Solutions Needed: Improper Payments Total $115 Billion in Federal Misspending

This hearing will address improper payments made by the federal government, and will continue this Subcommittee’s examination of federal financial management issues. In FY 2011, the federal government reported $115 billion in improper payments. This is only an estimate; the total amount of improper payments is unknown.

Improper payments occur for a variety of reasons, but they are all the result of poor financial management. Programs are particularly vulnerable to improper payments when agencies fail to maintain effective internal controls, adequate financial management systems, or sufficient oversight. These programs are classified as “high-error.”

In FY 2011, the Office of Management and Budget identified eleven high-error programs. These eleven programs made up 94% of all reported improper payments in 2011. At the top of the list are the Medicare and Medicaid programs, which accounted for over half of all reported improper payments. Other high-error programs include unemployment insurance, Social Security, and the Earned Income Tax Credit.

Some of these high-error programs are uniquely challenged due to their large budgetary obligations. However, they all share similar problems of ineffective internal control structures in their financial management systems. In order to reduce improper payments, agencies must reevaluate their internal control structures and increase accountability in program administration.

There must also be more effort to ensure that agencies report their improper payments. Although not all agencies are required to report improper payment estimates, some agencies that are required to report do not do so. The most significant agency failing to report is the Department of Defense, although both the Government Accountability Office and the Defense Office of Inspector General have found that the Defense Department is at a high risk for improper payments.

Over the past decade, there has been significant work both by President Bush and by President Obama to reduce and prevent improper payments. While some agencies have made progress in identifying and reducing improper payments in certain programs, many of the agencies still lack the necessary framework of internal controls that could lead to a sustainable decrease in improper payments.

It is clear that better solutions are needed to protect taxpayer dollars and bring accountability to federal spending. An increased focus on preventative controls would allow agencies to stop more improper payments before they are issued. Better detection methods would also help prevent and recover more payments. Most importantly, the government must do a better job at identifying the root causes of improper payments. Until we understand how and why these payments are being made, it will be impossible to effectively prevent them.

Billions of taxpayer dollars are misspent every year through improper payments. The Administration and agency leaders have made significant efforts to reduce improper payments and their work is both important and commendable. However, we need more solutions to better protect taxpayer money.

We are glad to be joined today by Senator Carper, to discuss a bill currently being considered to help reduce improper payments. We will also hear from witnesses on the problems that lead to improper payments and what we can do to prevent them. I thank each of our witnesses for being here today and look forward to their testimony.