Officials debate threshold for reporting payment errors

Two top management officials sparred Tuesday over how deeply agencies should dig to unearth mistaken payments, as lawmakers sought input during a hearing on possible updates to the 2002 Improper Payments Information Act.

David M. Walker, head of the Government Accountability Office, repeated arguments detailed in a report last month that Office of Management and Budget guidance for how agencies should analyze and report on their improper payments is not strict enough. Improper payments are defined as those made mistakenly to ineligible recipients, or as a result of fraud or other error.

Clay Johnson, OMB's deputy director for management, countered that the sheer size of the problem requires the use of some cost-benefit analysis to determine the level of mistakes worth tracking and justifies a reporting threshold that GAO has criticized as too high.

The debate primarily centers on whether OMB guidance on implementing the erroneous payment act leaves an inappropriately large loophole. Agencies are required to annually assess programs that are at high risk for significant improper payments; OMB guidance defines "significant" as payments that both exceed $10 million annually and represent more than 2.5 percent of a program's budget.

Sen. Tom Coburn, R-Okla., chairman of the Homeland Security and Governmental Affairs subcommittee that handles financial management, said those guidelines exclude the Social Security Administration's Old Age and Survivors' Insurance payments. Those amounted to $493.3 billion in fiscal 2005, Coburn said, but with an improper payment rate of 0.74 percent the program was not required to report on an estimated $3.7 billion in mistaken payments.

Johnson defended OMB's decision to limit reporting, saying the legislation was based on risk assessment, rather than a review of every program. He said OMB has to take into account the expected costs and benefits of agencies' efforts to comply. For example, he said, federal payroll expenses of hundreds of billions of dollars represent "virtually no risk," and should not be examined.

Walker countered that Defense payroll expenses were included in GAO's list of government activities with a high risk of problems. Coburn said payroll should be examined through an improper payments lens, noting that agencies do not monitor federal employee absenteeism that occurs outside of allowed vacation and sick time.

But Johnson held his ground, saying that reducing improper payments in the federal payroll should be "a really, really low priority." The two officials also cited other payments that could be considered improper payments but are not: Walker noted that billions of dollars are paid to contractors annually in unmerited awards and incentives, while Johnson cited billions of dollars in unearned raises to employees.

Subcommittee ranking member Sen. Tom Carper, D-Del., urged the two officials to present their recommendations for how the improper payments law should be revised.

Walker said the $10 million portion of the significance threshold may be too low, the 2.5 percent metric may be too high, and 0.5 percent could be an appropriate portion of a program's budget to consider significant. Despite the positive relationship between lawmakers and OMB, Walker said, it would be in Congress' best interests to codify a lower threshold rather than rely on OMB's willingness to examine major programs.

He said the law should encourage agencies to focus on ways of preventing improper payments, as well as measuring and reporting on those that have already taken place.

Walker said in some cases, data matching and data mining could prevent erroneous payments and help get them repaid, but the data in some government databases cannot, by law, be shared. Johnson agreed, and recommended that lawmakers work with their colleagues on authorizing committees to comprehensively address instances where eliminating restrictions on data sharing between programs or agencies could help reduce errors.