Improper Payments: Actions and Guidance Could Help Address Issues and Inconsistencies in Estimation Processes

Improper payments—which include payments that should not have been made or were made in an incorrect amount—are a long-standing, significant problem in the federal government, estimated at almost $141 billion for fiscal year 2017. Executive branch agencies are required to annually estimate improper payments for certain programs. Estimation of improper payments is key to understanding the extent of the problem and to developing effective corrective actions. Relevant laws and guidance provide agencies flexibility in developing estimates.

This report describes agencies' processes to estimate improper payments in selected programs for fiscal year 2017 and the extent to which certain differences in these processes can affect the usefulness of the resulting estimates. GAO selected 10 programs across six agencies with the largest reported program outlays in fiscal years 2015 and 2016. For these programs, GAO reviewed relevant laws and guidance, analyzed agencies' policies and procedures, and interviewed officials at relevant agencies and OMB staff.

The six agencies GAO reviewed reported taking various approaches related to key components of estimating improper payments—shown in the figure below—for 10 selected programs, which collectively reported outlays of over $2.5 trillion for fiscal year 2017.

Sample selection. Eight of the 10 programs GAO reviewed reported using statistically valid approaches, and the remaining 2 reported using alternative methodologies approved by the Office of Management and Budget (OMB). The sampled data elements varied, including payments, medical claims, and tax returns. The age of the data used to develop fiscal year 2017 improper payment estimates also varied, ranging from calendar year 2013 to fiscal year 2017.

Identification of improper payments. Some of the six agencies reported using processes designed specifically to estimate improper payments, whereas others reported leveraging existing reviews. These agencies' policies and procedures include a review of aspects of eligibility, except for those related to the Department of Defense's (DOD) Military Pay and the Office of Personnel Management's (OPM) Retirement overpayments. DOD and OPM have not fully assessed whether their estimation processes effectively consider key program risks. OMB guidance does not specifically address how agencies are to test to identify improper payments, such as using a risk-based approach to help ensure that key risks of improper payments are addressed.

The six agencies also varied in the treatment of insufficient documentation, both in identifying and in reporting the root causes of improper payments. For the agencies that contact entities outside the agency to estimate improper payments, the treatment of nonresponse differed, with one agency including nonresponses as improper payments and another generally excluding the nonresponse cases from review. Although OMB guidance states that agencies should treat cases of insufficient documentation as improper payments, it does not specifically address the treatment of nonresponse cases.

Calculation of the improper payment estimate. The six agencies generally reported using law and OMB guidance to calculate improper payment estimates for the selected programs, except for the Earned Income Tax Credit (EITC). The Internal Revenue Service (IRS) removed overpayments that were recovered when developing its estimate. OMB guidance requires agencies to include recovered amounts in their estimates. Removing these overpayments understates the EITC improper payment estimate and may limit IRS's ability to develop corrective actions to prevent improper payments.

GAO recommends that OMB develop guidance on treatment of nonresponse cases and testing to identify improper payments, that DOD and OPM assess their estimation processes, and that IRS revise its methodology to not exclude recovered payments from its estimate. All of the agencies either agreed or partially agreed with the specific recommendations to them. GAO believes that the actions are warranted, as discussed in the report.

Improper payments are a long-standing, significant problem in the federal  government. In fiscal year 2017 alone, estimates of improper payments  totaled almost $141 billion government-wide. The Improper Payments  Information Act of 2002 (IPIA), as amended by the Improper Payments  Elimination and Recovery Act of 2010 (IPERA) and the Improper  Payments Elimination and Recovery Improvement Act of 2012 (IPERIA),  requires executive branch agencies to annually estimate improper  payments for programs they determine to be susceptible to significant  improper payments, among other things.

Although agencies report improper payment estimates annually, in our  report on the Fiscal Year 2017 Financial Report of the U.S. Government  we continued to report a material weakness in internal control related to  improper payments because the federal government is unable to determine the full extent to which improper payments occur and  reasonably assure that appropriate actions are taken to reduce them. In  addition, some inspectors general have reported issues related to  agencies’ improper payment estimates, including methodologies that may  not produce reliable estimates.

