OMB, Treasury issue guidance for reducing improper payments

Both the Office of Management and Budget and the Treasury Department issued new guidance this week aimed at helping federal agencies tackle one of the most significant challenges financial managers face: reducing improper payments.

In 2009, federal agencies reported $98 billion in improper payments, an increase of $30 billion over 2008. That prompted President Obama in November 2009 to issue Executive Order 13520, which required agencies to intensify efforts to eliminate errors and designate people accountable for fixing problems.

OMB followed up this week with guidance for implementing the executive order.

The guidance, an appendix to OMB Circular A-123, specifies responsibilities for agency accountability officials; determines which programs are subject to the order; defines goals for high-priority programs; sets reporting requirements; and establishes procedures to identify entities with outstanding improper payments.

Payment errors have increased steadily since 2004, Wanda Rogers, deputy commissioner of the Treasury Department's Financial Management Service, told attendees at a federal financial management conference in Washington on Tuesday. FMS provides central payment services for government programs.

Rogers attributed the rise in errors to several factors, including increases in both the dollar value of outlays as well as the number of federal programs. In addition, more stringent reporting requirements have led agencies to identify erroneous payments more accurately, she said.

Executive Order 13520 requires agencies to provide FMS with information about improper payments, which will be made public on Treasury's Web site beginning in mid-April. On Wednesday, FMS released guidance for fulfilling that requirement.

To meet the public reporting requirements, agencies will have to provide FMS with annual rates and amounts of improper payments; annual targets for reducing them; information in plain English describing the significance of the data; reasons for the errors, and rates and amounts of recovered improper payments.

The dashboard, as the Web site will be known, essentially will function as a centralized location for collecting information on waste, fraud and abuse of government funds as they relate to improper payments, Rogers said. She leads the working group developing the dashboard.

Reducing improper payments will require a coordinated effort among federal, state and local entities, all of which can play a role in documenting and making payments for some of the programs most vulnerable to abuse, such as Medicare, Medicaid and food stamps.

One aim of the executive order is to create effective incentives for identifying and correcting improper payments. Patricia Reese, director of the financial integrity division at the Health and Human Services Department's Health Resources and Services Administration, is leading an intergovernmental effort to craft such incentives.

"What works for one program may not work for another," Reese said. Some current policies designed as incentives for identifying improper payments actually discourage states from reporting them, she said. For example, in some cases states are required to return improper payments to the U.S. Treasury, even if they don't actually recover the money, Reese said. In addition, discovery of improper payments leads to audit findings, which trigger additional reporting requirements that often are overly burdensome.

State administrative offices have been particularly hard hit by the economic downturn, which has limited their ability to comply with federal regulations. A goal of the working group is to draft new recommendations for better incentives for recovering improper payments.

Reese encouraged financial managers to submit ideas for reducing improper payments to a White House Web site created for the purpose.