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Improper payments have consistently been a government-wide issue despite efforts to identify their root causes and reduce them. Examples of past improper payments include erroneous payments made by (1) the Department of Agriculture’s National School Lunch program due to verification and authentication errors, including inadequate documentation and fraud or misrepresentation by participants;  (2) the Department of Labor’s Unemployment Insurance program due to eligibility errors in handling separation issues, and claimants who have returned to work and continue to claim benefits; and (3) the Department of Health and Human Services’ Medicare Fee-for-Service program due to medically unnecessary services and insufficient documentation.

The government’s ability to understand the scope of the issue is hindered by incomplete, unreliable, or understated estimates; risk assessments that may not accurately assess the risk of improper payment; and noncompliance with criteria listed in federal law. GAO has reported improper payments as a material weakness in internal control in its reports on the U.S. government’s consolidated financial statements.

Since fiscal year 2003—when certain agencies were required by statute to begin reporting improper payments—cumulative improper payment estimates have totaled over $1 trillion. The improper payment estimate in fiscal year 2015, attributable to 121 programs across 22 agencies, was $136.7 billion, up from $124.6 billion in fiscal year 2014. The $12 billion increase was primarily due to estimated improper payments for the Medicaid program. As shown in the figure, the Medicare, Medicaid, and Earned Income Tax Credit programs account for over 76 percent of the government-wide improper payment estimate.  Federal spending for Medicare and Medicaid is expected to significantly increase, so it is critical to take actions to reduce improper payments in these programs.

Figure: Government-wide Improper Payment Estimates by Program for Fiscal Year 2015

Note: These estimates do not include the Department of Defense’s (DOD) Defense Finance and Accounting Service (DFAS) Commercial Pay program. The DOD Office of Inspector General reported in DOD’s fiscal year 2015 Agency Financial Report that the department was unable to reconcile outlays and ensure that all payments subject to improper payment estimation requirements were captured for review. Therefore, DOD’s fiscal year 2015 improper payment estimates, including its estimate for the DFAS Commercial Pay program, may not be reliable.

Continued agency attention is needed to (1) identify susceptible programs, (2) develop reliable methodologies for estimating improper payments, (3) report as required by statute, and (4) implement effective corrective actions based on root cause analysis. Absent such continued efforts, the federal government cannot be assured that taxpayer funds are adequately safeguarded.

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Recommended Links

• Management of Federal Grants to State and Local Governments
• When the Federal Government Makes Improper Payments (podcast)

Related Key Issues Pages

• DHS Management
• DOD Business Systems Modernization - High Risk Issue
• DOD Financial Management - High Risk Issue
• Federal Financial Accountability
• Medicaid - High Risk Issue
• Medicare