Wasting Billions on Improper Payments

March 10, 2015
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Federal outlays in 2014 topped $3.5 trillion. Over the next ten years, federal outlays are expected to climb to $6.1 trillion. The Government Accountability Office (GAO) tries to keep tabs on some of the obvious waste in the vast federal budget. One of its efforts is an annual report highlighting areas of duplication, improper payments, and other types of inefficient spending.

Last week, GAO released a report analyzing whether or not Congress and the executive branch have followed their past recommendations. GAO said that only 29 percent of its recommendations have been fully addressed.

The report discusses a number of themes within previous duplication reports, but devotes a large section on the increasing problem of improper payments by federal agencies. The federal government spent an estimated $125 billion in 2014 on improper payments across 124 programs, an increase of 18 percent from 2013.

Twelve programs exceeded $1 billion in improper payments in 2014. These twelve programs account for 93 percent of all improper payments, with the Earned Income Tax Credit (EITC), Medicare, and Medicaid comprising 76 percent.

GAO criticizes the Departments of Health and Human Services (HHS) and Treasury, which oversee Medicare and the EITC respectively, for failing to take the issue seriously enough. Both agencies were noncompliant with improper payment requirements for 2012, 2013, and 2014. The EITC’s error rate was greater than 10 percent in all three years. Medicare’s error rate exceeded 10 percent in 2013 and 2014.

The Congressional Budget Office predicts rapid growth in Medicare spending over the next decade, with spending increasing 89 percent from 2015 to 2025. HHS should do more to control improper payments.  Improper payments represented 10 percent of all Medicare spending in 2014. If HHS fails to control the problem and the error rate is constant, Medicare’s improper payments would be $118 billion in 2025.

GAO does not specify exact steps to reform these programs. It focuses its comments on “internal controls” and “auditor oversight.” Our solutions on DownsizingGovernment.org forMedicare and the EITC are more dramatic than what GAO endorses, but everyone should agree that reducing improper payments is an important way to save taxpayer money.

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