Administration gets tough on improper payments

President Obama signed a memorandum on Wednesday directing federal agencies to use more incentive-based audit techniques to recoup billions of taxpayer dollars wasted through error or fraud.

The memo asks agencies to sign more contracts for payment recapture audits, in which highly specialized accounting specialists and fraud examiners use cutting-edge computer programs to scan government payments, such as Medicare and Medicaid billing records, for spurious claims. The audits would focus on duplicative payments, funds for services not rendered, overpayments and fictitious vendors, the memo stated.

The auditors then work with the government to reclaim the misspent funds and are entitled to keep a portion of reclaimed payments as compensation.

The White House expects the audits to return at least $2 billion to taxpayers during the next three years -- double the current amount of projected recovered costs.

A 2005 to 2008 pilot program run by the Centers for Medicare and Medicaid Services in California, New York and Texas recaptured $900 million in lost funds, according to the Obama administration. CMS will expand the program nationwide.

"The fact is, Washington is a place where tax dollars are often treated like Monopoly money, bartered and traded, divvied up among lobbyists and special interests," Obama said. "And it has been a place where waste -- even billions of dollars in waste -- is accepted as the price of doing business. Well, I don't accept business as usual. And the American people don't accept it either."

Office of Management and Budget Director Peter R. Orszag will develop guidance on how to implement the memo within the next 90 days. The instructions could require additional actions, including setting agency-specific targets for increasing payment recoveries, the document said.

Under current law, federal agencies can use previously reclaimed funds to pay for these audits, but there are gaps in the policy. Recapture audits are permitted for Medicare Fee-for-Service program payments and for government contracts at 20 out of 24 agencies that sign more than $500 million in deals annually.

But, the White House said many contract and grant payments are not eligible for the additional scrutiny. Federal payments to state and local governments, universities, banks and nonprofits also get a pass.

Obama signaled his support for the 2009 Improper Payments Elimination and Recovery Act, a bipartisan bill that would help federal agencies fund payment recapture audits. The House (H.R. 3393) and Senate (S. 1508 ) versions of the bill both remain in committee.

The administration said improper payments to contractors, grantees and other recipients of federal funds totaled roughly $98 billion in 2009, with $54 billion stemming from Medicare and Medicaid.

In November 2009, Obama issued an executive order aimed at increasing the transparency and public scrutiny of improper payments. The directive required agencies to create improper payments dashboards on their Web sites that will include information on error rates, the known causes of the mistakes, the amount of money recovered and the entities that received the most in incorrect disbursements. The dashboards will launch this spring, the White House said.

Agencies also will be required to appoint a Senate-confirmed official to be primarily accountable for erroneous payments.

Currently, agencies are required to set goals for addressing improper payments, but those targets do not necessarily have to involve reductions. The executive order would require agencies to submit a plan to their inspector general by late May for identifying, measuring and reducing improper payments. The IG would be responsible for modifying the agency's plan.

"We can no longer tolerate these errors, mistakes and misdeeds," Office of Management and Budget Director Peter R. Orszag said in November. "Every dollar misspent is a dollar not going to help an unemployed worker, a family in need of help buying groceries or a senior who relies on Medicare to stay healthy."