Estimation of improper payments is key to understanding the extent of the  problem and to developing effective corrective actions to address it.  Relevant laws and guidance provide agencies flexibility in developing  improper payment estimates, and agencies use a variety of processes to  develop their improper payment estimates.

We prepared this report under the authority of the Comptroller General to  conduct evaluations on his own initiative and support congressional  oversight of issues of national importance. This report describes  agencies’ processes to estimate improper payments in selected programs  for fiscal year 2017 and the extent to which certain differences in these  processes can affect the usefulness of the resulting estimates.

To select programs for review, we first identified those programs that  reported improper payment estimates and had the largest program  outlays for either fiscal year 2015 or 2016. This yielded a  nongeneralizable sample of 11 programs at seven agencies. For these  programs, we reviewed the processes to estimate improper payments for  fiscal year 2017 (i.e., the improper payment estimates reported in  agencies’ fiscal year 2017 agency financial reports). Although the  Department of Agriculture’s (USDA) Supplemental Nutrition Assistance  Program (SNAP) met the criteria to be included in our review (based on  program outlays in fiscal year 2015 and reporting an improper payment  estimate in fiscal year 2015), the agency ultimately did not report an  improper payment estimate for the program in its fiscal year 2017 agency  financial report (AFR). According to its fiscal year 2017 AFR, the state- reported data for SNAP did not allow for a determination of state error  rates, which have been used in prior years to calculate a national SNAP  improper payment estimate. Therefore, we did not include SNAP in our  review of improper payment estimation methodologies. Consequently, we  reviewed the 10 programs at six agencies listed in table 1. Collectively,  reported program outlays for these programs totaled over $2.5 trillion for  fiscal year 2017.

To address our objective, we reviewed agencies’ policies and procedures  for estimating improper payments for these 10 programs, as well as the  information reported in agencies’ fiscal years 2016 and 2017 AFRs  regarding improper payments and their reported root causes. Further, we  interviewed relevant agency officials to obtain additional information about  the processes agencies use to estimate improper payments, as well as  Office of Management and Budget (OMB) staff to understand OMB’s role  in providing guidance and oversight to the agencies. We analyzed  similarities and differences between agencies’ processes and also  reviewed relevant laws, guidance, and internal control standards. We  focused our review on gaining an understanding of the processes  agencies use to estimate improper payments, and not on evaluating  whether these processes were properly designed or the extent to which  they were properly implemented.

We conducted this performance audit from November 2016 to May 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Executive branch agencies are required to take various steps regarding  improper payments under IPIA, as amended by IPERA and IPERIA, and  related OMB guidance. The steps include the following:  1.  reviewing all programs and activities and identifying those that may be  susceptible to significant improper payments (commonly referred to as  a risk assessment),  2.  developing improper payment estimates for those programs and  activities that the agency identified as being susceptible to significant  improper payments,  3.  analyzing the root causes of improper payments and developing  corrective actions to reduce them for those programs and activities  that the agency identified as being susceptible to significant improper  payments, and  4.  reporting on the results of addressing the foregoing requirements.

Figure 1 lays out these steps, as well as the major components of  developing an improper payment estimate. IPERA also directs executive  branch agencies’ inspectors general to annually determine and report on  whether their respective agencies complied with six criteria listed in the  law.

On an annual basis, agencies are required to develop improper payment  estimates for programs that they consider susceptible to significant  improper payments. This generally involves selecting a sample of  program payments (or other items, such as invoices) and reviewing them in order to determine whether the relevant payments were proper. OMB  guidance for developing improper payment estimates focuses on the  statistical nature of the estimates and provides agencies with flexibility in  developing their estimates. IPIA, as amended, provides the definition of  “improper payment” with IPERIA further instructing OMB to issue  guidance requiring agencies to include in the estimate all improper  payments, regardless of whether those payments have been or are being  recovered. OMB incorporated this requirement into Appendix C to  Circular No. A-123, Requirements for Effective Estimation and  Remediation of Improper Payments. In accordance with these relevant  laws and OMB guidance, agencies must apply “improper payment” in the  context of their programs when developing improper payment estimates.

The 10 programs we reviewed serve a variety of purposes and are  administered by various agencies across the federal government. Table 2  summarizes each of these programs.

