Improper Payments Information Act of 2002: Background, Implementation, and Assessment

Improper Payments Information Act of 2002: Background, Implementation, and Assessment

Improper Payments Information Act of 2002:
Background, Implementation, and
Assessment
Garrett Hatch
Analyst in American National Government
Virginia A. McMurtry
Specialist in American National Government
October 4, 2010
Congressional Research Service
7-5700
www.crs.gov
RL34164
CRS Report for Congress
P
repared for Members and Committees of Congress

Improper Payments Information Act of 2002

Summary
On November 26, 2002, the Improper Payments Information Act (IPIA) was signed into law as
P.L. 107-300 (116 Stat. 2350). The law requires agencies to identify each year programs and
activities vulnerable to significant improper payments, to estimate the amount of overpayments or
underpayments, and to report to Congress on steps being taken to reduce such payments.
OMB’s guidance for IPIA implementation, while consistent with some provisions of the act, has
been criticized on several counts. Whereas the statute required agencies to report to Congress on
all programs with more than $10 million in estimated improper payments, OMB added an
additional threshold, such that agencies must only report on programs with improper payments
that exceed both $10 million and 2.5% of total program payments. Critics have identified a
number of examples of programs with improper payments over $10 million that are not reported
to Congress because they do not also meet the 2.5% threshold.
OMB’s guidance has also been criticized for permitting agencies to exempt some programs from
the IPIA’s annual requirement for risk assessment. Under the act, every program and activity is to
be reviewed each year. OMB’s guidance, however, now allows agencies to review a program
once every three years if it has been deemed low-risk. Critics say this leaves open the possibility
that improper payments might go undetected during the exemption period.
For FY2009, OMB reported a government-wide error rate of 5.0% and total improper payments
of $98 billion. This figure does not cover all at-risk outlays which lack improper payment
estimates and are not yet reflected in the error rate or improper payment amounts. Until valid
estimates become available for all risk-susceptible programs, the full extent of the improper
payments problem will remain unknown.
On November 20, 2009, President Obama issued E.O. 13520, “Reducing Improper Payments and
Eliminating Waste in Federal Programs.” A White House memorandum regarding “Finding and
Recapturing Improper Payments” followed on March 10, 2010. On March 22, 2010, OMB issued
government-wide guidance on the implementation of E.O. 13520.
In the 111th Congress, Senator Carper introduced S. 1508, the Improper Payments Elimination
and Recovery Act (IPERA) of 2009 in July 2009. The Senate passed S. 1508 in June 2010, and
the House approved the bill in July 2010 by a vote of 414-0. President Obama signed the measure
into law on July 22, 2010 (P.L. 111-204).
IPERA codifies portions of OMB’s guidance—a not uncommon practice—and establishes new
improper payments requirements for agencies. Provisions in the new law revise requirements for
estimating improper payments and direct agency heads to produce statistically valid estimates; set
forth risk factors for conducting improper payment reviews; expand agency reporting
requirements on actions to reduce improper payments; require the Director of OMB to report
annually to Congress and GAO on actions agencies have taken to report on and recover improper
payments; stipulate specific procedures for conducting recovery audits and for agency heads to
follow in disposition of amounts recovered; require a study of the implementation and cost
effectiveness of recovery audits; and require the inspectors general to assess each fiscal year
whether their agencies are in compliance with the IPERA and to report to Congress and to GAO
on same. This report will be updated as needed.

Congressional Research Service

Improper Payments Information Act of 2002

Contents
Background ................................................................................................................................ 1
Legislative History and Intent ............................................................................................... 1
Major Provisions................................................................................................................... 2
Previous Improper Payment Efforts....................................................................................... 2
Implementation ........................................................................................................................... 3
Initial Guidance From OMB.................................................................................................. 3
Revision of OMB Circular A-123.......................................................................................... 3
Scorecard Standards and Ratings........................................................................................... 4
Subsequent Developments..................................................................................................... 7
Additional Provisions in 2008 ......................................................................................... 7
Initiatives in the Obama Administration .......................................................................... 7
Trends in Improper Payments...................................................................................................... 9
Error Rate ............................................................................................................................. 9
Error Rate Projections ................................................................................................... 11
Amount of Improper Payments............................................................................................ 11
Federal Outlays................................................................................................................... 12
Improper Payment Causes................................................................................................... 12
Issues........................................................................................................................................ 13
Reporting Threshold ........................................................................................................... 13
Annual Review Exemption.................................................................................................. 14
Agency Corrective Actions.................................................................................................. 15
Concerns of Program Integrity ............................................................................................ 16
Recovery and Payment Recapture Audits ............................................................................ 18
Congressional Oversight ........................................................................................................... 20
Developments in the 110th Congress .................................................................................... 20
Developments in the 111th Congress .................................................................................... 22
Actions Prior to Enactment of Amendments to the IPIA ................................................ 22
Improper Payments Elimination and Recovery Act (IPERA) of 2010............................. 24

Figures
Figure 1. Eliminating Improper Payments Initiative’s Quarterly Scorecards, FY2004-
FY2008.................................................................................................................................... 6

Tables
Table 1. Improper Payment Trends, FY2004-FY2008.................................................................. 9
Table 2. Cohort Error Rates, FY2004-FY2008........................................................................... 10

Contacts
Author Contact Information ...................................................................................................... 27

Congressional Research Service

Improper Payments Information Act of 2002

Background
Legislative History and Intent
On November 26, 2002, the Improper Payments Information Act (IPIA) was signed into law as
P.L. 107-300 (116 Stat. 2350). Augmenting previous financial management reform laws, the IPIA
is intended to increase financial accountability in the federal government, and thereby reduce
wasteful spending. The law requires agencies to identify each year programs and activities
vulnerable to significant improper payments, to estimate the overpayments or underpayments
exposure, and to report on steps taken to reduce such payments. As explained more fully below,
improper payments generally include any payment that should not have been made or was made
for an incorrect amount.
Previously, there was no government-wide requirement for agencies to estimate or report in any
systematic way on improper payments, although it is generally acknowledged that billions of
dollars are involved. The Office of Management and Budget (OMB) estimated, for example, that
in FY2005, improper payments under 47 federal programs totaled approximately $37.3 billion.1
The IPIA was introduced in the 107th Congress as H.R. 4878 on June 6, 2002, by Representative
Stephen Horn, with a group of bipartisan cosponsors, and referred to the House Committee on
Government Reform. The Subcommittee on Government Efficiency, Financial Management, and
Intergovernmental Relations held a markup on the measure on June 18, 2002, and approved the
bill, as amended, by unanimous voice vote. On July 9, 2002, H.R. 4878 was considered under a
suspension of the rules and passed the House, as amended, by voice vote. On October 9, 2002, the
Senate Committee on Governmental Affairs ordered H.R. 4878 to be reported favorably, with a
substitute amendment. On October 17, 2002, the bill, as amended, passed the Senate by
unanimous consent, and on November 12, under a suspension of the rules, the House agreed to
the Senate amendment by voice vote. The President signed H.R. 4878 into law on November 26,
2002 (P.L. 107-300).
The problem of improper payments had received attention in previous Congresses. During House
floor debate on H.R. 4878, Representative Horn noted that hearings held in the past “clearly
demonstrated the need” for such legislation.
Since the 104th Congress, the subcommittees I have chaired have held approximately 100
hearings on wasteful spending within the Federal Government. Time and again witnesses
from the General Accounting Office and agency inspectors general have told the
subcommittee that poor accounting systems and procedures have contributed to the
government’s serious and long-term problems involving improper payments.2
In the written report of the Senate Committee on Governmental Affairs to accompany H.R. 4878,
the provisions of the bill were explicitly linked to GAO recommendations offered in a best

1 Testimony of Clay Johnson III, Deputy Director for Management, Office of Management and Budget, U.S. Congress,
Statement before Senate Subcommittee on Federal Financial Management, Government Information, and International
Security, An Assessment of Improper Payment Information Act of 2002, hearings, 109th Cong., 2nd sess., December 5,
2006, at http://hsgac.senate.gov/_files/ClayJohnsonTestimony05Dec2006ImproperPayments.pdf.
2 Rep. Stephen Horn, “Debate on H.R. 4878,” remarks in the House, Congressional Record, daily edition, vol. 148
(July 9, 2002), p. H4379.
Congressional Research Service
1

Improper Payments Information Act of 2002

practices guide for agencies in managing improper payments, prepared at the request of the
committee chairman, Senator Joseph Lieberman. The guide suggested that determining the nature
and extent of risks for improper payments was a crucial step; H.R. 4878 would begin the process
of improving the management of improper payments, following GAO’s guidance, “by requiring
that agencies annually estimate the amount of improper payments, and report on the steps they are
taking to reduce the amounts of those payments in the largest programs.”3
Major Provisions
The IPIA directs each executive branch agency, in accordance with OMB guidance, to review all
its programs and activities each year, identify those susceptible to significant improper payments,
and estimate the amount of improper payment exposure. Agencies are then to report annually to
Congress on improper payments, using a standardized methodology determined by OMB.4
With respect to any program or activity with estimated annual improper payments exceeding $10
million, each agency is also required to provide a report on agency actions to reduce such
improper payments, including (1) the causes of the improper payments and the results of the
actions taken to address them; (2) whether the agency has information systems and other
necessary infrastructure to reduce such payments to “minimal cost-effective levels”; (3) if not,
budgetary resources requested to accomplish needed changes in information systems and
infrastructure; and (4) steps the agency has taken to ensure that managers are held accountable for
reducing improper payments.
Improper payment is defined as any payment that should not have been made or that was made in
an incorrect amount. This includes duplicate payments, payments to ineligible recipients or for
ineligible services, or for services not received or that do not reflect applicable discounts. The act
covers payments made by a federal agency, a federal contractor, or a governmental or other
organization administering a federal program or activity.
Previous Improper Payment Efforts
The IPIA codified and expanded efforts already underway in the executive branch to reduce
improper payments. In 2001, the Bush Administration designated improving financial
performance as one of five government-wide initiatives in the President’s Management Agenda
(PMA). The establishment of a baseline on the extent of erroneous (improper) payments for
major federal benefit programs was a key component of the financial management initiative.5
Agencies were to include information on erroneous payment rates for benefit and assistance

