Divide and conquer improper payments

The federal government disbursed a reported $2.7 trillion in improper payments—amounts that either should not have been paid, were made for the incorrect amount, or otherwise lacked fidelity—over the past 20 years. In fact, agencies’ self-reported improper payments have risen steadily throughout the 21st century, driven by increased reporting requirements, improved identification, and higher spending levels. The portion attributable to fraud constitutes improper in its most egregious form and warrants intensified prevention, detection, and response.

The House Budget Committee recently approved legislation requiring the president to include additional improper payments information in the annual White House budget request. Another bill would designate new programs expecting to make $100 million in payments annually as susceptible to significant improper payments. These bills represent multiple steps in the right direction, but the path to eliminating improper payments is long and winding.

Some improper payments are more alarming than others. Compare benefit payments stolen by an international criminal syndicate to a U.S. citizen whose assistance application didn’t include all necessary forms. Both are included in the improper payments tally. Combining such disparate instances leads to a misleading characterization of the problem. 

Further, are payments made for a poorly designed program, showing little evidence of success, improper? Given the judgment implied in the word, some taxpayers would consider such payments to be highly improper, even if payments were for the right amounts to the intended beneficiaries. Such spending is surely worse than disbursing amounts with minor paperwork errors. 

The solution lies in more precisely defining the various types of such payments and prioritizing those demanding immediate attention. Policy makers should rethink the entire improper payments challenge by dividing the topic into manageable components of 1) fraud; and 2) everything else. Splitting fraud from broad improper payment estimates would provide a more informed measure of how the government fares in both regards, particularly in light of a recent report by the Government Accountability Office estimating losses from fraud totaling hundreds of billions of dollars annually.

To be sure, the big challenge here is determining fraud incidence given its inherently deceptive nature. While most agencies can provide an estimate of improper payments, sizing the constantly shape-shifting fraud problem is more difficult. It’s probably a safe bet that most fraud occurs at a handful of agencies operating a dozen or so of the largest financial assistance programs—not only is that where most improper payments occur but that’s where the money is. Attention should be laser focused there. 

Separating fraud from other improper payments could perhaps even facilitate the creation of a dedicated anti-fraud center within the U.S. government, as the United Kingdom did in 2018. The Pandemic Analytics Center of Excellence, part of the Pandemic Response Accountability Committee, has proven its worth in identifying and fighting fraud involving Covid assistance programs. A new center could integrate the functions of PACE and align closely with the Treasury Department to improve payment integrity, foster data sharing across agencies and help combat fraud when large new programs are created. 

Meanwhile, agencies not susceptible to significant fraud should be focused on reducing processing-related improper payments. Key activities should include ensuring adherence to statutory requirements, strengthening internal controls, analyzing root causes of erroneous payments, and taking corrective actions when payment problems occur.

But fraud prevention and detection require a different level of focus and analytic attention than administering payments effectively in the normal course of business. Of course there’s overlap, but we should stop pretending the two activities are one in the same. Let’s step-up fraud-prevention work in program and financial offices across the government and leave responsibility for reducing erroneous payments in the hands of the capable professionals responsible for federal financial management. 

Doug Criscitello, a former CFO at both the Department of Housing and Urban Development and the Small Business Administration, is a Program Integrity Fellow at Arnold Ventures and a Fellow of the National Academy of Public Administration.