Agency Processes to Estimate Improper Payments Varied, and Some Differences May Hinder the Usefulness of the Resulting Estimates

Aspects of Sample Selection, Including Sampling Approach and Age of Data, Varied

IPIA, as amended, requires agencies to develop statistically valid  improper payment estimates or estimates that are otherwise appropriate  using a methodology approved by the Director of OMB. The six agencies  we reviewed reported using either statistically valid or alternative  sampling approaches for the 10 selected programs, and some agencies  reported additionally incorporating actual improper payment amounts into  their estimates, as shown in table 3.

If an agency is unable to produce a statistically valid improper payment  estimate, it can use an alternative approach if approved by OMB. For  example, the Department of Education (Education) reported using an  alternative methodology for the Direct Loan program after conducting a  cost-benefit analysis comparing use of a statistical and an alternative  methodology. Similarly, the Department of Health and Human Services  (HHS) reported using an alternative methodology for Medicaid to better  manage resources needed to conduct the required reviews.

In addition to their statistical approaches, two agencies reported  incorporating actual improper payment amounts into the estimates for 2 of  the programs we reviewed. Officials at the Department of Defense (DOD)  stated that the agency calculates its Military Pay improper payment  estimate by adding the amount of debts due to DOD entered into its  financial system based on overpayments (i.e., debts due to DOD by a  recipient of an overpayment) identified during the fiscal year to a  projected estimate of improper payments. Officials at the Office of  Personnel Management (OPM) stated that the agency calculates its  Retirement program improper payment estimate by adding the amount of  debts due to OPM entered into its financial system based on  overpayments (i.e., debts due to OPM by a recipient of an overpayment)  identified during the fiscal year to a projected estimate of  underpayments.

To implement their sampling approaches, agencies select a sample of  data to test from a larger, specified population of data. For the six  agencies we reviewed, data sampled varied by program and include  payments, claims, tax returns, and pay accounts. For example, according  to their policies and procedures

DOD samples invoices related to payments made from 12 financial  systems for Defense Finance and Accounting Service Commercial  Pay,

HHS samples medical claims for Medicare Fee-for-Service, and

DOD samples pay accounts for Military Pay.

Agencies subject specific data populations to sampling, which may not  include all payments made for a program. Reasons for sampling  exclusions varied across programs, as shown by the examples in table 4.

Some of the selected agencies reported sampling multiple sets of data.  For example, for its Direct Loan improper payment estimate, Education  officials stated that the agency reviews Program Review Reports to  identify improper payments in originations and also samples loan  consolidation and refund payments. According to agency officials, Direct  Loan origination, consolidation, and refund transactions carry different  risks of improper payment.

To estimate improper payments for fiscal year 2017, the six agencies we  reviewed reported sampling and testing data that varied in age from  calendar year 2013 to fiscal year 2017. Figure 2 shows the range of data  used.

OMB guidance states that to the extent possible, data used for estimating  improper payments should coincide with the fiscal year being reported,  but agencies may use a different 12-month reporting period with approval  from OMB. OMB staff acknowledged there are costs and benefits to  sampling newer or older data. OMB staff stated that although they review  agencies’ sampling and estimation plans, they defer to the agencies  regarding the appropriateness of the age of data used to estimate  improper payments. OMB staff stated that they approve the timeframe of  the data used in alternative methodologies as part of the approval of the  methodology overall, whereas OMB silence provides tacit approval (i.e.,  no communication to the agency) for statistically valid methodologies.

Processes for Identifying Improper Payments Varied by Program, Including Consideration of Eligibility and Treatment of Nonresponses

After agencies determine what subsets of data and types of transactions  to review, they generally test the data and calculate their improper  payment estimates. Testing processes varied among the 10 programs,  with some of the six agencies using processes designed specifically to  estimate improper payments and others leveraging existing processes  designed for other purposes.

Some of the selected agencies reported using multiple testing processes  and combining the results to develop a program’s improper payment  estimate. For example, according to their policies and procedures  the Direct Loan estimate comprises three component estimates for  loan originations, consolidations, and refunds and  the Medicaid estimate includes fee-for-service, managed care, and  eligibility components.