3 See General Accounting Office, Strategies to Manage Improper Payments, GAO-02-69G, October 2001. Cited in
U.S. Congress, Senate Committee on Governmental Affairs, Improper Payments Information Act of 2002, report to
accompany H.R. 4878, 107th Cong., 2nd sess., S.Rept. 107-333 (Washington: GPO, 2002), p. 2.
4 The IPIA originally set a deadline of March 31 for agencies to report to Congress on their improper payments in the
prior fiscal year. The improper payments reports are now included in the performance and accountability reports, or
PARs, due to the President (via OMB) and Congress 45 days after the close of an agency’s fiscal year, generally
November 15. See OMB Circular A-136, “Form and Content of the Performance and Accountability Report (PAR),” at
http://www.whitehouse.gov/OMB/bulletins/b01-09.pdf.
5 See U.S. Office of Management and Budget (OMB), The President’s Management Agenda—FY2002 (Washington:
OMB, 2001), pp. 19-21. For an overview of the PMA, see CRS Report RS21416, The President’s Management
Agenda: A Brief Introduction, by Virginia A. McMurtry.
Congressional Research Service
2

Improper Payments Information Act of 2002

programs over $2 billion as part of their FY2003 budget submissions. In July 2001, revisions to
OMB Circular A-11 in Section 57 implemented this objective, requiring 15 federal agencies to
include improper payment information with their initial FY2003 budget materials to OMB.
Enactment of the IPIA extended improper payment reporting requirements to all executive branch
departments and agencies, lowered the threshold from $2 billion to $10 million, and designated
Congress (as well as OMB) to receive the annual agency reports.
Implementation
Initial Guidance From OMB
In May 2003, OMB distributed a guide to instruct agencies on the implementation of the IPIA.6
The guide provided detailed definitions of “improper” or “erroneous” payments and of “program”
and “activity,” and then outlined four steps to be taken by the agencies. First, agencies were
required to review systematically all their programs and activities and identify those which are
susceptible to significant erroneous payments, defined as “annual erroneous payments in the
program exceeding both 2.5% of the program payments and $10 million.” Second, agencies were
to determine an annual estimated amount of erroneous payments made in those programs and
activities found susceptible to significant errors; this calculation was to be based on a statistical
random sample sufficiently large “to yield an estimate with a 90 percent confidence interval”
within 5% precision. The third step was to determine why the particular programs were at risk,
and then put in place a plan to reduce the erroneous payments. The last step was agency reporting
to the President (via OMB) and Congress on the estimates of the annual amount of erroneous
payments in its programs and activities and on progress in reducing them.
Revision of OMB Circular A-123
In the summer of 2006, OMB issued a new appendix to OMB Circular A-123,7 updating the
guidance in M-03-13. Appendix C, titled “Requirements for Effective Measurement and
Remediation of Improper Payments,”8 contained two parts; the first addressed IPIA reporting and
the second, recovery auditing.9 It began with new language, expanding and clarifying the
definition of an improper payment:
An improper payment is any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other legally applicable
requirements. Incorrect amounts are overpayments and underpayments (including
inappropriate denials of payment or services). An improper payment includes any payment

6 OMB, “Improper Payments Information Act of 2002 (P.L. 107-300),” Memorandum for Heads of Executive
Departments and Agencies from Mitchell E. Daniels, May 21, 2003, M-03-13. IPIA guidance was subsequently revised
and incorporated into Appendix C of OMB Circular A-123.
7 See OMB, Management’s Responsibility for Internal Controls, Circular No. A-123 revised, December 21, 2004, at
http://www.whitehouse.gov/omb/circulars/a123/a123_rev.pdf.
8 See OMB, “Requirements for Effective Measurement and Remediation of Improper Payments,” Appendix C to OMB
Circular A-123, August 10, 2006, available at http://www.whitehouse.gov/omb/circulars/a123/a123_appx-c.pdf.
Hereafter, Appendix C.
9 Recovery auditing is designed to identify and then recoup erroneous payments by reviewing large volumes of
purchase and contract records using ongoing, systematic procedures for data analysis.
Congressional Research Service
3

Improper Payments Information Act of 2002

that was made to an ineligible recipient or for an ineligible service, duplicate payments,
payments for services not received, and payments that are for the incorrect amount. In
addition, 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 also be considered in
error.10
Other noteworthy features in the update included provisions for alternative sampling
methodologies, reporting requirements for certain low risk programs, and guidance for federal
agencies that fund state-administered programs. The revision also contained a best practices
listing for preventing, identifying, detecting, and recovering improper payments. Finally, while
the definition of “significant erroneous payments” found in the previous OMB guidance was
retained, A-123 Appendix C provided elaboration: “OMB may determine on a case-by-case basis
that certain programs that do not meet the threshold requirements ... may still be subject to the
annual PAR reporting requirement. This would most likely occur in programs with relatively high
annual outlays.”11
Scorecard Standards and Ratings
The Bush Administration designated Eliminating Improper Payments (EIP) as a separate program
initiative in the PMA in 2004.12 Under the EIP initiative, 15 federal agencies received quarterly
scorecard ratings from OMB for their efforts to identify, eliminate, and recover improper
payments.13 The scorecard used a stoplight rating system of green for success, yellow for mixed
results, and red for unsatisfactory. Agencies were rated against six EIP “standards for success,” or
core criteria (listed below). If an agency met all six of the criteria, it received a “green” rating; if
it met the first four criteria, but not the fifth and sixth, it was rated “yellow”; and if an agency
failed to meet any one of the first four criteria it was rated “red.” The criteria an agency had to
meet to “get to green” in the EIP initiative included the following:
• Have a risk assessment in place that identifies all programs that are at significant
risk of improper payments;
• Have an OMB-approved plan for measuring improper payments on an annual
basis and meet milestones established in the plan;
• Have an OMB-approved corrective action plan that includes reduction targets;
• Be in compliance with improper payments reporting requirements;

10 Appendix C, p. 2.
11 Ibid., p. 4. An example is given of a program with $10 billion in annual outlays and a 1% error rate (below the 2.5%
error rate threshold), yet resulting in $100 million in improper payments. In such an instance, OMB may require that
the program be designated as high risk and included in the agency’s annual PAR (as a part of IPIA reporting).
12 See discussion in Fiscal Year 2006 Budget of the U.S. Government (Washington: GPO, 2005), p. 54. OMB,
Improving the Accuracy and Integrity of Federal Payments, January 25, 2005, p. i, at http://www.whitehouse.gov/
results/agenda/ipia_govt_wide_report.pdf.
13 The 15 agencies that receive scorecard ratings for Eliminating Improper Payments are: the Departments of
Agriculture, Defense, Education, Health and Human Services (HHS), Homeland Security (DHS), Housing and Urban
Development (HUD), Labor, Transportation (DOT), Treasury, and Veterans Affairs (VA); and the Environmental
Protection Agency (EPA), the National Science Foundation (NSF), the Office of Personnel Management (OPM), the
Small Business Administration (SBA), and the Social Security Administration (SSA). Acronyms cited are used in
Figure 1.
Congressional Research Service
4

Improper Payments Information Act of 2002

• Demonstrate that improper payments are being reduced consistent with reduction
targets; and
• Have established improper payment recovery targets, and show it is actively
meeting these targets.14
As indicated in Figure 1, results in the initial round for the EIP scorecards, released December
31, 2004, indicated that no agencies received “green,” five were “yellow,” and 10 were “red.”15
By December 31, 2008, the scorecard showed that nine agencies were “green” in status, five
agencies were “yellow,” and one was “red.” In four years, the number of agencies receiving green
increased from zero to nine, and the number of agencies receiving red declined from 10 to one.
The first agency to attain green was the Department of Housing and Urban Development (HUD)
on the June 2005 scorecard, joined the next quarter by the Department of Labor. The only agency
to receive red grades throughout the period depicted was the Department of the Treasury.
Further examination of the data in Figure 1, however, discloses a more complicated picture. For
example, the first three quarters in FY2007 had the same totals for the red (two), yellow (nine),
and green (four) grades. Yet, there were noteworthy changes from the March to June 2007 ratings:
HHS advanced from red to yellow, while DHS slipped from yellow back to red.
With respect to the scorecards depicted in Figure 1, the grades recorded for June 30, 2007, and
September 30, 2007, were identical, as were the grades for December 31, 2007, and March 31,
2008. During those four quarters, HUD slipped from green to yellow for December 2007 and
March 2008, but had returned to green by June 30, 2008. The only other change during this
period was the movement of SBA from yellow to green. One might arguably suggest that many of
the agencies (8 out of 15) experienced some difficulty in progressing from yellow to green in the
scorecards. The scores for the final two quarters reflected only improvements; five agencies
advanced from yellow to green, and one from red to yellow.
The up and down arrows in Figure 1 indicate a change in grade from the previous quarter. During
the 17 quarters covered, there were 23 instances where an agency’s grade changed from one
quarter to the next. Most of the changes (19) reflected an improvement in rating, with the
National Science Foundation (NSF) jumping from red to green in the final quarter of 2005 (hence
the double arrows). On the other hand, there were four instances when an agency’s grade was
lowered from one quarter to the next. The Department of Veterans Affairs (VA) received four
yellows followed by four greens and then slipped back to yellow for eight quarters, but returned
to green in the final quarter. The Small Business Administration (SBA) started with red, advanced
to yellow for four quarters and then to green for three quarters, but slipped back to yellow for the
three quarters, before returning to green. The DHS went from four reds to six yellows, regressed
back to red for six quarters, then again returned to yellow for the final quarter.

