GAO Report on Findings about Improper Payments
The issue of improper payments within the federal government has long been a major concern. The recently released GAO report "Improper Payments: Key Concepts and Information on Programs with High Rates or Lacking Estimates" shines light on this ongoing issue and provides critical insights for government contractors. With cumulative erroneous payment estimates totaling $2.7 trillion since fiscal year 2003, including $236 billion for fiscal year 2023, contractors working with federal agencies must understand and manage these payments effectively.
The Payment Integrity Information Act of 2019 (PIIA) requires agencies to manage erroneous payments by detecting risks, taking corrective actions, and estimating and reporting them. Accurate assessment of these payments is critical for determining fundamental problems and devising appropriate corrective strategies. Contractors should be aware that inappropriate payments can occur for a variety of reasons, including administrative errors and fraud. Reliable estimations are critical for evaluating financial weaknesses and determining the efficacy of corrective efforts.
The research discloses that for fiscal year 2023, 16 of the 71 programs with published estimates had inappropriate payment rates of 10% or greater. Alarmingly, ten of these programs have sustained rates above ten percent for at least two years in a row. This ongoing issue highlights the importance of tight internal controls and precise documentation in mitigating the risks connected with unlawful payments.
Furthermore, the audit states that nine risk-susceptible programs failed to produce and report erroneous payment estimates as required. The reasons for this noncompliance ranged from statutory constraints and the suspension of reviews during the COVID-19 outbreak to a lack of supporting documents. To avoid similar mistakes, contractors must comply with all statutory obligations and maintain complete documentation.
Improper payments include any payment that should not have been made or was made in the wrong amount due to statutory, contractual, administrative, or other legal requirements. This includes payments to ineligible recipients, duplicate payments, and payments for goods or services that were not provided. Executive branch agencies regard any payment that cannot be verified as proper due to insufficient documentation as improper. To prevent having payments classified as improper, contractors must keep correct records and swiftly address any anomalies.
The causes of inappropriate payments vary. They can result from overpayments, underpayments, unidentified payments, or technically incorrect payments. Overpayments may come from a failure to follow internal norms, whereas underpayments imply that recipients did not receive the amounts they were owed. Unknown payments result from a lack of paperwork, while technically wrong payments occur when regulatory or legislative requirements are not completed, even if the payment amount is accurate. Contractors should establish strong internal controls and conduct regular audits to guarantee compliance with all regulations.
Agencies typically estimate incorrect payments by selecting a sample of payments and evaluating them to evaluate their legitimacy. This sampling aids in the statistical projection of the program's erroneous payment rate. The PIIA requires agencies to generate statistically reliable estimates or utilize an OMB-approved technique. Contractors should be aware that sampling time frames might have an impact on estimates, and they should aim to use the most recent data available to assure accuracy.
Fraud is a major concern in the field of improper payments. While all fraudulent payments are improper, not all inappropriate payments are the result of fraud. Fraudulent payments involve deliberate misrepresentation, although other inappropriate payments may occur from errors or a lack of paperwork. Understanding this distinction is critical for contractors in addressing and mitigating the risks of both fraud and inappropriate payments.
Improper payment estimates help uncover financial weaknesses and measure the success of corrective actions. They help to set a baseline against which progress can be measured. These estimations are especially important for emergency assistance programs, which face a larger risk of erroneous payments. Contractors must prioritize accurate estimation and proactive management of erroneous payments in order to maintain financial integrity and compliance.
Under PIIA, agencies must disclose erroneous payment estimates for programs that have been identified as having a high risk of major incorrect payments. This contains programs with annual budgets more than $10 million. Agencies must complete inappropriate payment risk assessments for each program at least once every three fiscal years. Contractors should be aware of these criteria and ensure that their programs adhere to the required compliance standards.