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Improper Payments Elimination and Recovery Act

Improper payments by federal agencies are a major problem. According to OMB, federal agencies were estimated to have made nearly $98 billion in improper payments in FY 2009--or more than double the total budget for the Department of Homeland Security. Improper payments occur when a federal agency pays too much, pays twice, or pays for the wrong product or service. These improper payments may occur as a result of fraud or from poor financial management systems that do not detect or prevent mistakes before federal dollars are misspent.  Federal agencies can do much more to identify and prevent improper payments and address the management weaknesses that cause them.

On April 28th, the House passed the Improper Payments Elimination and Recovery Act (HR 3393) to reduce the waste, fraud and abuse of U.S. taxpayer dollars resulting from the lack of proper oversight on the part of federal agencies.  On July 14th, the Senate sent back S. 1508, the Improper Payments Elimination and Recovery Act, which is nearly identical to the companion House bill passed in April.  The House passed the Senate bill 414-0, and the President signed the legislation into law on July 22nd. The bill will reduce the waste, fraud and abuse of U.S. taxpayer dollars resulting from the lack of proper oversight on the part of federal agencies.

This legislation will help identify, reduce and eliminate improper payments, as well as recover lost funds that federal agencies have spent improperly. Specifically, the bill contains provisions to increase transparency by lowering the improper payment threshold for agencies, require agencies to develop action plans to avoid future waste, recover overpayments, and hold agencies accountable.

Key provisions:

Improving Transparency

  • Currently, OMB has set the reporting threshold for improper payments very high - they only require agencies to report on improper payments that exceed BOTH $10 million and 2.5% of total program payments.  There are many programs with improper payments over $10 million that are not reported to Congress because they don't also meet the 2.5% threshold.  For example, GAO discovered that even though it had $16 million in estimated improper payments in FY 2005, the Department of Agriculture did not report on its Farm Security and Rural Investment program because the percentage of improper payments compared to the rest of the program's budget was only 1.55%. As a result of instances like these, millions of dollars in erroneous payments go unreported - and potentially unaddressed - each year.  
  • The bill would lower the reporting threshold to improper payments over $10 million and 1.5% of program payments; or those over $100 million.  This way, instances like the one described above would be analyzed, and more improper payments will be captured so Congress and the general public have a better picture of the problem we face.

Preventing Improper Payments

  • The bill would help prevent improper payments from happening in the first place by requiring agencies to report on their corrective action plans and the improper payment reduction targets they are using to address their payment error problems.
  • Under the legislation, each agency will have to produce an appropriate estimate of the improper payments made by each susceptible program and activity, and a description of what they need within their own agency to prevent these improper payments from occurring in the future (e.g., internal controls, human capital, or information systems and other infrastructure).
  • Furthermore, each fiscal year, OMB will submit a government-wide report on the state of improper payments and the actions taken by each agency to recover them.

Recovering Overpayments

  • Under current law, agencies are only required to seek to recover overpayments they make if they hand out more than $500 million in payments to contractors each year.  The bill would expand the use of recovery auditing by requiring that all agencies with outlays of more than $1 million perform recovery audits on their programs and activities (where it makes fiscal sense to do so).
  • The head of each agency can conduct audits directly by utilizing other departments and agencies or by awarding contracts to private sector auditors.
  • For the money that is recaptured:
    • 25% goes back to the agency that it came from in order to continue to prevent future improper payments;
    • 25% will be credited to the appropriation or fund that the improper payment originally came from;
    • 5% will go to the Inspector General of the agency it came from to carry out this Act; and
    • The remaining 45% goes back to the Treasury.

Holding Agencies Accountable

  • The bill would require that agencies hold top managers accountable for their progress, or lack of progress, in addressing their improper payment problems.  Each agency head will now be required to publish annually improper payments estimates for all applicable programs as well as reduction targets for those improper payments.
  • The Inspector General of each agency will be required to determine whether or not the agency is in compliance with this legislation. 
  • If they are not in compliance, the agency must submit a plan to Congress on the actions they will take to come into compliance.
  • If the agency is found to not be in compliance for two years straight, the head of the agency must increase compliance efforts by taking steps such as increasing funding to reduce improper payments.
  • If the agency is found to not be in compliance for three years straight, the head of the agency must submit to Congress proposed statutory changes necessary to bring the program into compliance.