14 The White House, Scorecard Standards for Success, at http://georgewbush-whitehouse.archives.gov/results/agenda/
standardsforsuccess08-2007.pdf.
15 Ibid., Scorecard - December 31, 2004, at http://georgewbush-whitehouse.archives.gov/results/agenda/scorecard.html.
Congressional Research Service
5

Figure 1. Eliminating Improper Payments Initiative’s Quarterly Scorecards,
FY2004-FY2008

Source: Office of Management and Budget.
CRS-6

Improper Payments Information Act of 2002

It is not clear how useful scorecard ratings were as indicators of agency results in eliminating
improper payments. While OMB’s standards for success overlapped with IPIA objectives, the
scorecard ratings themselves appeared not to be tightly linked to improper payments rates or
amounts. The Department of Labor (DOL), for example, improved from a “yellow” rating at the
start of FY2005 to a “green” by the end of that fiscal year, even though its error rate increased
during that time.16 Similarly, the Department of Housing and Urban Development (HUD),
received a “green” rating in each quarter of FY2006, despite reporting nearly $1.5 billion in
improper payments that year.17 Under the scorecard grading system, then, an agency could
receive the highest rating even when its error rate increased, or when the dollar value of its
improper payments reached into the billions. On the other hand, as discussed in more detail
below, an apparent increase in error rate or total amount of improper payments due an agency
might actually reflect “progress” in identifying risk-susceptible programs and achieving viable
estimates for more programs, thereby increasing transparency and accuracy.
Subsequent Developments
Implementation of the IPIA and associated efforts to identify, prevent, and recover improper
payments continues to evolve. Statutory changes have occurred and new policy initiatives have
commenced.
Additional Provisions in 2008
In 2008 two provisions contained in newly enacted public laws created additional tools for use by
programs and agencies in their efforts “to reduce and recover improper payments by reducing
administrative and verification errors.” The Food, Conservation, and Energy Act of 2008 (P.L.
110-234) authorizes the federal government to trace and recover payments, such as tax refunds or
public service retirement annuities, sent electronically to the wrong account or for an incorrect
amount. According to OMB, savings from this tool are projected to be “$53 million the first year
and $717 million over ten years.” The Supplemental Security Income Extension for Elderly and
Disabled Refugees Act (P.L. 110-328) allows states “to recover unemployment compensation
debts due to fraud from Federal income tax refunds.” OMB suggests that this new mechanism
“will potentially save as much as $1.3 billion over ten years.”18
Initiatives in the Obama Administration
On November 20, 2009, President Obama issued E.O. 13520, “Reducing Improper Payments and
Eliminating Waste in Federal Programs.” As stated in Section 1, its purpose with respect to
federal payments to individuals and businesses was to help ensure that “the right recipient is
receiving the right payment for the right reason at the right time.” Since no single action “will
fully achieve these goals,” the order unveils a “comprehensive set of policies, including
transparency and public scrutiny of significant payment errors throughout the federal
government; a focus on identifying and eliminating the highest [priority] improper payments;

16 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2007 at http://www.whitehouse.gov/
omb/financial/reports/2007_ipia_report.pdf.
17 Ibid.
18 Improving the Accuracy and Integrity of Federal Payments, January 8, 2009, p. 8.
Congressional Research Service
7

Improper Payments Information Act of 2002

accountability for reducing improper payments among executive branch agencies and officials;
and coordinated federal, state, and local government action in identifying and eliminating
improper payments.”19
On March 22, 2010, OMB issued government-wide guidance on the implementation of E.O.
13520, as Part III to OMB Circular A-123, Appendix C. As outlined in the transmittal
memorandum from OMB to agency heads, five “significant components” were identified in the
new Part III, including the following:
• specifying responsibilities for agency accountable officials;
• determining the programs subject to the executive order (i.e., high priority-
programs);
• defining supplemental measures and targets for high priority programs;
• establishing reporting requirements under the executive order; and
• establishing procedures to identify entities with outstanding improper
payments.20
In addition, a White House memorandum to the heads of departments and agencies regarding
“Finding and Recapturing Improper Payments” and dated March 10, 2010,21 requires agencies to
expand their existing use of incentive-based audit procedures. The memo stipulates that a
“payment recapture audit” has the same meaning as a “recovery audit,” as that term is defined in
OMB Circular A-123, Appendix C, which states,
A Recovery Audit is a review and analysis of the agency’s books, supporting documents, and
other available information supporting its payments that is specifically designed to identify
overpayments to contractors that are due to payment errors. It is not an audit in the
traditional sense. Rather, it is a control activity designed to assure the integrity of contract
payments, and, as such, is a management function and responsibility.22
The OMB director is to develop guidance within 90 days concerning actions to be taken by
agencies to comply with the new requirements. The OMB instructions may include additional
actions, such as setting agency-specific targets for increasing the recovery of improper
payments.23

19 Executive Order 13520, “Reducing Improper Payments,” 74 Federal Register 62201-62205, November 25, 2009.
20 Memorandum from OMB Director Peter R. Oszag, M-10-13, Issuance of Part III to OMB Circular A-123, Appendix
C, March 22, 2010, available at http://www.whitehouse.gov/omb/assets/memoranda_2010/m10-13.pdf.
21 Presidential Memorandum, “Finding and Recapturing Improper Payments”, 75 Federal Register 12119-12129,
March 15, 2010.
22 OMB Circular A-123, Management’s Responsibility for Internal Control, Appendix C, “Requirements for Effective
Measurement and Remediation of Improper Payments,” August 10, 2006, p. 15, available at
http://www.whitehouse.gov/omb/assets/omb/circulars/a123/a123_appx-c.pdf.
23 For further discussion of the new initiative to capture and recover improper payments, see section on Recovery
Auditing below.
Congressional Research Service
8

Improper Payments Information Act of 2002

Trends in Improper Payments
Since IPIA reporting began for FY2004, OMB has published aggregate annual improper
payments data. Usually, improper payments data are included in an annual report titled Improving
the Accuracy and Integrity of Federal Payments, although for FY2009 OMB has only issued a
“fact sheet” and an accompanying table of improper payment rates rather than a full report.24
Table 1 shows government-wide improper payments rates and totals for the first five years of
IPIA reporting.
Table 1. Improper Payment Trends, FY2004-FY2008
(in millions)
At-Risk
Federal
Outlaysa Improper
Payments
Error
Rate
FY2004
$1,035,354 $45,004
4.3%
FY2005
$1,224,920 $38,472
3.1%
FY2006
$1,394,027 $40,588
2.8%
FY2007
$1,493,335 $42,984
2.8%
FY2008
$1,839,235 $72,120
3.9%
FY2009
$1,984,485 $98,453
5.0%
Source: Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 8,
2009, p. 25. Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 31,
2008, p. 43. Office of Management and Budget, FY2009 Improper Payment Rates by Agency and Program, November
17, 2009.
a. Column does not represent total federal outlays, but only includes outlays that (1) have been determined to
be at risk and (2) have improper payments estimates. See the “Federal Outlays” section for more
information.
Error Rate
The data in Table 1 show that the error rate declined or remained stable in each of the three fiscal
years after the government-wide baseline for improper payments was established in FY2004, then
increased in FY2008 and FY2009. In its 2007 report, OMB suggested that the declining error rate
between FY2004 and FY2006 was largely due to two factors: a reduction in improper payments
reported under the Medicare Fee-for-Service program, and low improper payment rates among
the programs that reported for the first time in either FY2005 or FY2006.25 GAO has argued that,
while improper payments have declined significantly under the fee-for-service component of
Medicare, that was not necessarily a consequence of improved accountability of program dollars,
but rather was due largely to “refinements” in the way HHS calculated the program’s improper
payments estimate.26

24 OMB’s annual improper payments report is issued in the January or February following the end of the fiscal year that
it covers. It is made available to the public through OMB’s website, at http://www.whitehouse.gov/omb/
financial_fia_improper/.
25 Medicare is comprised of a fee-for-service component (Parts A and B), a managed care component (Part C), and a
prescription drug benefit component (Part D).
26 Testimony of McCoy Williams, GAO Director of Financial Management and Assurance, Improper Payments:
(continued...)
Congressional Research Service
9

Improper Payments Information Act of 2002

The overall error rate did not change between FY2006 and FY2007, but rose to 3.9% in FY2008
and to 5.0% in FY2009. The increase between FY2007 and FY2008 appears to have been driven
by the relatively high error rate—10.3%—of the 12 programs reported for the first time in
FY2008, and by an increase in the FY2007 cohort error rate, which rose from 5.1% to 5.9%.
Programs in the FY2008 cohort issued $28.9 billion in improper payments. Just two of these
programs, Medicaid and Medicare Advantage (Part C), accounted for $25.5 billion in improper
payments.
While the overall error rate declined or remained steady each year between FY2004 and FY2007,
error rates of program cohorts—programs reported for the first time in the same fiscal year—
show that progress in reducing improper payments has been uneven, with rates rising and falling
over time. Table 2 shows how the error rates for programs first reported in previous fiscal years
changed over time. OMB did not release data by cohort for FY2009.
Table 2. Cohort Error Rates, FY2004-FY2008
Year First
FY2004
FY2005
FY2006
FY2007
FY2008
Reported
Error Rate
Error Rate
Error Rate
Error Rate
Error Rate
FY2004 4.4% 3.4% 3.2% 3.1% 3.0%
FY2005
1.0% 2.0% 1.1% 0.9%
FY2006
1.4%
0.5%
0.7%
FY2007
5.1%
5.9%
FY2008
10.3%
Overall
4.4% 3.1% 2.8% 2.8% 3.9%
Sources: Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 8,
2009, p. 25. Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 31,
2008, p. 43.
Fluctuations in cohort error rates reflect the uneven progress agencies have made in reducing
error rates across programs and over time. While a majority of programs have a general
downward trend in their error rates, many have had their error rates remain stagnant or even
increase. In fact, a number of programs with over $1 billion in annual improper payments in
FY2009 have seen no improvement in their error rates after six years of improper payments
reporting and remediation efforts.27 The error rate for the Earned Income Tax Credit (EITC)
increased from 24.5% in FY2004 to 25.5% in FY2009, for example, and the error rate for
Supplemental Security Income (SSI) increased from 7.4% in FY2004 to 12.1% in FY2009.28 In
addition, the FY2009 error rates for two programs—Unemployment Insurance (10.3%) and Old

