H.R. 3393 is expected to be considered on the floor on Wednesday, April 28, under suspension of the rules.  This legislation was introduced by Rep. Patrick Murphy (D-PA) on July 29, 2009.

H.R. 3393 institutes requirements for adjustments to transparency and compliance rules related to improper payments, which occur when a federal agency pays too much for a product or service, or pays an ineligible recipient.  It lowers the improper payments reporting threshold for federal agencies in order to reveal million more dollars in improper payments; requires agencies to report on their corrective action plans to prevent future erroneous payments; and requires any agency with outlays greater than $1 million to recover any overpayments.

Susceptible Programs and Activities:

The bill requires the head of each agency shall to periodically review all programs and activities that the agency head administers and identify all programs and activities that may be susceptible to significant improper payments.

Reviews shall be performed for each program and activity that the relevant agency administers during the year after which this legislation is enacted at least once every three fiscal years thereafter.

The bill defines "significant" improper payments as any program or activity in the preceding fiscal year which may have exceeded $10 million of all payments made during that fiscal year and 2.5 percent of program outlays; or $100 million.

This measure directs the head of each agency to take into account factors that are likely to contribute to susceptibility to significant improper payments, such as:

• program or activity reviewed is new to the agency;
• complexity of the program or activity reviewed;
• the volume of payments made through the program or activity reviewed;
• whether payments or payment eligibility decisions are made outside of the agency, such as by a state or local government.
• recent major changes in program funding, authorities, practices, or procedures;
• level and quality of training for personnel responsible for making program eligibility determinations or certifying that payment are accurate; and
• significant deficiencies in the audit report of the agency or other relevant management finding that might hinder accurate payment certification.

Estimation of Improper Payments:

This bill directs each federal agency to produce a statistically valid or otherwise appropriate estimate of the improper payments made by each program and activity in that agency; and requires those estimates in the accompanying materials to the annual financial statement of the agency required by law.

Reports on Reducing Improper Payments:

This bill requires that with any program or activity of an agency with estimated improper payments, the head of the agency shall provide a report on causes of improper payments, actions planned or taken to correct those causes, and planned or actual completion date of actions taken to address those causes.

This report would also include a statement as to whether the agency has the resources to establish internal controls, human capital and information systems or other infrastructure in order to reduce improper payments.

Recovering Improper Payments:

H.R. 3393 requires the agency to provide a description of the steps taken to ensure that agency managers, programs, and any state and localities are held accountable for any improper payments through annual performance appraisal.

It also mandates that the agency provide a report on all actions the agency has taken to recover any improper payments, methods used by the agency to recover overpayments, amounts recovered, outstanding, and determined not to be collectible, an aging schedule of the amounts outstanding, summary of how recovered amount have been disposed of, any conditions giving rise to improper payments, and if the agency has determined that performing recovery audits for any program is not cost effective.

Governmentwide Reporting:

The measure requests that the Director of OMB submit a report with respect to the preceding fiscal year on actions agencies have taken to report information regarding improper payments and actions taken to recover those payments.  The report shall be submitted to:

•  the Committee on Homeland Security and Governmental Affairs of the Senate; and
•  the Committee on Oversight and Government Reform of the House of Representatives

Each report shall include:

• report of each agency on improper payments and recovery actions submitted under this section, the compliance status of each agency to which this Act applies, improper payment reduction targets, determination of progress to meet improper payment reduction targets.

Guidance by OMB:

The measure directs OMB, no later than six months after the bill's enactment, to issue guidance for agencies to implement the new requirement.  No later than six months after the bill's enactment, OMB is to issue guidance for agencies to implement the new requirements; no later than one after enactment, OMB would develop specific criteria regarding when an agency should initially be required to obtain input on internal controls, and for an agency that has demonstrated a stabilized, effective system of internal control.

Recovery Audits:

The bill directs the head of each agency to conduct recovery audits for each program or activity that expends $1 million or more annually, if conducting such audits would be cost effective.  The agency would be required to place priority to the most recent payments, and to payments made within programs deems susceptible to significant improper payments.

Any recovery audits are performed by a contractor, the agency could authorize the contractor to notify entities of overpayments.  The contractor is prohibited from making final determinations relating to whether an overpayment occurred.

Any amount collected through recovery audit, no more than 25 percent shall be available to administer the program or activity to carry out the financial management improvement program.  25 percent would be used for the original purpose, and 5 percent would be used for inspector general activities.  Any funds for financial management program and inspector general could only be expanded through annual appropriations act.  All remaining amounts would be deposited in the Treasury.

The requirements for recovered funds would not apply to entitlement programs or tax-credit programs.

It also requires the head of each agency to conduct a financial management improvement program to address problems that contribute directly to improper payments and to seek to reduce errors and waste in other agency programs and operations.

The measure also requires no later than two years after the date of enactment, a study shall be conducted to determine the costs and benefits recovery audit activities and the effectiveness of using the services of private contractors, agency employees, cross-servicing from other agencies, and combination of the provision of services.

Compliance:

The bill defines a federal agency as in compliance with this legislation if it has reported an improper payment rate of less than 10 percent of each program and activity for which improper payments were estimated. In addition, compliance requirements include publishing an annual financial statement, conduct a specific program risk assessment, publishing improper payment estimates, publishing a corrective plan, and publishing improper payment reduction targets.

Remediation:

The measure requires that any agency not in compliance, to submit a plan to Congress describing the actions it will take to become compliant.  If agency is determined to be noncompliant for two consecutive fiscal years for the same program, the agency would be required to spend additional funding on greater compliance efforts.

The bill directs agencies, if determined not to be compliant for three consecutive fiscal years for the same program, to submit reauthorization proposals to Congress, or submit proposals for statutory changes necessary to bring the program into compliance.

Compliance Enforcement Pilot Program:

The bill allows OMB to establish one or more pilot programs to test potential accountability tied to eliminating any improper payments.  No later than five years after the bill's enactment, OMB would report to Congress on the finding included in the pilot program.

Improper payments result when a federal agency overpays for a certain product or service, or when a payment is made to an ineligible recipient, or when a payment is made but no good or service is provided to the government.

Improper payments can result from fraud or administrative errors not detected by poor financial management systems.

The Congressional Budget Office (CBO) has not yet provided a cost estimate for this bill.