Table 5 summarizes the processes used by the six agencies we  reviewed.

Although agencies’ testing processes varied, most included steps to  address aspects of eligibility of beneficiaries, goods, or services—a key  component of determining the appropriateness of a payment—in their  programs. For example, according to their policies and procedures  for Medicare Fee-for-Service, reviewers examine the medical  necessity, compliance with documentation requirements, and coding  of services provided, among other things;  for the Earned Income Tax Credit (EITC), auditors examine whether  the taxpayer properly reported income and whether the taxpayer  meets eligibility criteria, including income and qualifying child  requirements, and auditors examine, among other things, whether the  taxpayer is subject to a disallowance period on receiving EITC;  for Medicaid, reviewers examine fee-for-service claims and managed  care payments to determine the eligibility status of the beneficiary and  the provider, as well as support for the medical necessity of fee-for- service claims, among other things;  for Old-Age, Survivors, and Disability Insurance (OASDI), reviewers  examine factors to support the beneficiary’s eligibility, including,  among other things, citizenship, relationship (in the case of survivor  benefits), and receipt of other government benefits; and although Education’s Direct Loan program reviews can vary in scope,  they may include, among other things, steps to verify educational  institution eligibility (such as licensing and accreditation) and student  eligibility (such as enrollment status and satisfactory academic  progress).

In contrast, per their policies and procedures, eligibility is not tested for  DOD’s Military Pay or the overpayment component of OPM’s Retirement  estimate.

DOD Military Pay. DOD reported using the results of monthly payment  reviews to calculate a projected improper payment amount for Military  Pay. However, DOD’s policies and procedures do not require a review of  servicemember eligibility for special pay or allowances as part of these  monthly reviews. DOD’s Standard Operating Procedures (SOP) direct  reviewers to recalculate payments to servicemembers solely based on  the pay account data included in DOD systems (i.e., to verify that  components of servicemember pay were calculated appropriately).

DOD’s SOP does not direct reviewers to verify that servicemembers were  eligible for special pay or allowances by verifying the information included  in the pay account (such as pay grade) with supporting documentation.  According to DOD officials, reviewers may investigate potential  inconsistencies in pay account data identified during their reviews—which  may include eligibility issues—but this process is not consistently  performed or documented. According to DOD officials, an example of a  potential inconsistency is when a servicemember receives jump pay (a  hazard pay for parachute jumps) but is located at a site where no jump  activity occurred.

According to DOD officials, to help compensate for the limitations of its  monthly reviews, DOD calculates the final reported Military Pay improper  payment estimate by adding actual debts due to DOD (related to  overpayments) identified during the year to the projected estimate of the  monthly reviews. DOD identifies the actual overpayments through various  methods, including other postpayment reviews and servicemember self- reporting.

Standards for Internal Control in the Federal Government states that  management should identify, analyze, and respond to risks related to  achieving the defined objectives. DOD has acknowledged internal  control deficiencies related to the Military Pay program, which—if  addressed in improper payment testing—could have an impact on the  program’s improper payment rate. However, these deficiencies were  identified through other internal control reviews not related to estimating  improper payments. For the purposes of estimating improper payments,  DOD has not fully assessed the risks in its Military Pay program and  evaluated whether its approach for estimating improper payments  effectively addresses these risks. As a result, DOD’s process for  estimating Military Pay improper payments may not reflect significant  risks of improper payment in the program, specifically whether  servicemembers are eligible for the special pay or allowances they  receive, calling into question the improper payment estimate and its  usefulness for developing effective corrective actions.

OPM Retirement. OPM relies on its existing Quality Assurance (QA)  process to estimate Retirement underpayments. The QA process is  designed to determine whether new Retirement claims (i.e., claims paid  for the first time) have been adjudicated correctly. Therefore, only new  Retirement claims are sampled and tested for accuracy. OPM applies  historical results of QA testing to older claims; however, these historical  results do not reflect any different risks of underpayment that the older  claims may face.