(...continued)
Agencies’ Efforts to Address Improper Payment and Recovery Auditing Requirements Continue, U.S. Congress, Senate
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International
Security, hearings, 110th Cong., 1st sess, March 29, 2007, GAO-07-635T.
27 Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 8, 2009.
Office of Management and Budget, Improving the Accuracy and Integrity of Federal Payments, January 31, 2008.
Office of Management and Budget, FY2009 Improper Payment Rates by Agency and Program, November 17, 2009.
28 Ibid.
Congressional Research Service
10

Improper Payments Information Act of 2002

Age, Survivors, and Disability Insurance (0.4%)—were unchanged from FY2004.29 Taken as a
group, these four programs issued at total of $32.51 billion in improper payments in FY2009.30
Error Rate Projections
OMB provided projections for program and cohort error rates in its FY2008 report, but it did not
provide projected error rates for FY2009. Specifically, OMB projected that the error rate for each
of the cohorts between FY2004 and FY2007 would decline or remain stable in each of the next
three fiscal years. This may be optimistic, given that only the FY2004 cohort has achieved similar
progress in its error rate; the FY2005, FY2006, and FY2007 cohorts have each experienced a year
when its error rate increased between fiscal years. OMB’s projected error rates for individual
programs have had varied accuracy. Some projections have been relatively accurate. In its
FY2007 report, for example, OMB projected that Food Stamps would have an error rate of 5.8%
and Medicare Fee-for-Service a 3.8% error rate the following year; the FY2008 reported figures
were 5.6% and 3.6%, respectively. Other projections considerably underestimated or
overestimated the reported rates. In its FY2007 report, OMB projected a 5.5% error rate for
Supplemental Security Income for FY2008, for example, but the reported FY2008 rate of 10.7%
more than doubled that estimate, and, consequently, SSI improper payments were $2.3 billion
higher than had been predicted. Conversely, OMB predicted a 4.6% error rate for the Public
Housing/Rental Assistance program, while the reported FY2008 rate was only 3.5%, and the
program’s improper payments were $338 million less than anticipated.
Amount of Improper Payments
The data in Table 1 show that improper payments for all measured programs totaled $98.5 billion
in FY2009. The dollar amount of the government’s improper payments initially declined between
FY2004 and FY2005, and then increased during each of the following three fiscal years. The
initial decrease was the result of reductions in improper payments under Medicare. The increase
in FY2006 was largely due to the $1.57 billion jump in estimated improper payments under
USDA’s Marketing Loan Assistance Program.31 In FY2007, the amount of improper payments
grew by $1.4 billion, in large part due to the inclusion of several multi-billion dollar programs
with double-digit error rates that were reported for the first time that year, including School
Lunch and School Breakfast.32 In FY2008, improper payments increased by almost $30 billion,
much of which ($28.9 billion) may be attributed to programs reporting for the first time that
year.33 In FY2009, the amount of improper payments reported increased by $26 billion, with 26
programs reporting over $100 million in improper payments.34

29 Ibid.
30 Office of Management and Budget, FY2009 Improper Payment Rates by Agency and Program, November 17, 2009,
pp. 2-3. The amount reflects FY2009 improper payments of $12.250 billion for EITC, $5.437 billion for SSI, $12.283
billion for UI, and $2.536 billion for OASDI.
31 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2007, p. ii.
32 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2008, p. 5.
33 OMB, Improving the Accuracy and Integrity of Federal Payments, January 8, 2009, p. 4.
34 OMB, Office of Management and Budget, FY2009 Improper Payment Rates by Agency and Program, November 17,
2009. Two programs administered by HHS, Temporary Aid for Needy Families (TANF) and State Children’s Health
Insurance Program (SCHIP), did not have error rates reported for FY2009 although they had reported in FY2008.
According to HHS’ FY2009 Performance and Accountability Report, HHS was reformulating the TANF error rate and
(continued...)
Congressional Research Service
11

Improper Payments Information Act of 2002

That significant fluctuations in improper payments can be driven by a small number of programs
is indicative of the concentrated nature of the problem. In FY2009, for example, 11 programs
accounted for 94% of reported improper payments.35 Citing similar statistics, OMB has argued
that “Federal agencies can achieve the greatest return on investment for the taxpayer by ensuring
improper payments are eliminated in the highest-risk programs (i.e., the 12 programs that
comprise 90% of government-wide reported improper payment dollars).”36 The IPIA, however,
does not differentiate between “high-risk” and “highest-risk” programs, nor do its requirements
vary by the size of a risk-susceptible program or the level of its improper payments. Rather, IPIA
requirements must be fully implemented for all programs that are deemed high-risk and have
more than $10 million in annual improper payments.
Federal Outlays
The federal outlays data in Table 1 represent the amount of risk-susceptible dollars for which
federal agencies have developed improper payments estimates. In FY2008, agencies had
estimates in place for approximately $1.83 trillion out of $1.89 trillion (97%) in total at-risk
outlays. According to GAO, 10 risk-susceptible programs with outlays of approximately $61
billion had no improper payments estimates in place for FY2008.37 In FY2009, error rates were in
place for $1.98 trillion in at-risk outlays, but apparently OMB has not released the total at-risk
outlays for that fiscal year, and it is not known, at least publically, how many at-risk programs
still lack error rate estimates. Until all at-risk programs have estimates, the full extent of the
improper payments problem will remain unknown.
Improper Payment Causes
OMB has identified three primary causes of payment errors. Administrative and documentation
errors occur when there is insufficient documentation to verify the accuracy of a claim, or when a
clerical error is made during the inputting, classifying, or processing of applications or payments
at the federal level. Authentication and medical necessity errors occur when the necessity of a
medical procedure is incorrectly assessed, or when criteria for payment cannot be authenticated.
Verification and local administration errors occur when recipient information cannot be verified,
such as income or work status, and when state agencies or third parties make errors processing
applications or payments. OMB’s analysis suggests that documentation errors are the most
common cause of improper payments when programs are first measured, but are not as difficult to
remediate as errors in verification and authentication.38 OMB also suggests that administrative

(...continued)
was developing a final regulation for a new payment error rate methodology for the SCHIP program.
35 OMB, FY2009 Improper Payment Rates by Agency and Program, November 17, 2009. The programs were
Supplemental Nutrition Assistance Program, School Lunch, Medicare Fee-for-Service, Medicaid, Medicare Advantage
(Part C), Public Housing and Rental Assistance, Unemployment Insurance, Earned Income Tax Credit, Highway
Planning and Construction, Old Age, Survivors, and Disability Insurance, and Supplemental Security Income.
36 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2008, p. 5. The 12 programs
identified were Medicaid, Earned Income Tax Credit, Medicare Fee-for-Service, Medicare Advantage, Supplemental
Security Income, Unemployment Insurance, Old Age, Survivors, and Disability Income, Food Stamps, Temporary Aid
to Needy Families, School Lunch, Public Housing / Rental Assistance, and State Children’s Health Insurance Program.
37 Government Accountability Office, Improper Payments: Progress Made but Challenges Remain in Estimating and
Reducing Improper Payments, GAO-09-628T, April 22, 2009, p. 8.
38 OMB, Improving the Accuracy and Integrity of Federal Payments, January 8, 2009, pp. 6-7.
Congressional Research Service
12

Improper Payments Information Act of 2002

and documentation errors are the largest category of improper payments among state-
administered programs—particularly Medicaid—while authentication and medical necessity
errors are the largest category of improper payments for federally administered programs.
Issues
Some of the issues discussed in this section have been addressed in 2010 amendments to the
IPIA, known as the Improper Payments Elimination and Recovery Act (IPERA). An overview of
major provisions in this measure is provided in the final section of this report.
Reporting Threshold
There has been criticism of OMB’s definition of “significant [emphasis added] improper
payments.” In addition to the $10 million threshold in estimated improper spending established
by the statute, OMB required that the improper payments represent at least 2.5% of total program
payments. The chairman and ranking minority member of the House Subcommittee on
Government Efficiency and Financial Management, Representative Todd Platts and
Representative Marsha Blackburn, sent a letter to OMB in August 2003 questioning the 2.5%
minimum threshold. Likewise, according to a news article, Senators Charles Grassley and Max
Baucus, then the chairman and ranking minority member of the Senate Finance Committee, stated
in a January 9, 2004, letter to then OMB Director Joshua Bolten that OMB should not have
established the 2.5% threshold and should have simply required that agencies report all programs
generating estimated improper payments of more than $10 million. The Senators reportedly
observed that, by adding the 2.5% threshold, “The improper payments figures that will eventually
be reported to the public will look better and feel better than they really are.”39
GAO also expressed concern about the 2.5% threshold, which it said could mask the extent of the
improper payments problem. In a 2006 report reviewing agency PARs from FY2005, GAO
identified many examples of agency programs with estimated improper payments over $10
million that were not included in the agency’s improper payments estimate because they did not
meet the 2.5% threshold.40 For example, GAO said that the Department of Education did not
report on three programs that each had estimated improper payments exceeding $10 million—
$155 million in total—because in each case those payments represented less than 2.5% of
program outlays.41 If the 2.5% criterion were applied to large programs, GAO concluded, billions
of dollars in improper payments could go unreported.42 OMB defended the 2.5% threshold,
stating it was established “to ensure that agencies were focusing their resources on programs with
the highest levels of risk for improper payments.”43

39 Cited by Amelia Gruber, “OMB Defends Actions on Improper Payments,” GovExec.com, January 14, 2004.
40 GAO, Improper Payments: Agencies’ Fiscal Year 2005 Reporting Under the Improper Payments Information Act
Remains Incomplete, GAO-07-92, December 2006, pp. 41-45.
41 Ibid., p. 44.
42 Ibid., p. 54.
43 Letter from Linda Combs, OMB Controller, to McCoy Williams, GAO Director of Financial Management and
Assurance, October 26, 2006.
Congressional Research Service
13

