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Eliminating $9 Billion of Improper Payments

In my quarterly updates, I try and highlight areas where the Federal Government has demonstrated that it is acting as an effective steward of the taxpayers' money. One area that I am particularly proud of is our efforts in meeting the President's goal to eliminate improper payments and fulfill the requirements of the Improper Payments Information Act of 2002 (IPIA). Since Federal agencies began reporting in fiscal year (FY) 2004, $9 billion in improper payment payments have been eliminated. This represents a 20% reduction in the baseline $45.1 billion of improper payments identified. Below I have highlighted three key areas where Federal agencies have made substantial progress:

1. Identifying risk susceptible payments.

The first step in eliminating improper payments is determining where the risk of making improper payments is the greatest. Over the past few years, agencies have strengthened their methods for risk assessing their programs and activities for improper payments to ensure that all potential sources of error are reported. As a result of renewed emphasis in performing risk assessments, this year's risk total includes $184 billion in Federal program outlays not previously reported as risk susceptible. This increases the amount of Federal outlays determined to be susceptible to improper payments from $1.4 trillion (or 62% of $2.4 trillion total Federal outlays in FY 2004) to $1.7 trillion (or 66% of $2.7 trillion total Federal outlays in FY 2006).

2. Estimating the annual amount of improper payments in risk susceptible programs.

Once agencies know which programs have the greatest risk of making improper payments, they measure the error. Given the wide variation in Federal programs, obtaining an error measurement isn't always easy. As a direct result of the determination of Federal financial and program managers, the amount of Federal program outlays that are being measured for improper payments has steadily increased from $1.1 trillion to $1.4 trillion. This means that 81% of all risk susceptible outlays are being measured for improper payments ($1.4 trillion of the $1.7 trillion high-risk dollars). And, when FY 2008 results are reported, almost 100% of risk susceptible dollars will report an error measurement (with the inclusion of over $325 billion in high-risk outlays not currently reporting an error measurement, including Medicaid).

3. Identifying the Root Causes of Improper Payments and Correcting the Errors

The final step in eliminating improper payments is identifying the cause and correcting the problem. I am extremely proud to report that this year, the amount of improper payments in the programs originally reported in FY 2004 were reduced from the baseline of approximately $45.1 billion to $36.3 billion, a nearly $9 billion or 20% reduction. These original programs continue to represent a significant majority of FY 2006 improper payments. The overall Federal FY 2006 improper payment rate was 2.9% and total improper payments equaled $40.5 billion. These numbers represent a reduction in the total rate and amount of improper payments reported since FY 2004 from 3.9% and $45.1 billion respectively. Two main factors drove the successful decrease of the FY 2006 improper payment rate: (1) a reduction in Medicare improper payments by $1.3 billion and (2) low improper payment rates for programs that reported error measurements for the first time in either FY 2005 or FY 2006.

Other significant achievements include:

USDA reported that the Food Stamps program lowered its error rate (5.84%) for the seventh consecutive year.
The Department of Housing and Urban Development's Public Housing and Rental Assistance programs have reduced improper payments by nearly $2 billion since FY 2001, a reduction of more than 60%.

This Administration will continue to aggressively identity, measure, and eliminate improper payments and further build upon the results I've highlighted here. I am optimistic that our current efforts, complemented by the enactment of the program integrity reforms proposed in OMB's annual IPIA report, and full funding of the President's request for program integrity efforts, will continue to pave a path forward in achieving our objective to eliminate improper payments.