 2007 federal executive branch agencies' government outlays of almost $2.8 trillion and largely consists of improper payments made in eight programs (as shown in fig. 1). Collectively, the eight programs account for about $48 billion or approximately 88 percent of the total estimate. Figure 1: Fiscal Year 2007 Improper Payment Estimates by Program (dollars in billions): This figure is a pie chart with improper payment estimates by program from fiscal year 2007. Medicaid: $12.9; Earned Income Tax Credit: $11.4; Medicare fee-for-service: $10.8; Other: $6.7; Supplemental Security Income: $4.1; Old Age Survivors' Insurance Unemployment Insurance: $2.5; Food Stamp Program: $1.8; National School Lunch Program: $1.4. Source: GAO analysis of agencies' fiscal year 2007 PARs or annual reports. [End of figure] The largest estimate was related to the Department of Health and Human Services' (HHS) Medicaid program with estimated improper payments of about $13 billion. However, the $13 billion improper payment estimate relates only to the fee-for-service component of the Medicaid program[Footnote 4] and is based on 6 months of fee-for-service claims[Footnote 5] processed by the states, rather than a complete fiscal year.[Footnote 6] HHS reported that in fiscal year 2008, it expects to report a comprehensive national Medicaid error rate that includes not only its fee-for-service, but also its managed care,[Footnote 7] and eligibility components. Our review found that some agencies still have not developed improper payment estimates for all of their programs and activities identified as susceptible to significant improper payments. As shown in table 1, the fiscal year 2007 total improper payment estimate did not include any amounts for 14 programs, with fiscal year 2007 outlays totaling about $170 billion. Table 1: Risk-Susceptible Programs That Did Not Report Improper Payment Estimates for Fiscal Year 2007: 1; Agency--program: Agency--program: Department of Health and Human Services--Child Care and Development Fund[A]; Fiscal year 2007 outlays (dollars in billions): $4.9; Target date for reporting improper payment estimate: 2008. 2; Agency--program: Department of Health and Human Services--Medicare Advantage; Fiscal year 2007 outlays (dollars in billions): $75.1; Target date for reporting improper payment estimate: Did not report target date. 3; Agency--program: Department of Health and Human Services--Medicare Prescription Drug Benefit; Fiscal year 2007 outlays (dollars in billions): $49.3; Target date for reporting improper payment estimate: Did not report target date. 4; Agency--program: Department of Health and Human Services--State Children's Health Insurance Program[A]; Fiscal year 2007 outlays (dollars in billions): $6.3; Target date for reporting improper payment estimate: 2008. 5; Agency--program: Department of Health and Human Services--Temporary Assistance for Needy Families[A]; Fiscal year 2007 outlays (dollars in billions): $17.3; Target date for reporting improper payment estimate: 2008. 6; Agency--program: Department of Homeland Security--Federal Emergency Management Agency--Assistance to Firefighters Grants; Fiscal year 2007 outlays (dollars in billions): $0.5; Target date for reporting improper payment estimate: 2008. 7; Agency--program: Department of Homeland Security--Federal Emergency Management Agency--Homeland Security Grant Program; Fiscal year 2007 outlays (dollars in billions): $0.8; Target date for reporting improper payment estimate: 2008. 8; Agency--program: Department of Homeland Security--Federal Emergency Management Agency--Infrastructure Protection Program; Fiscal year 2007 outlays (dollars in billions): $0.12; Target date for reporting improper payment estimate: 2008. 9; Agency--program: Department of Homeland Security--Federal Emergency Management Agency--National Flood Insurance Program; Fiscal year 2007 outlays (dollars in billions): $1.5; Target date for reporting improper payment estimate: 2008. 10; Agency--program: Department of Homeland Security--Federal Emergency Management Agency--Public Assistance Programs; Fiscal year 2007 outlays (dollars in billions): $5.1; Target date for reporting improper payment estimate: 2008. 11; Agency--program: Department of Homeland Security--Immigration and Customs Enforcement--Detention and Removal Operations; Fiscal year 2007 outlays (dollars in billions): $1.2; Target date for reporting improper payment estimate: 2008. 12; Agency--program: Department of Homeland Security--Immigration and Customs Enforcement--Investigations; Fiscal year 2007 outlays (dollars in billions): $1.1; Target date for reporting improper payment estimate: 2008. 13; Agency--program: Department of Homeland Security--Transportation Security Administration--Aviation Security--Payroll; Fiscal year 2007 outlays (dollars in billions): $2.9; Target date for reporting improper payment estimate: 2008. 14; Agency--program: Department of Homeland Security--United States Coast Guard-- Military Payroll; Fiscal year 2007 outlays (dollars in billions): $3.5; Target date for reporting improper payment estimate: 2008. Total; Agency--program: [Empty]; Fiscal year 2007 outlays (dollars in billions): $169.6; Target date for reporting improper payment estimate: [Empty]. Source: GAO's analysis of agencies' fiscal year 2007 PARs or annual reports. [A] OMB required program to submit improper payment information prior to governmentwide IPIA reporting requirements. See footnote 8 of this report for a detailed description. [End of table] A majority of these programs represent newly identified risk- susceptible programs reported by the Department of Homeland Security. The completion of risk-susceptibility assessments on programs is a positive step toward addressing IPIA requirements. We also found, however, that three HHS programs had not reported improper payment estimates for fiscal year 2007, although OMB required these and other programs to report selected improper payment information for several years before passage of IPIA.