Improper Payments Information Act of 2002

As noted above, revised IPIA guidance, issued by OMB in 2006 as Appendix C to Circular A-
123, addressed this issue to some extent. Language in the updated version stated explicitly that
OMB could require a large program with relatively high annual outlays, but that failed to meet
the 2.5% criteria, to be considered as high risk and included in the agency’s annual IPIA
reporting. Such a determination, however, was to be done by OMB on a case-by-case,
nonmandatory basis. The clarification in Appendix C, arguably, may have been viewed as not
going far enough by some in Congress who in the past have taken issue with OMB’s addition of
the 2.5% prerequisite.
P.L. 111-204, Improper Payments Elimination and Recovery Act of 2010, changed the threshold
criteria. Section 2(a) defined “significant” as improper payments that exceed either $10 million
and 2.5% of program outlays, or $100 million.44 The new definition addresses some of the
concerns expressed by GAO and Congress, in that large programs with more than $100 million in
improper payments would no longer potentially be exempt from IPIA risk-assessment
requirements on the grounds that the total amount of improper payments did not reach 2.5% of
program outlays. In addition, for FY2010, FY2011, and FY2010, OMB may require risk
assessments for programs where improper payments exceeded $10 million and 1.5% of program
outlays, or $100 million—a more stringent requirement than will be in place for all programs
beginning FY2013.45
Annual Review Exemption
As previously described, the IPIA, as enacted, required agencies to review all their programs and
activities each year to determine whether they are at risk for significant improper payments.
OMB’s 2006 revised guidance, however, permitted agencies to exempt programs from the annual
review requirement (which OMB refers to as a risk assessment) for two years if a program was
determined not to be risk susceptible. Thus, if a program were reviewed in 2007 and deemed not
at risk, then the program would not have to be reviewed again until 2010.46 At a hearing on
improper payments held in March 2007, McCoy Williams, Director of Financial Management and
Assurance at GAO, testified that OMB had discussed the proposed changes with GAO prior to
issuing the revised guidance. According to the witness, “We [at GAO] advised OMB that the
provision to perform risk assessments every 3 years for those programs not deemed risk-
susceptible was inconsistent with the IPIA requirement for agencies to review all programs and
activities annually.”47
OMB’s exemption from the IPIA’s annual review requirement might have exacerbated the
consequences of inaccurate risk assessments. Agencies are still refining their procedures for
identifying risk-susceptible programs. In some cases, improvements in risk assessment methods
have resulted in programs being designated as risk susceptible that previously had been
considered low-risk. The Department of Agriculture (USDA), for example, enhanced its risk
assessment methodology in FY2006, and, as a consequence, it determined that four programs
were susceptible to significant improper payments that year which had been considered low-risk

44 124 Stat. 2224.
45 124 Stat. 2225.
46 OMB’s guidance would require a program to be re-assessed if it experienced a significant legislative change or a
major increase in funding, even if that assessment would occur less than three years from the last risk assessment.
47 Testimony of McCoy Williams, March 29, 2007, GAO-07-635T, p. 6.
Congressional Research Service
14

Improper Payments Information Act of 2002

the previous year.48 USDA reported that those four programs had total outlays of $12.8 billion and
had issued a combined $804 million in improper payments.49 While OMB praised the agency for
identifying “previously undetected” improper payments, USDA could have claimed OMB’s
annual review exemption for the four programs after determining they were low-risk in
FY2005.50 Had it done so, USDA would not have been required to re-assess those programs until
FY2008, and hundreds of millions of dollars in improper payments might have gone undetected
for another two years.
In addition, OMB’s exemption was applied not just to individual programs, but, to entire
agencies. In FY2007, for example, four agencies reported that they did not conduct new risk
assessments, on the grounds that previous risk assessments had determined no new programs
were risk-susceptible, and therefore claimed OMB’s three-year exemption for the entire agency.51
In this way, agencies used OMB guidance to declare themselves exempt from certain IPIA
requirements.
P.L. 111-204 amended the IPIA by replacing the annual review requirement with OMB’s three-
year assessment cycle for all programs and activities.52 As a consequence, the concerns expressed
about assessing programs every three years, rather than annually, are not addressed. The new law
also requires agencies to take into account several “risk factors that are likely to contribute to a
susceptibility to significant improper payments,” including whether the program or activity is
new, complex, has a high volume of payments, has recently experienced a major change in
funding or authority, or is administered in part by state or local governments.53 This provision
codifies guidance similar to that previously issued by OMB, and it may expand the factors some
agencies consider when assessing the level of risk for their programs and activities. It does not
appear, however, to require agencies to review a program or activity immediately if they become
aware that one or more of these risk factors exists. Instead, it appears agencies may continue to
wait until the third year of the cycle before reassessing any program, even if new risk factors are
identified before that time.
Agency Corrective Actions
The IPIA required agencies to report on the steps that they are taking to reduce improper
payments associated with their risk-susceptible programs. At least two agencies, DHS and HHS,
were cited by agency auditors for failing to implement adequate corrective action plans in

48 The four programs were Direct and Counter-Cyclical Payments, Conservation Reserve Program, Farm Service
Agency (FSA) Disaster Programs, and the Non-insured Assistance Program. U.S. Department of Agriculture,
“Improper Payment and Recovery Auditing Details,” FY2006 Performance and Accountability Report, November 15,
2006, at http://www.ocfo.usda.gov/usdarpt/pdf/par09.pdf.
49 Ibid.
50 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2007, p. 4.
51 Testimony of McCoy Williams, GAO Director of Financial Management and Assurance, Improper Payments:
Agencies’ Efforts to Address Improper Payment and Recovery Auditing Requirements, U.S. Congress, Senate
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International
Security, hearings, 110th Cong., 2nd sess., January 31, 2008, GAO-08-438T. The agencies were the General Services
Administration, the Department of Health and Human Services (HHS), the Department of the Interior, and the National
Science Foundation.
52 124 Stat. 2224.
53 124 Stat.2225.
Congressional Research Service
15

Improper Payments Information Act of 2002

FY2008.54 It is not known how many other agencies had deficient corrective action plans,
because agency auditors were not required to assess IPIA implementation. As a consequence,
GAO identified only four agencies where auditors reported on IPIA implementation: DHS, HHS,
and the Departments of Defense and Transportation.55 Without independent assessments, such as
those provided by GAO and agency IG audits, the status of agency implementation efforts cannot
be firmly established. It is not known, for example, whether the lack of progress in reducing
improper payments at some programs is a consequence of agencies failing to develop and
implement corrective action plans for those programs.
P.L. 111-204 requires agencies to report on the actions they have taken to reduce improper
payments. The report must include a description of the causes of improper payments, the steps
taken to address these problems and the expected date by which corrective actions would be
completed.56 In addition, the report must include a statement as to whether an agency has the
resources with respect to its internal controls, human capital, and information systems, to reduce
improper payments. If an agency lacks sufficient resources to establish and maintain effective
internal controls, the report must include the resources it requested in its budget submission that
would enable it to do so. The report must also include a list of improper payment reduction
targets that OMB has approved, and a description of the measures the agency has taken to hold
agency managers, programs, and state and localities (where appropriate) accountable through
annual performance appraisals, which must include meeting improper payment reduction targets
and establishing an effective internal control environment. The new reporting requirements under
P.L. 111-204 may increase the attention agencies pay to their internal control environment and
may increase the information available to Congress for oversight of agency improper payment
reduction efforts.
Concerns of Program Integrity
Efforts to ensure that federal funds are spent wisely and thereby to prevent fraud, waste, and
abuse, come under the rubric of program integrity. One might view improper payments as a
component of program integrity.
To consider an example, with respect to Medicare, program integrity activities include “processes
directed at reducing payment errors to Medicare providers, as well as activities to prevent, detect,
investigate, and ultimately prosecute health care fraud and abuse.”57 The six main types of
Medicare program integrity activities, carried out by contractors, include
1. auditing of cost reports submitted by Medicare Part A providers;
2. reviewing medical claims for necessity;
3. protecting benefit integrity by identifying and investigating fraud;

54 GAO, Improper Payments: Progress Made but Challenges Remain in Estimating and Reducing Improper Payments,
GAO-09-628T, April 22, 2009, p. 9.
55 Ibid., p. 8.
56 124 Stat. 2226.
57 CRS Report RL34217, Medicare Program Integrity: Activities to Protect Medicare from Payment Errors, Fraud,
and Abuse, by Holly Stockdale.
Congressional Research Service
16

Improper Payments Information Act of 2002

4. determining that Medicare pays only for services for which it is the primary
(not secondary) payer;
5. educating providers regarding correct billing procedures; and
6. implementing the Medicare-Medicaid data matching program to uncover
fraudulent activities affecting both programs.58
Program integrity has garnered special notice recently in relation to the American Recovery and
Reinvestment Act of 2009 (known as ARRA or the Recovery Act) , which was signed into law on
February 17, 2009 (P.L. 111-5, 123 Stat. 115-521). AARA provides $787 billion in stimulus
money for discretionary and mandatory spending, along with tax provisions. The Recovery Act
contains many varied reporting requirements. “In implementing the Recovery Act,” President
Obama noted in a memorandum to heads of executive agencies, “we have undertaken
unprecedented efforts to ensure the responsible distribution of funds for the Act’s purposes and to
provide public transparency and accountability of expenditures.”59
OMB provided initial guidance to the agencies regarding implementation of the Recovery Act on
February 18, 2009.60 The OMB guidance instructs agencies “to take steps beyond standard
practice, including reporting, information collection, budget execution, risk management, and
specific actions related to award type.”61 OMB issued updated implementing guidance on April 3,
2009.62 An overview highlighting the most significant changes in the April update notes, “A
section on program integrity (improper payments) has been added.”63 Section 3.15 responds to a
question about any actions, beyond standard practice, that agencies must take with respect to
identifying, measuring, and recovering payments funded by appropriations in the Recovery Act.
The OMB guidance advises agencies to continue using Appendix C, “Requirements for Effective
Measurement and Remediation of Improper Payments,” from OMB Circular A-123. The April
guidance continues,
Agencies may want to consider performing risk-based payment sampling as part of pre-
payment reviews for Recovery Act funds. For example, risk based sampling could include
targeting high risk vendors, grantees, or payment types where payments were identified as
erroneous during agency audits, single audits, or recovery audits. For agencies that measure
their programs and activities in arrears, such pre-payment (or earlier post payment) reviews
may better inform agencies on errors that they may be able to prevent before disbursement.64

