OMB to review guidelines for reporting improper payments

The Office of Management and Budget's recently confirmed controller told lawmakers earlier this week that she is open to reviewing thresholds for reporting errors in payments to beneficiaries of federal programs.

OMB Controller Linda Combs said it would be an "appropriate time" for the Chief Financial Officers Council to take another look at cutoffs in 2003 guidance implementing the 2002 Improper Payments Information Act. She agreed to rethink the guidance at the request of Rep. Todd Platts, R-Pa., chairman of the House Government Reform Subcommittee on Management, Finance and Accountability.

The subcommittee held a hearing Wednesday to examine implementation of the 2002 law, which requires agencies to identify programs prone to significant over- or under-payments, estimate the extent of those mistakes and draft plans to reduce errors. Under OMB's guidelines, a "significant" error would be one that is more than $10 million and accounts for more than 2.5 percent of a program's spending.

Lawmakers have argued that some large programs could generate substantial mistakes but fail to meet the 2.5 percent threshold, thereby slipping through the cracks. Platts, one of the lawmakers who has expressed skepticism, reiterated his concerns at the hearing. He noted that only two Defense programs made the Pentagon's list of vulnerable programs--a number that appears low given the department's financial management track record.

OMB might want to consider taking a "piecemeal" approach to applying the 2.5 percent threshold in order to cast a broad enough net, Platts said. For instance, it might be appropriate for civilian agencies, but not the Pentagon, he said.

Combs agreed to review the cutoffs, but noted that there are several other laws and regulations aimed at catching payment errors. At the Pentagon, for instance, a lot of money is spent through contracts, she noted. The 2002 Defense Authorization Act requires agencies to perform recovery audits-a process designed to identify payment errors-on contracts worth more than $500 million.

By finding and eliminating improper payments, agencies could save taxpayers as much as $40 billion each year, the Bush administration estimated in a progress report on management reforms released Thursday. OMB recently added the reduction of errors as a goal of the President's Management Agenda.

Agencies have yet to even get a handle on the magnitude of the problem, witnesses said at the hearing Wednesday. Performance and accountability reports indicate that the government mistakenly paid $45.1 billion to beneficiaries of more than 40 programs in fiscal 2004. This amounts to roughly 4 percent of the $1.2 trillion paid out by error-prone programs, according to a January OMB report.

But there's little way to predict how, or if, the error rate will change in the next few years, said McCoy Williams, the Government Accountability Office's director of financial management and assurance. The number should go down as agencies identify and address trouble spots, he said. That reduction, however, may not be enough to offset a jump expected as stragglers report mistakes in large programs that have yet to be captured in the governmentwide numbers.

There were at least 29 error-susceptible programs that agencies failed to include in fiscal 2004 estimates, Williams said. OMB's Circular A-11 has required agencies to report mistakes for 12 of those for the past three years-a mandate that preceded the Improper Payment Act's passage. Those 12 programs collectively spent $248.7 billion in fiscal 2004.

The Health and Human Services Department's Medicaid program, aimed at helping low-income individuals and families pay medical bills, is among the 12, but may not be able to produce estimates until fiscal 2008, witnesses said. Medicaid officials previously had predicted that they would be able to come up with a number by fiscal 2006.

The Medicaid program paid out $175.3 billion in fiscal 2004. The delay in arriving at even a ballpark figure for errors in such a large program is unacceptable, Platts said. "That just seems not common sense," he said.

Rep. Edolphus Towns, D-N.Y., ranking member of the subcommittee, also expressed concerns about the lack of comprehensive estimates. The short-term outlook for the error-reduction effort will remain "cloudy" so long as agencies fail to report mistakes, he said. "It's just shameful that the federal government is not doing better," said Rep. John Duncan Jr., R-Tenn., of the $45 billion in errors that has been reported.

But Combs noted that even if that number creeps upward, the news isn't all bad. A higher number could simply mean that more agencies are discovering and reporting problems, she and Williams said Fiscal 2004 is the first year that agencies had to include error estimates in annual performance reports and 17 did so, according to GAO. That number is up from 13 in fiscal 2003, and seven in 2002.

It's complicated just to estimate mistakes, especially for programs where the federal government passes money along to state and local governments, which then disburse benefits, both witnesses said. Elimination of the problem will require sustained leadership, and the formation of strong partnerships with state, program participants and others involved in the exchange of money, Combs told the lawmakers.

"Without the buy-in and risk-sharing efforts of the other parties, ultimate success is extremely difficult," Combs said in written testimony. Privacy laws, she said, also prevent some agencies from obtaining data that might help them detect mistakes.