Obama Crackdown on Improper Payments

April 1, 2010

When the president’s health care reform was causing public angst, the administration announced a crackdown on fraud and abuse in government health programs. Now that the public is getting agitated over the president’s massive deficits, the administration says that it is going to crack down on improper payments made by all government programs, which totaled $100 billion in 2009 according to government estimates. 

The administration is selling the effort as being taxpayer-friendly. But if the administration were to magically make all improper payments disappear, what would it mean for taxpayers? Probably not much unfortunately. Under the administration’s latest budget proposal, the federal government will consume a quarter of the nation’s output for years to come. Would Congress or the president pass on any savings from the fraud crackdown to taxpayers? I haven’t heard of any such plans. Any savings would apparently just go to expanding programs.
The best way to reduce improper payments is to reduce the overall size of government. An article in GovExec.com points out that a chief reason why the price tag for improper payments is rising is because the government keeps getting bigger: 
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…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. 
In reviewing the OMB’s new guidelines for how federal agencies are supposed to calculate and report improper payments, a couple of issues caught my attention.
On the role of the inspectors general, the guidelines state: 
1. Nothing in this Guidance should be construed to impair the authority of an Inspector General under the Inspector General Act of 1978 or any other law. However, because the recovery audit program required by this Guidance is an integral part of the agency’s internal control over contract payments, and therefore a management function, independence considerations would normally preclude the Inspector General and other agency external auditors from carrying out management’s recovery audit program.
2. Agencies’ Inspectors General and other external agency auditors are encouraged to assess the effectiveness of agencies’ recovery audit programs as part of their internal control work on existing audits (e.g., the annual financial statement audit, or as a separate audit). 
Perhaps the IGs wouldn’t have the resources to perform this function, but the language appears to be too constricting. “Independence considerations” can be a problem when the fox is guarding the henhouse as the temptation exists for program managers to massage ugly data. The IGs and the Government Accountability Office should be more involved.
When I was a budget official at the state of Indiana, I noticed that the internal audit controls in state agencies were compromised by a lack of independence. Certain agency heads weren’t fond of having problems brought to their attention, let alone the attention of our office or the public.  
An example of this recently occurred in Pennsylvania where the state Department of Welfare reported an improper payment rate for state’s Medicaid program of 4 percent. However, when Pennsylvania’s auditor general’s office audited the program, it found an improper payment rate that was more than three times higher.
The issue of the quality of state oversight leads to another problem: federal programs that are managed by state and local government. The guidelines simply state: 
Agencies that have Federally-funded, State-administered programs, especially any that are deemed high-priority, should work at the Federal, State, and local levels to reduce improper payments and to implement the requirements of the Executive Order. 
Having researched many federal programs that are administered by the states, a common theme is that state oversight is inconsistent and usually lacking. Some states independently audit their programs to varying degrees, while others rely solely on internal controls, as in the case of Indiana. Moreover, federal oversight of state management appears to be more focused on bureaucratic compliance than conducting any serious reviews. 
See this essay for more on fraud and abuse in government programs.
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