58 Ibid., pp. 4-7.
59 Presidential Documents, Administration of Barack Obama, “Responsible Spending of Funds” (Memorandum of
March 20, 2009) 74 Federal Register 12531, March 25, 2009.
60OMB, Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009, memorandum for
heads of departments and agencies from Peter R. Orszag, Director, M-09-10, February 19, 2009.
61Ibid.
62 U.S. Executive Office of the President, Office of Management and Budget, Updated Implementing Guidance for the
American Recovery and Reinvestment Act of 2009, memorandum for heads of departments and agencies from Peter R.
Orszag, Director, M-09-15, April 3, 2009.
63 Ibid., p. 2. In the initial guidance, Section 3 was titled “Governance and Risk Management,” while in the April
update, Section 3 is now titled “Governance, Risk Management, and Program Integrity.”
64 Ibid., p. 36.
Congressional Research Service
17

Improper Payments Information Act of 2002

Recovery and Payment Recapture Audits
In 2002, Congress included in Section 831 of the National Defense Authorization Act (P.L. 107-
107) provisions requiring agencies to identify, and attempt to recover, overpayments to
contractors. These provisions—commonly referred to as the Recovery Auditing Act—apply to
agencies that enter into contracts valued at $500 million or more in a fiscal year. Agencies are
allowed to use recovered funds to offset the cost of recovery activities, including the use of
private sector firms or other agencies. Any remaining recovered funds are to be credited back to
the original appropriation, or deposited in the Treasury as miscellaneous receipts, if the
appropriation is no longer available.
OMB’s guidance on recovery auditing requires agencies to establish policies and procedures
(internal controls) that prevent, detect, and recover overpayments to contractors resulting from
payment errors.65 OMB also requires agencies to report on their recovery auditing efforts in their
PARs. In addition to data on the amount of contracts reviewed, the amount of improper payments
identified, and the amounts recovered, agency reporting must include a description of recovery
audit activities, a corrective action plan to address the root causes of payment error, and a
description of any management improvement program carried out by the agency. OMB, in turn,
includes data on agency recovery audit efforts in its annual IPIA report.
The data provided by OMB show that using recovery auditing procedures from FY2004 through
FY2008,66 federal agencies have recovered just slightly over half of the $1.872 billion in
improper payments identified for recovery. To put it another way, the government has yet to
recover almost $890 million in erroneous payments to contractors.67 The recovery rate varies
widely among the agencies, ranging from a high of 100% at the Department of Commerce, to a
low of 0.6% at the Department of Homeland Security (DHS). The low recovery rate at DHS is
significant, as the department has only recovered $3.1 million out of $507.0 million in erroneous
payments.68 Moreover, GAO has raised concerns about the quality of recovery efforts to date at
DHS, and has called for DHS management to increase its oversight and monitoring of recovery
auditing efforts across the department.69
The Department of Defense (DOD) reported a recovery rate of 70.0% for FY2004 through
FY2008, but because of the prodigious value of its contracts, it has $273.4 million in erroneous
payments which it has not recovered.70 Thus, DOD and DHS account for 87% of the $890 million
in erroneous payments to contractors that the government has identified, but not recovered.
The Departments of Health and Human Services (HHS) and Housing and Urban Development,
along with the Environmental Protection Agency, no longer perform recovery audits “since they

65 OMB, “Requirements for Effective Measurement and Remediation of Improper Payments,” Appendix C to OMB
Circular A-123, August 10, 2006.
66 The most recent OMB compilation of recovery auditing data appeared in January 2009. To date an OMB report on
Improving the Accuracy and Integrity of Federal Payments for 2010 (reflecting FY2009 data), has not been issued.
67 OMB, Improving the Accuracy and Integrity of Federal Payments, January 8, 2009, p. 31.
68 Ibid., p. 29.
69 GAO, Department of Homeland Security: Challenges in Implementing the Improper Payments Information Act and
Recovering Improper Payments, GAO-07-013, September 2007, pp. 28-32, at http://www.gao.gov/new.items/
d07913.pdf.
70 OMB, Improving the Accuracy and Integrity of Federal Payments, January 8, 2009, p. 28.
Congressional Research Service
18

Improper Payments Information Act of 2002

determined that due to the limited amount of improper contract payments identified, performing
recovery audits was not cost effective.”71
Under separate statutory authority, the Centers for Medicare and Medicaid Services let contracts
for a recovery auditing demonstration project in the Medicare fee-for-service program from
March 2005 to March 2008, which was run in California, New York, and Texas. The final
evaluation of the pilot reported that the recovery audit contractors returned $693.6 million in
overpayments during the three years.72 Meanwhile, provisions in the Tax Relief and Health Care
Act of 2006 (P.L. 109-432, 120 Stat. 2922), signed into law December 20, 2006, established
contracting for recovery auditing of Medicare on a permanent basis and called for its extension
nationwide by 2010.73
As discussed already, President Obama issued E.O. 13520, “Reducing Improper Payments,” in
November 2009. The order focused primarily on three categories of action: boosting
transparency, holding agencies accountable, and creating strong incentives for compliance. A
White House memorandum to the heads of departments and agencies regarding “Finding and
Recapturing Improper Payments” followed on March 10, 2010.74 Once OMB guidance for
implementation of this directive is issued, due by early June 2010 (within 90 days), agencies will
be required to expand their existing use of incentive-based audit procedures.
While the March memo referred to the same definition for both recovery audits and payment
recapture audits, the new policy constitutes a departure from the status quo. In the past, recovery
auditing has helped to identify and reclaim overpayments to contractors. Only agencies handling
more than $500 million annually were included, however, with 20 of the 24 major agencies
participating. Subsequently, Medicare Fee-for-Service program payments also were covered.
Under the new policy, contract payments for all agencies will be eligible for recapture audit,
along with grants and other forms of federal benefit payments made to state and local
governments, banks, educational institutions, and non-profit organizations; for all of these types
of payment programs, an agency will be able to pay for audits with recovered funds.
Beyond contributing to quantitative changes in the scope of federal contracts and benefit
payments covered, payment recapture audits may lead to qualitative changes as well. For
example, in a fact sheet accompanying the announcement of the President’s new effort to recover
improper payments, payment recapture audits were characterized as “investigations in which
specialized private sector auditors use cutting-edge technology and tools to scrutinize government
payments and then find and reclaim taxpayer funds made in error or gained through
fraud”(emphasis added).75 The initial focus of recovery auditing in the federal government was
on overpayments inadvertently made in error to contractors. With the pilot program extending

71 Ibid., p. 32.
72A fact sheet, released by the White House press office in March 2010 regarding “Cutting Down on Waste and Fraud
Through Payment Recapture Audits,” apparently included a revised figure of $900 million recaptured in the Medicare
pilot program. See http://www.whitehouse.gov/the-press-office/president-obama-announces-new-effort-crack-down-
waste-and-fraud.
73For further discussion of this program, see CRS Report R40592, Medicare’s Recovery Audit Contractor (RAC)
Program: Background and Issues, by Holly Stockdale
74 Presidential Memorandum, ““Finding and Recapturing Improper Payments,”” 75 Federal Register 12119-12129,
March 15, 2010.
75White House, “Cutting Down on Waste and Fraud Through Payment Recapture Audits,” March 10, 2010,
http://www.whitehouse.gov/the-press-office/president-obama-announces-new-effort-crack-down-waste-and-fraud.
Congressional Research Service
19

Improper Payments Information Act of 2002

coverage to a Medicare program and the March memo to assorted benefit payments, greater
attention arguably is being directed to recovery of federal payments for fraudulent claims.
Congressional Oversight
The House Subcommittee on Government Efficiency and Financial Management held oversight
hearings on improper payments in May and July 2003, as did the House Subcommittee on
Government Management, Finance, and Accountability in July 2005 and April 2006.76 In the
Senate, the Subcommittee on Federal Financial Management, Government Information, and
International Security held improper payments hearings in July 2005, and in March and
December 2006.77
Developments in the 110th Congress
On March 29, 2007, the Senate Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, reformulated after the 2006 elections,
held a hearing titled “Eliminating and Recovering Improper Payments.”78 In addition to testimony
from McCoy Williams of GAO, referred to above, three other witnesses appeared at the hearing.79
On January 31, 2008, the subcommittee held another hearing focused on “Eliminating Agency
Payment Errors.” McCoy Williams again appeared for GAO, and Daniel Werfel, Acting
Controller, testified for OMB.80
Mr. Williams indicated that his testimony was based on a GAO report sent to the subcommittee
the previous week,81 and that, despite the improvements to date, challenges continue with respect
to IPIA implementation. Mr. Williams outlined five specific problems. One issue is the
comprehensiveness of agencies’ risk assessments. Despite the IPIA requirement for an annual
review of all agency programs that may be susceptible to significant improper payments, the

