The Government Accountability Office (GAO) has released its annual analysis of federal government improper payments and the news isn't particularly good. Since 2002, the Improper Payments Information Act (IPIA) has required federal executive branches to:
1.) review all programs and activities.
2.) identify those that are susceptible to improper payments.
3.) estimate the annual amount of improper payments.
4.) implement actions to reduce improper payments and set reduction targets.
An improper payment is a payment that:
1.) was made in an incorrect amount (either an over- or an underpayment)
2.) was made to an ineligible recipient, was made for an ineligible service, was made for services not rendered or was a duplicate payment.
In fiscal 2013, 84 programs attributable to 18 federal agencies spent an estimated $105.8 billion on improper payments. This is down $1.3 billion from the prior year's estimate of $107.1 billion. The GAO noted that the federal government is unable to actually fully determine the extent of improper payments because of internal control weaknesses, rendering it incapable of assuring that actions are taken to reduce the number of improper payments. In addition, four agencies including the Department of Health and Human Services did not supply data, citing a barrier that prevents it from requiring states to estimate improper payments for the Temporary Assistance for Needy Families (TANF) program.
The rather insignificant year-over-year decrease of improper payments in fiscal 2013 was largely attributable to the decrease in outlays for the Department of Labor's unemployment insurance program. As shown on this chart, five programs in four Departments are responsible for $82.9 billion or 78.4 percent of the total improper payments:
It is interesting to note that up to 24 percent of the Department of Treasury's Earned Income Tax Credit payments could be in error and up to 10.1 percent of Medicare Fee-for-Service payments could be erroneous.
Over the entire federal government, there was an average improper payment error of 3.5 percent in fiscal 2013, down from 3.7 percent in fiscal 2012.
Here is a chart showing the federal government programs that have the highest percentage of improper payments in fiscal 2013:
On the upside, recovery auditing for some programs has proven to be quite successful. In the case of the Department of Health and Human Services and their Medicare Fee-for-Service overpayment problem, recovery auditing allowed them to identify $4.2 billion in overpayments and recover $3.7 billion during fiscal 2013. Keeping in mind that HHS had $36 billion in overpayments in fiscal 2013 out of a budget of $903.97 billion; recovery auditing has recovered only a tiny fraction of the improper payments and the total fiscal year budgeted amount.
To help us put the total improper payment losses into perspective, here is a look at a few key figures from the fiscal 2013 budget:
Personal Income Taxes - $1.309 trillion
Corporate Income Taxes - $278.7 billion
Excise Taxes - $85.3 billion
Customs Duties - $32.2 billion
Department of Agriculture - $159.6 billion
Department of Education - $44.4 billion
Department of Energy - $25.9 billion
Department of Labor - $86.1 billion
Department of Veterans' Affairs - $138.9 billion
Department of Transportation - $78.5 billion
When you start to notice that the money "lost" by Washington in 2013 is sufficient to fund two or more entire departments for a full fiscal year, you get a sense of the size of the problem and how it doesn't appear to be going away anytime soon.