Although OPM’s QA process also produces an estimate of overpayments,  the agency’s policies and procedures instead use actual debts due to  OPM (related to overpayments) that were identified during the fiscal year  as its overpayment amount (i.e., the overpayment amount does not reflect  any testing of Retirement payments to verify eligibility or accuracy). These  actual overpayments represent amounts that have been identified through  various means, such as inspector general fraud referrals. OPM officials  stated that the agency uses actual amounts because the QA estimate  may overstate overpayments. However, the fiscal year 2016 QA  overpayment estimate was lower than the actual amount of debts  identified as due to OPM.

Standards for Internal Control in the Federal Government states that  management should identify, analyze, and respond to risks related to  achieving the defined objectives. OPM has not fully assessed the risks  of improper payments in its Retirement program—particularly related to  the risk of underpayments in older claims and the risk of overpayments— and evaluated whether its approach for estimating improper payments  effectively addresses these risks. As a result, OPM’s processes for  estimating Retirement improper payments may not reflect significant risks  of improper payment in the program, calling into question the improper  payment estimate and its usefulness for developing effective corrective  actions.

OMB guidance. OMB issues guidance for agencies to implement various  requirements of the improper payment laws. Specifically, OMB is required  by IPERIA to issue guidance to set standards for agencies to follow in  determining the underlying validity of sampled payments to ensure that  amounts being billed, paid, or obligated for payment are proper. Although  existing OMB guidance addresses requirements for sampling, it does not  address how agencies test to identify improper payments, such as using  a risk-based approach to help ensure that key risks of improper  payments, like eligibility, are addressed through testing processes.  Without such guidance, there is increased risk that agencies’ processes  may not address key risks of improper payments in their programs—for  example, the cases of DOD Military Pay and OPM Retirement described  above—calling into question the improper payment estimates for such  programs and their usefulness for developing effective corrective actions.

According to OMB guidance, when an agency’s review is unable to  determine whether a payment was proper because of insufficient or lack  of documentation, the payment must be considered an improper  payment. Among the six agencies and 10 programs we reviewed,  treatment of insufficient documentation varied by program, as did the  classification of these issues for root cause reporting in the AFRs.

HHS’s programs were the only ones we reviewed that reported improper  payments in the insufficient documentation root cause category for fiscal  years 2016 or 2017, as shown in table 6.

Some agencies stated that they report insufficient documentation in other  root cause categories that they consider more appropriate. For example,  Education officials stated that for the Direct Loan program, payments that  lack sufficient supporting documentation may be placed in the  “Administrative or Process Error Made by Other Party” root cause  category. In these cases, a third party—such as a loan servicer—is  unable to provide sufficient documentation supporting that the sampled  payment was proper. OMB guidance states that in cases where the  agency believes that more than one root cause category might be  suitable, the agency should determine which category it believes to be the  most appropriate.

Additionally, some agencies stated that the “insufficient documentation”  category was not always relevant when they recreated sampled cases to  estimate a program’s improper payments. For example, according to  officials, to complete an OASDI stewardship review of a sampled case, a  Social Security Administration (SSA) quality reviewer reviews the  documentation related to the original determination and then  independently re-develops all factors of the payment and interviews the  associated beneficiary. According to agency officials, insufficient  documentation would not apply as all improper payments identified in the  stewardship sample are supported by documentation and payment has  been verified in all reviewed cases.

As noted previously, the processes for estimating DOD Military Pay and  OPM Retirement improper payments were limited, and these limitations  may have an impact on the agencies’ ability to identify improper  payments related to insufficient documentation.

Treatment of cases of nonresponse. Some agencies contact outside  entities—such as payees or beneficiaries—as part of their improper  payment testing processes. Among the six agencies we reviewed,  treatment of cases of nonresponse differed. For example:

SSA officials stated that in cases where quality reviewers do not  receive responses from OASDI beneficiaries they contact, they  exclude the cases from review (unless the reviewer identifies an  improper payment in the initial review that is completed prior to  reaching out to the beneficiary).

For EITC improper payment estimation purposes, the Internal  Revenue Service (IRS) stated that the agency does not consider the  sampled payment associated with a nonresponse case to be proper  or improper. It sets the sampling weight of nonresponse cases to zero  and adjusts the sampling weights of respondents upward to account  for the nonresponse cases. IRS’s methodology assumes  nonresponse and response cases have an equal likelihood of  improper payment.