76 U.S. Congress, House Committee on Government Reform, Subcommittee on Government Efficiency and Financial
Management, Show Me the Tax Dollars—How Much Is Lost to Improper Payments Each Year?, hearing, 108th Cong.,
1st sess., May 13, 2003 (Washington: GPO, 2003); and ibid., Show Me the Tax Dollars Part II—Improper Payments
and the Tenncare Program, July 14, 2003 (Washington: GPO, 2003); and ibid., Subcommittee on Government
Management, Finance, and Accountability, Implementing the Improper Payment Information Act - Are We Making
Progress? 109th Cong., 1st sess., July 20, 2005, at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=
109_house_hearings&docid=f:26655.pdf; and ibid., The Improper Payments Information Act—Are Agencies Meeting
the Requirements of the Law?, April 5, 2006.
77 Medicare is comprised of a fee-for-service component (Parts A and B), a managed care component (Part C), and a
prescription drug benefit component (Part D).
78 Testimony of McCoy Williams, GAO Director of Financial Management and Assurance, Improper Payments:
Agencies’ Efforts to Address Improper Payment and Recovery Auditing Requirements Continue, U.S. Congress, Senate
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International
Security, hearings, 110th Cong., 1st sess, March 29, 2007, GAO-07-635T.
79 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2008, p. ii, at
http://www.whitehouse.gov/omb/financial/reports/2008_ipia_report.pdf.
80 Ibid.
81 Ibid. The nine programs that accounted for 90.2% of FY2007 reported improper payments were Medicare Fee-for-
Service, Medicaid Fee-for-Service, Earned Income Tax Credit, Unemployment Insurance, Supplemental Security
Income, Food Stamps, Public Housing/Rental Assistance, National School Lunch, and Old-Age, Survivors, and
Disability Insurance.
Congressional Research Service
20

Improper Payments Information Act of 2002

review of 2007 PARs by GAO indicated that not all agencies reported conducting risk
assessments. Some agencies reported that they did not conduct a risk assessment of all their
programs, since “OMB guidance allows agency programs deemed not risk-susceptible to conduct
a risk assessment generally every three years.”82
A second problem, according to GAO, relates to the inclusiveness of improper payment estimates.
GAO found that estimates have not been developed for all of the programs identified as risk-
susceptible for improper payments. The $55 billion improper payment estimate for FY2007 did
not cover 14 programs with FY2007 outlays totaling approximately $170 billion. A third
challenge cited by GAO involves IPIA noncompliance issues. A few auditors reported on IPIA
compliance problems as a part of their audits of an agency’s FY2007 financial statements.
According to GAO, these noncompliance issues “related to the key requirements of the act,
including risk assessments, sampling methodologies, implementing corrective actions, recovering
improper payments, and inadequate documentation.”83 Another omission in some of the agency
reports involved the absence of discussion on possible statutory or regulatory barriers impeding
agencies’ ability to reduce improper payments. The fifth problem relates to management
challenges in the design or implementation of necessary internal controls, which are critical in
efforts to identify improper payments and prevent them in the future.
Daniel Werfel, then OMB’s Acting Controller, also testified at this 2008 Senate subcommittee
hearing.84 He noted three important trends in the IPIA data from FY2004 through FY2007. First,
agencies are expanding the universe of high-risk programs that are measured each year. Second,
agencies are moving forward toward “closing all reporting gaps so that the full extent of
government-wide improper payments” will be known within a few years. Third, after an agency
“has identified and reported payment errors, it is able to implement corrective actions and reduce
those errors in subsequent years.” Mr. Werfel, in reviewing these trends, stated that after four
years of IPIA implementation, “agencies generally have the tools in place to ensure that all high
risk activities are identified and measured.” Agencies do not, however, “currently have the full
complement of tools they need” to eliminate improper payments.85
Mr. Werfel then suggested three strategies to address this deficiency. First, maximize the impact
of program integrity dollars. In other words, concentrate efforts on the higher risk, larger dollar
amount programs; nine programs account for 90% of the FY2007 government-wide improper
payment total. Second, address challenges in eligibility verification. Such errors accounted for
about 80% of total improper payment errors in FY2007. Third, Mr. Werfel supported enactment
of specific program reforms recommended by the Administration, most recently being re-
proposed in the President’s FY2009 budget.86
There was no oversight hearing focused exclusively on the IPIA in the House during the 110th
Congress. On June 3, 2008, however, the Subcommittee on Government Management,
Organization, and Procurement, held a hearing titled “Oversight of Federal Financial

82 OMB, Improving the Accuracy and Integrity of Federal Payments, January 31, 2008.
83 Cited by Amelia Gruber, “OMB Defends Actions on Improper Payments,” GovExec.com, January 14, 2004.
84 Werfel was nominated to be OMB Controller on August 3, 2009, and was approved by the Senate Committee on
Homeland Security and Government Affairs on September 29, 2009. He must be confirmed by the full Senate.
85 GAO, Improper Payments: Agencies’ Fiscal Year 2005 Reporting Under the Improper Payments Information Act
Remains Incomplete, GAO-07-92, December 2006, pp. 41-45.
86 Ibid., p. 44.
Congressional Research Service
21

Improper Payments Information Act of 2002

Management.”87 Testimony provided by OMB reviewed the status of financial reporting
government-wide, as well as at the agency level. Mr. Werfel then referred to other improvement
initiatives, including reducing improper payments. He praised Congress for taking a step toward
enacting some reforms supported by OMB, “including discretionary funding (above the cap) for
activities with a proven track record of reducing error and generating program savings” in the
FY2009 budget resolution (S.Con.Res. 70).88
On the same day as the Senate hearing mentioned above, Senator Tom Carper, chairman of the
subcommittee, introduced S. 2583, the Improper Payments Elimination and Recovery Act of
2008.89 On July 30, 2008, the Senate Committee on Homeland Security and Governmental
Affairs by voice vote ordered that S. 2583, with an amendment in the nature of a substitute, be
reported favorably.
S. 2583, as reported, would have amended the IPIA to expand and strengthen ongoing efforts to
identify, reduce, and recover improper payments due the federal government. For example, the
threshold for agency heads to identify programs as “susceptible to significant improper
payments” would have been broadened, creating the likelihood that more agencies would have to
report on additional programs, while the floor for program expenditures subject to recovery
auditing would have been lowered. Expanded reporting requirements regarding corrective action
to be taken would have been placed on the agencies and OMB. Agency inspectors general would
have been newly tasked with the responsibility of preparing annual compliance reports, and these
would have been included with the annual financial statements. A time-tiered approach for
remediation of an agency’s noncompliance status would have been established, ranging from
submission of a corrective action plan to Congress to mandatory submission of reauthorization
proposals, which, if not approved by Congress, would have triggered a freeze in level of
authorizations. S. 2583 as reported also would have allowed the OMB director to establish pilot
programs on compliance enforcement to test potential accountability mechanisms along with
incentives or penalties to ensure statutory compliance with law and, ultimately, elimination of
improper payments. In the House, a companion bill, H.R. 5467, was introduced on February 14,
2008, but no further action occurred.
Developments in the 111th Congress
Actions Prior to Enactment of Amendments to the IPIA
In the 111th Congress, two floor amendments relevant to reducing improper payments have been
approved in the Senate. In January 2009 during floor consideration of H.R. 2, the State Children’s
Health Insurance Program (SCHIP) reauthorization bill, Senator Coburn offered S.Amdt. 50. The
amendment provided that the final rule implementing the payment error rate measurement
(PERM) requirements contained elsewhere in the bill is required to be made within six months of
enactment of the SCHIP reauthorization. Absent the amendment, according to Senator Coburn,
there would be no deadline for issuance of the final PERM rule, a prerequisite to calculating or

87 Ibid., p. 54.
88 Letter from Linda Combs, OMB Controller, to McCoy Williams, GAO Director of Financial Management and
Assurance, October 26, 2006.
89 OMB’s guidance would require a program to be re-assessed if it experienced a significant legislative change or a
major increase in funding, even if that assessment would occur less than three years from the last risk assessment.
Congressional Research Service
22

Improper Payments Information Act of 2002

publishing national or state-specific rates based on PERM.90 The Senate agreed to S.Amdt. 50 by
voice vote.91
In April 2009 Senator Carper offered an amendment to S.Con.Res. 13, the Congressional Budget
Resolution for FY2010. The purpose of S.Amdt. 764 was establishment of a deficit-reduction
reserve fund for the elimination and recovery of improper payments. The amendment was
combined with others into the draft managers’ package No.1, which was considered and adopted
en bloc by unanimous consent.92 The Carper amendment was not retained in the conference
version of S.Con.Res. 13, as approved by both chambers.93
Reserve fund provisions, such as those in the Carper amendment, authorize the chairs of the
House and Senate Budget Committees to adjust committee spending allocations, provided certain
conditions are met. Usually the necessary circumstances entail “legislation dealing with a
particular policy being reported by the appropriate committee or an amendment dealing with the
policy being offered on the floor.” Should the stipulated action occur, the “Budget Committee
chairman submits the adjustment to the respective chamber.”94
On April 22, 2009, the Senate Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security held a hearing on “Eliminating Waste
and Fraud in Medicare and Medicaid.” In FY2008 these two programs accounted for nearly half
of all reported improper payments. The subcommittee heard from four witnesses, representing
GAO, Centers for Medicare and Medicaid Services, Office of Inspector General (OIG) for HHS,
and Medicaid Inspector General for New York.95 On July 15, 2010, the subcommittee held a
follow-up hearing on “Preventing and Recovering Medicare Payment Errors.” There were eight
witnesses at the July hearing, representing GAO, Centers for Medicare and Medicaid Services,
and OIG in HHS, along with a panel consisting of five witnesses from the private sector.
The House Subcommittee on Government Management, Organization, and Procurement had a
hearing on “Oversight of Federal Management” on July 8, 2009. The six witnesses at the hearing
included a Congressman; officials from GAO, the Department of the Treasury, DHS, and NASA;
and a fellow from the Heritage Foundation.96 The subcommittee held a similarly titled hearing on
April 14, 2010, which focused primarily on a review of GAO’s attempt to audit the federal
government’s FY2009 consolidated financial statements. Witnesses included officials from GAO,
OMB, the Department of Treasury, Department of State, and Department of Defense. A second

