Administration renews focus on reducing improper payments

The Bush administration is searching for more cost-effective methods of tracking and reducing improper payments to beneficiaries of government programs and is considering subjecting federal agencies to more rigorous audit requirements, according to an Office of Management and Budget report.

To help agencies comply with the 2002 Improper Payments Information Act (H.R. 4878) at minimal expense, OMB and the Chief Financial Officers Council are developing standardized techniques for identifying and reporting payment errors, said Office of Management and Budget Controller Linda Springer in an OMB report on governmentwide efforts to improve financial management. Mistakes typically occur when agencies distribute benefits to ineligible applicants, over- or underpay beneficiaries, or send out duplicate payments.

The 2002 law requires agencies to identify payment errors and devise plans for correcting those that add up to more than $10 million or more than 2.5 percent of a program's spending. They then must set targets for reducing mistakes. Agencies are trying to comply, but are having a difficult time setting appropriate targets, especially for more complex programs, Springer said.

OMB and the CFO Council are developing statistical sampling techniques and a standard format for reporting error rates, to help agencies "work within current resources" to get a handle on mistakes and set rigorous goals for improvement, the report said.

In a separate effort, the administration is weighing whether to subject agencies to standards in the Sarbanes-Oxley Act, passed in 2002 in response to corporate accounting scandals. This could entail asking agencies to undergo annual audits of "internal controls," which are systems of checks and balances designed to prevent errors in financial transactions and reduce the risk of fraud. Agencies evaluate and report on internal controls each year, but are not required to have an independent auditor sign off on their assessments.

Legislation in the final stages of debate in Congress would require the Homeland Security Department to obtain internal control audit opinions beginning in fiscal 2006. OMB and the President's Council on Integrity and Efficiency, a group of presidentially appointed inspectors general, are studying the feasibility of extending the requirement across government.

"It is my opinion that the federal government should be held to as high, if not higher, a standard of federal financial management as the private sector," Springer wrote in an introduction to the report. "American citizens do not have the option of taking their business elsewhere."

Despite the ongoing challenges of reducing improper payments and strengthening internal controls, agencies are making substantial progress on financial management, the report noted. All major agencies are on track to submit fiscal 2004 financial reports by Nov. 15, just 45 days after the close of the fiscal year, Springer said. Last year, the deadline was Feb. 1.

In preparation for the earlier deadline, agencies are handing in interim financial reports each quarter, a practice "unheard of before 2002," Springer said. The major agencies are getting interim reports in on time, and program managers are getting access to financial information on a more regular basis, the OMB report said.