For Medicare Fee-for-Service and Medicaid, HHS’s policies and  procedures consider payments associated with nonresponse cases to  be improper.

OMB guidance states that when an agency’s review is unable to discern  whether a payment was proper as a result of insufficient or lack of  documentation, this payment must be considered an improper payment.  However, it does not specifically address the appropriate treatment of  nonresponse cases for improper payment estimation purposes. As a  result, without clearer guidance there is increased risk that agencies’  improper payment estimates may be understated and that estimates for  similar programs may not be comparable.

Except for IRS, Selected Agencies Generally Reported Using Law and OMB Guidance to Calculate Improper Payment Estimates

Calculation of Improper Payment Estimates

When agencies identify improper payments, they must determine the  amount of the payment that was improperly made. The six agencies we  reviewed generally reported using the definition of improper payment in  relevant laws and OMB guidance to determine the amount of improper  payments identified. OMB guidance provides agencies with instructions  on how to calculate the amount of improper payments.

However, when developing its improper payment estimate for EITC, IRS  subtracted overpayments that were paid out and later recovered. By  subtracting recovered overpayments, IRS excluded them from the EITC  improper payment estimate. For 2013—the tax year used to produce the  fiscal year 2017 improper payment estimate—IRS estimated that   $1.2 billion in EITC overpayments would be recovered.

IPERIA directed OMB to provide guidance that requires agencies to  include all improper payments in their improper payment estimates,  regardless of whether they have been or are being recovered. Although  the OMB guidance was revised in October 2014 to implement this  requirement, IRS has not updated its estimation methodology for EITC.  By not updating its guidance and continuing to remove EITC  overpayments that may be subsequently recovered, IRS is understating  its improper payment estimate and potentially limits its ability to address  these types of improper payments before they occur.

Improper payments are a long-standing, significant problem in the federal  government. Estimation of improper payments is key to understanding the  extent of the problem and to developing effective corrective actions to  address it. Among the six agencies we reviewed, processes to estimate  improper payments in their programs varied, and certain differences in  these processes may affect the quality of the resulting estimates and  consequently these agencies’ efforts to reduce improper payments.  Specifically, policies and procedures for DOD’s Military Pay and OPM’s  Retirement programs’ improper payment estimation methodologies do not  address certain key risks, like eligibility, in part because these agencies  have not fully assessed their processes. Further, although OMB guidance  addresses requirements for sampling, it does not address how agencies  test to identify improper payments. Without such assessments and  guidance, there is increased risk that agencies’ processes may not  address key risks of improper payments in their programs, calling into  question the improper payment estimates for such programs and their  usefulness for developing effective corrective actions.

Additionally, for agencies we reviewed that contact outside entities as part  of their improper payment estimation processes, the treatment of cases of  nonresponse varied. OMB guidance does not specifically address the  appropriate treatment of nonresponse cases for improper payment  estimation purposes. Without clearer guidance there is increased risk that  agencies’ improper payment estimates may be understated and that  estimates for similar programs may not be comparable.

Finally, although IPERIA directed OMB to provide guidance that requires  agencies to include all improper payments in their improper payment  estimates, regardless of whether they have been or are being recovered,  IRS has not updated its processes to reflect the change. By not updating  its guidance and continuing to remove EITC overpayments that may be  subsequently recovered, IRS is understating its improper payment  estimate and potentially limits its ability to address these types of  improper payments before they occur.

We are making two recommendations to the Director of OMB that have  government-wide implications and specific recommendations to DOD,  OPM, and IRS regarding their programs included in this review.