[Footnote 8] After the enactment of IPIA, OMB's implementing guidance[Footnote 9] required that these programs continue to report improper payment information under IPIA. HHS reported in its fiscal year 2007 PAR that pilot reviews were conducted in various states for the Temporary Assistance for Needy Families and Child Care and Development Fund programs and that estimated improper payment rates for these programs would be reported in fiscal year 2008. Further, HHS reported that it also expects to report a comprehensive improper payment estimate rate for the State Children's Health Insurance Program (SCHIP) that will encompass its fee- for-service, managed care, and eligibility components. We recognize that measuring improper payments for these state-administered[Footnote 10] programs and designing and implementing actions to reduce or eliminate them are not simple tasks, particularly for grant programs that rely on administration efforts at the state level. Consequently, as we previously reported in April 2006,[Footnote 11] communication, coordination, and cooperation among federal agencies and the states will be critical factors in estimating national improper payment rates and meeting IPIA reporting requirements for state-administered programs. Conclusion: While federal executive agencies continued to improve their implementation of IPIA in fiscal year 2007, fulfilling the requirements of IPIA will require sustained attention to implementation and oversight. Preventing, identifying, and recovering improper payments, in that order, are what is needed across the federal government to manage, and ultimately minimize, such payments. As you have requested, we will continue to analyze the fiscal year 2007 results and provide updated and more detailed information of IPIA implementation results. We are sending copies of this report to the Director, Office of Management and Budget; appropriate congressional committees; and other interested parties. We will also make copies available at no charge on GAO's Web site at [hyperlink, http://www.gao.gov]. If you or your staff members have any questions, please contact me at (202) 512-2600 or williamsm1@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report were Carla Lewis, Assistant Director; Donell Ries; and Viny Talwar. Signed by: McCoy Williams: Managing Director, Financial Management and Assurance: Enclosure: [End of section] Enclosure: Table: Improper Payment Estimates Reported in Federal Executive Branch Agencies' Fiscal Year 2007 Performance and Accountability Reports or Annual Reports: [See PDF for image] Source: GAO analysis of cited agencies' fiscal year 2007 PARs or annual reports. [A] Agency reported that it had no programs or activities susceptible to significant improper payments or agency did not report estimate for this program. [B] Agency error rate was less than 1 percent or error rate rounded to zero for purposes of this report. [C] Agency combined this program with the program listed above. [D] Agency did not address improper payments or IPIA in its fiscal year 2007 PAR or annual report. [E] Agency reported that it would estimate improper payments in the future for this program. [F] Agency reported that the annual improper payment amount or error rate was zero. [End of table] Footnotes: [1] Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002). [2] In their fiscal year 2007 performance and accountability reports or annual reports, certain federal agencies updated their fiscal year 2006 improper payment estimates to reflect changes since issuance of their fiscal year 2006 PARs or annual reports. These updates decreased the governmentwide improper payment estimate for fiscal year 2006 from $42 billion to $41 billion. [3] See GAO's report on its audit of the federal government's fiscal year 2007 financial statements that was incorporated in the 2007 Financial Report of the United States Government published by the Department of the Treasury. [4] Fee-for-service is a traditional method of medical services under which providers are paid for each service rendered. [5] The fiscal year 2007 Medicaid estimate is based on fiscal year 2006 processed claims. [6] Generally, OMB requires agencies to use a 12-month reporting period when estimating improper payments. [7] Managed care is any system of delivering health services through a specified network of doctors and hospitals that agree to comply with the care approaches established by a care-management process. [8] Prior to governmentwide IPIA reporting requirements beginning with fiscal year 2004, former section 57 of OMB Circular No. A-11 required certain agencies to submit similar information, including estimated improper payment target rates, target rates for future reductions in these payments, the types and causes of these payments, and variances from established targets and goals. In addition, these agencies were to provide a description and assessment of the current methods for measuring the rate of improper payments and the quality of data resulting from these methods. [9] OMB, Circular No. A-123, Appendix C, Requirements for Effective Measurement and Remediation of Improper Payments (Aug. 10, 2006). [10] The term "state-administered" refers to federal programs that are managed on a day-to-day basis at the state level to carry out program objectives. [11] GAO, Improper Payments: Federal and State Coordination Needed to Report National Improper Payment Estimates on Federal Programs, GAO-06- 347 (Washington, D.C.: Apr. 14, 2006). GAO's Mission: The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. 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