90 Sen. Tom Coburn, “H.R. 2, the State Children’s Health Insurance Program reauthorization,” Senate debate,
Congressional Record, daily edition, vol. 155 (January 28, 2009), p. S987.
91 Ibid., Congressional Record, daily edition, January 29, 2009, p. S1044.
92 Sen. Tom Carper, “Consideration of S.Con.Res. 13,” Senate debate, Congressional Record, daily edition, vol. 155
(April 2, 2009), p. S. 4262.
93 The Senate-passed version provided for 53 reserve funds, whereas the conference version retained a total of 34
reserve funds, 20 for the Senate and 14 for the House. See U.S. Congress, Joint Committee of Conference, Concurrent
Resolution on the Budget for Fiscal Year 2010, Conference Report to accompany S.Con.Res. 13, 111th Cong., 1st sess.,
April 27, 2009, H.Rept. 111-89.
94 CRS Report R40559, S.Con.Res. 13: The Budget Resolution for FY2010, by Megan Suzanne Lynch and Mindy R.
Levit.
95 For statements, see http://hsgac.senate.gov/public/index.cfm?Fuseaction=Hearings.Detail&HearingID=4f74889e-
811e-425d-b871-8536f3d0c791.
96 For links to the statements, see http://governmentmanagement.oversight.house.gov/story.asp?ID=2498.
Congressional Research Service
23

Improper Payments Information Act of 2002

panel contained a staffer from the Texas Legislative Budget Board and two witnesses from the
private sector.97
On July 23, 2009, Senator Carper along with four bipartisan cosponsors introduced S. 1508, the
Improper Payments Elimination and Recovery Act of 2009 (IPERA), a bill similar to S. 2583 as
reported in the 110th Congress. On July 29, the bill, as amended, was ordered reported favorably
by the full committee. On the same day as the committee’s business meeting, a companion
measure, H.R. 3393, was introduced by Representative Patrick Murphy, with Representative
Bilbray as a cosponsor, and referred to the House Committee on Government Oversight and
Reform.
President Obama affirmed his support for the IPERA in remarks given on March 10, 2010. He
stated, in part: “And I’m announcing my support for the Improper Payments Elimination and
Recovery Act—that’s a mouthful—... but this is a bipartisan bill to expand our ability to do these
[payment recapture audits], so that we can prevent even more fraud and abuse, and waste.”98
Improper Payments Elimination and Recovery Act (IPERA) of 2010
Companion bills, S. 1508 and H.R. 3393, known as the Improper Payments Elimination and
Recovery Act of 2010 (IPERA), were introduced, respectively, on July 23 and July 29, 2009. The
Senate Committee on Homeland Security and Governmental Affairs on July 29, 2009, voted to
report S. 1508, as amended, favorably.
On April 28, 2010, Representative Towns, chairman of the House Committee on Oversight and
Government Reform, moved to suspend the rules and pass H.R. 3393, as amended.
Representative Issa, the ranking minority member, also spoke in favor of H.R. 3393 and
commented on the bill’s bipartisan support. Following floor debate, the House approved the bill,
as amended, by voice vote.99 H.R. 3393 as passed by the House included some new provisions
not found in the bill as introduced. For example, a new subsection expanded upon the original
provisions regarding the disposition of amounts collected through recovery audits back to an
appropriations account or to the Treasury as miscellaneous receipts. Another new subsection
strengthened privacy protections, by restricting the disclosure of information obtained by
nongovernmental entities during recovery audit activities that directly identifies an individual or
could reasonably be used to do so.100
On April 28, 2010, President Obama issued a statement commending the House for passage of
H.R. 3393. He noted that the measure supports goals found in E.O. 13520, “to curb improper
payments by boosting transparency, holding agencies accountable, and creating strong incentives
for compliance,” and in his directive of March 10, 2010, instructing agencies “to launch tough

97 For links to the statements, see http://oversight.house.gov/index.php?option=com_content&task=view&id=4873&
Itemid=28.
98Barack Obama, “Remarks by the President on Health Insurance Reform in St. Charles, MO, March 10, 2010, White
House Press Office, available at http://www.whitehouse.gov/the-press-office/remarks-president-health-insurance-
reform-st-charles-mo. At this time, there were five cosponsors to Senator Carper’s bill (Senators Coburn, Collins,
Lieberman, McCain, and McCaskill), including three Republicans and two Democrats.
99 “Improper Payments Elimination and Recovery Act,” House debate, Congressional Record, daily edition, vol. 156
(May 28, 2010), pp. H2942-H2947.
100 H.R. 3393, as passed by the House on April 28, 2010, p.18 (§ 2(h)(3)(c)(iii)), and pp.20-21 (§ 2(h)(5)), available
electronically at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3393eh.txt.pdf.
Congressional Research Service
24

Improper Payments Information Act of 2002

audits to recover some of the money lost to improper payments last year.” The statement
concluded, “I hope that the Senate will take swift action to send a bill to my desk as soon as
possible.”101
Senate floor consideration of S. 1508, as amended, occurred on June 23, 2010. Senator Durbin
asked unanimous consent that the committee-reported amendment be withdrawn and that the
Carper substitute amendment (S.Amdt. 4392) be agreed to and that S. 1508, as so amended, be
passed. Both the amendment and the bill were approved by unanimous consent.102 One new
provision added by the Senate amendment requires recovery audit contractors to report any fraud
they find and to conduct appropriate training on means and methods to do so. A second provision
included in the Senate-passed version requires that agencies report to Congress and to OMB on
their plans and actions to overcome vulnerabilities and to address recommendations made by the
audit recovery contractors.103
On July 15, 2010, Representative Danny Davis moved to suspend the rules and pass S. 1508. He
noted that the changes in S. 1508 not found in H.R. 3393 as passed by the House strengthened the
bill. Statements from three other Members all supported the Senate version. The House approved
S. 1508 by vote of 414-0.104
President Obama signed the measure into law on July 22, 2010. Major provisions contained in
P.L. 111-204 are highlighted below.105 The Improper Payments Elimination and Recovery Act of
2010:
• Amends the Improper Payments Information Act of 2002 to require the head of
each federal agency to review agency programs and activities during the year
following enactment and subsequently every three fiscal years and to identify
those that may be susceptible to significant improper payments. Defines
“significant” to mean improper payments in program or activity payments in the
preceding fiscal year that may have exceeded $100 million or $10 million and
2.5% of program outlays (1.5% prior to FY2013). Revises requirements for
estimating improper payments by directing agency heads to produce statistically
valid estimates of the improper payments in their agencies and to include such
estimates in their annual financial statements.
• Sets forth risk factors for conducting improper payment reviews, including (1)
whether the program or activity is new to the agency; (2) the complexity of the
program; (3) the volume of payments made; (4) whether payment decisions are
made outside of the agency; (5) recent major changes in program funding,

101 “Statement by the President on Passage of the Improper Payments Elimination and Recovery Act in the House of
Representatives,” April 28, 2010, available at http://www.whitehouse.gov/the-press-office/statement-president-
passage-improper-payments-elimination-and-recovery-act-house-re.
102“Improper Payments Elimination and Recovery Act ,” Senate debate, Congressional Record, daily edition, vol. 156
(June 23, 2010), pp. S5303-S5309.
103 For full text of the Carper amendment, S.Amdt. 4392, which became S. 1508, as amended, with Senate approval,
see ibid., pp. S5376-S5379.
104 “Improper Payments Elimination and Recovery Act of 2010,” House debate and vote, Congressional Record, daily
edition, vol. 156 (July 14, 2010) ,pp. H5553-H5558, H5590.
105 Adapted from bill summary of S. 1508, as enacted.
.
Congressional Research Service
25

Improper Payments Information Act of 2002

authorities, practices, or procedures; (6) the level and quality of personnel
training; and (7) significant deficiencies in auditing practices.
• Expands agency reporting requirements on actions to reduce improper payments
to include a statement of whether the agency has sufficient resources with respect
to internal controls, human capital, and information systems and other
infrastructure to prevent improper payments. Requires statement of reduction
targets approved by OMB and coverage of specific criteria in agency reports on
actions to recover improper payments.
• Requires the Director of OMB to report to the House Committee on Oversight
and Government Reform, the Senate Committee on Homeland Security and
Governmental Affairs, and the Comptroller General in each fiscal year on actions
agencies have taken to report on and recover improper payments; to prescribe
guidance to agencies for implementing requirements of this act; and to develop
specific criteria establishing when an agency must obtain an opinion on internal
controls over financial reporting.
• Requires agency heads to conduct recovery audits for agency programs that
expend $1 million or more annually if such audits would be cost-effective and to
follow specific procedures in conducting such audits. Includes privacy
protections for nondisclosure of any information obtained during recovery audits
that identifies an individual. Sets forth procedures for agency heads to follow in
disposition of amounts recovered, including using up to 25% for financial
management improvement programs, 25% for original purpose, and5 % for
inspector general activities; remaining funds return to Treasury as miscellaneous
receipts or to original trust or special fund. Requires agency heads to conduct
financial management improvement programs.
• Requires the Chief Financial Officers Council and the Council of Inspectors
General on Integrity and Efficiency to conduct a study of the implementation and
cost effectiveness of recovery audits within two years of enactment and report on
such study to the House Committee on Oversight and Government Reform, the
Senate Committee on Homeland Security and Governmental Affairs, and the
Comptroller General. Requires the same councils to jointly examine the lessons
learned in implementing the Chief Financial Officers Act of 1990, identify
reforms or improvements in federal financial management, and report on the
study to the same congressional committees and to GAO.
• Requires the Inspector General of each federal agency for every fiscal year to
determine whether such agency is in compliance with the requirements of this act
and to submit a report on that determination to the head of the agency, the House
Committee on Oversight and Government Reform, the Senate Committee on
Homeland Security and Governmental Affairs, and the Comptroller General.
Deems an agency to be in compliance if such agency has conducted a program-
specific risk assessment and has published specified information, including
improper payment estimates for all programs and activities, a corrective action
plan, and improper payment reduction targets. Sets forth requirements for
bringing noncompliant agencies into compliance. Authorizes the OMB Director
to establish one or more pilot programs for testing accountability mechanisms for
compliance and report to Congress on such programs.

Congressional Research Service
26

Improper Payments Information Act of 2002

Author Contact Information

Garrett Hatch
Virginia A. McMurtry
Analyst in American National Government
Specialist in American National Government
ghatch@crs.loc.gov, 7-7822
vmcmurtry@crs.loc.gov, 7-8678

Congressional Research Service
27