The Director of OMB should develop guidance on how agencies test to  identify improper payments, such as using a risk-based approach to help  ensure that key risks of improper payments, such as eligibility, are  addressed through testing processes. (Recommendation 1)

The Director of OMB should develop guidance clarifying the appropriate  treatment of nonresponse cases during improper payment testing.  (Recommendation 2)

The Under Secretary of Defense (Comptroller) should assess the  processes for estimating Military Pay improper payments to determine  whether they effectively address key risks of improper payments— including eligibility for different types of pay and allowances—and take  steps to update the processes to incorporate key risks that are not  currently addressed. (Recommendation 3)

The Director of OPM should assess the processes to estimate Retirement  improper payments to determine whether they effectively address key  risks of improper payments—including eligibility and whether older claims  face different risks of improper payments than new claims—and take  steps to update the processes to incorporate key risks that are not  currently addressed. (Recommendation 4)

The Commissioner of IRS should update IRS’s improper payment  estimation methodology to not exclude recovered overpayments from its  EITC improper payment estimate. (Recommendation 5)

We provided a draft of this report for comment to OMB, DOD, Education,  HHS, Treasury, OPM, SSA, and USDA. OMB provided oral comments,  which are summarized below. OPM, DOD, and IRS provided written  comments, which are reproduced in appendixes II through IV,  respectively. Education, HHS, SSA, and USDA did not provide written  comments on the draft report. In addition, HHS, IRS, OMB, OPM, and  SSA provided technical comments, which we have incorporated, as  appropriate.

In oral comments provided on April 30, 2018, a Senior Policy Advisor in  OMB’s Office of Federal Financial Management stated that OMB partially  agreed with our first recommendation and agreed with our second  recommendation.

Regarding the first recommendation, the Senior Policy Advisor stated  that OMB should not have to develop more specific guidance as each  program and activity has its own risks. Instead, inspectors general are  better equipped and positioned to review the sampling and estimation  plans as part of their annual IPERA compliance audits and that  agencies, their statisticians, and inspectors general should work out  the best testing procedures for their agencies. OMB could provide  suggestions during OMB’s annual town hall meeting related to  improper payments for areas that inspectors general may consider.  Although we agree that programs and activities may face different  risks of improper payment, we continue to believe that guidance from  OMB on how agencies test to identify improper payments—such as  directing agencies to take a risk-based approach in developing their  testing procedures—could help ensure that agencies address the  specific risks they identify when developing improper payment  estimates. Further, such guidance could also help ensure that testing  processes are designed to address an agency’s identified risks before  the estimate is developed, whereas an inspector general’s review—as  well as related recommendations for improvement—would generally  occur after the agency’s improper payment estimate had been  developed and reported.

Regarding the second recommendation, the Senior Policy Advisor  noted that OMB plans to update its guidance to direct agencies to  treat nonresponse cases as improper payments and to include a new  category for tracking such cases.

In its written comments, OPM partially concurred with our  recommendation to assess the processes to estimate Retirement  improper payments to determine whether they effectively address the key  risks of improper payments. OPM agreed to conduct an audit of older  claims to determine if they face different risks than new claims. However,  OPM did not agree with the part of the recommendation to assess the risk  of improper payments related to eligibility in the estimation process. OPM  stated that eligibility is determined before annuity or survivor benefits are  fully adjudicated. However, the objective of an improper payment  estimate is to determine whether payments were made properly. To do  so, an agency should determine whether the payee was eligible for the  payment that was made, among other things. As such, we continue to  believe that the recommendation—including the assessment of the risk of  improper payments related to eligibility—is warranted.

In their written comments, DOD and IRS both agreed with our  recommendations directed to them and described the steps they plan to  take to implement them.

We are sending copies of this report to the appropriate congressional  committees; the Secretaries of Agriculture, Defense, Education, Health  and Human Services, and the Treasury; the Director of the Office of  Personnel Management; the Administrator of the Social Security  Administration; the Director of the Office of Management and Budget; and  other interested parties. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix V.

Appendix I: Reported Improper Payment Estimates by Agency and Program for Fiscal Year 2017

Table 7 lists the fiscal year 2017 improper payment estimates by agency  and program, as reported by agencies in their fiscal year 2017 agency  financial reports and compiled on the Office of Management and Budget’s  payment integrity website, paymentaccuracy.gov.

Appendix II: Comments from the Office of Personnel Management

Appendix III: Comments from the Department of Defense

Appendix IV: Comments from the Internal Revenue Service

Appendix V: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Phillip McIntyre (Assistant  Director), James M. Healy (Auditor in Charge), Daniel Flavin, and Fabiola  Torres made key contributions to this report.