Federal Agencies Reported Over $136 Billion in Improper Payments in 2015

Total improper payments likely higher

June 6, 2016

The Government Accountability Office reported that $136.7 billion dollars were spent by federal agencies on "improper payments" during fiscal 2015, but the actual total was likely higher.

Agencies are required to report their improper payments if they spend more than $750 million in taxpayer money or have an error rate of 1.5 percent or higher. Improper payments occur when funds go to the wrong recipient, when a recipient receives too little or too much money, when payment documentation is not available, or when "the recipient uses federal funds in an improper manner," according to the Obama administration’s Payment Accuracy website.

The federal government has assessed improper payments since 2013. While the Obama administration has praised itself for lowering the rate of improper payments since 2009, the actual rate is unknown.

U.S. Comptroller General Gene Dodaro said in testimony to Congress earlier this year that "the estimated improper payments for fiscal year 2015 were attributable to 121 programs spread among 22 agencies."  The improper payments for fiscal 2015 were $12 billion higher than the previous year, according to the report.

Using GAO’s estimate of $136.7 billion in improper payments at a 4.8 percent error rate, approximately $2.85 trillion in federal spending was reported. But the federal budget in fiscal 2015 was $3.69 trillion—nearly one-third more than the $2.85 trillion reported for analysis.

Veronique de Rugy, a senior research fellow at the Mercatus Center, praised the GAO for being transparent about the limitations of its analysis but criticized the incomplete nature of the federal government’s auditing and accountability for its spending.

The GAO "only looks at improper payments as defined by" the 2002 law and subsequent 2010 and 2012 laws, de Rugy said. She pointed to the "expansion of eligibility" for food stamps as an example of how low standards for eligibility mean money is being wasted, while not being counted as improper payments.

The current definition of improper payments "doesn’t tell you anything about the legitimacy of the part that’s not improperly paid. It’s so incredibly ridiculous," said de Rugy, who last month charted out the programs with the greatest losses of taxpayer money.

"It tells you a lot about why Medicare is in a position to act about it has actually very low administrative costs," de Rugy said. "It’s easy to have low administrative costs when you don’t try to prevent improper payments, waste, fraud, and abuse."  

Medicare and Medicaid lose approximately $98 billion annually to fraud, according to one 2011 estimate, and de Rugy cited in her analysis an expert who has estimated fully one-fifth of Medicare’s dollars could be lost to inefficiency.

A July 2015 analysis by the Kaiser Family Foundation projected that Medicare’s spending totalled $527 billion in 2015 and $560 billion in 2016.

Beryl Davis, the GAO Director of Financial Management and Assurance,  highlighted that more than three-quarters of improper payments come from Medicare, Medicaid, and the Earned Income Tax Credit.

The $12 billion increase in improper payments from 2014 to 2015 was mostly attributable to Medicaid, Davis told the Free Beacon.  

Of 16 "high risk" programs listed on the Payment Accuracy website, five—traditional Medicare, unemployment insurance, EITC, and the national school lunch and breakfast programs—have improper payment rates over 10 percent. The EITC had had the highest rate of improper payments, with 23.8 percent of all dollars improperly paid out.

De Rugy said the official definition of improper payments only scratches the surface.

"Just because a program has a low reported rate doesn’t mean that taxpayers should be pleased," she wrote in her May analysis. "Programs that have seen expanded eligibility over the years (e.g., Social Security disability and food stamps) might have relatively low improper payment rates, but they are also distributing money to people under questionable—and in some cases, objectionable—circumstances."

Another area of concern is Pentagon spending, which totaled $586 billion between official defense spending, overseas contingency operations, and portions of other agencies’ budgets that are defense-related.

Justin Johnson, the senior analyst for budgeting policy at the Heritage Foundation, said "the Pentagon needs to get to a point where they are fully auditable. It is troubling that they aren’t."

"The Marines thought they’d gotten there, but it got rolled back, essentially," Johnson said. "There have been a variety of historical reasons and challenges that are legitimate that make it hard for getting there, but it’s still vitally important. DoD absolutely should be auditable, and that will certainly allow for better tracking and oversight of how DoD spends money."

"The little bit of a caution that I would put on that is the fact that they’re not fully auditable does not mean there are billions of dollars floating around the Pentagon budget," Johnson said.

Johnson and other defense experts told The Stream earlier this year that the Pentagon could be losing tens of billions of dollars to inefficiencies like fraud, duplication, and improper payments. The GAO considers portions of the Defense Department budget to be at "high risk" for mismanagement.

Davis told the Free Beacon that her agency intends to publish a report about the improper payment reporting compliance of the 24 agencies subject to the Chief Financial Officers Act, a law that created standards for financial reporting. The report will be based on payments reported in fiscal 2014.

In December 2014, the last time this report was published, GAO found that many inspectors general who were supposed to publish reports about improper payments in 2013 failed to follow the six parts of the 2010 improper payments law. Some inspectors general simply did not write reports on things like accountability, estimates of improper payments, and targets for reducing improper payments. Others wrote incomplete reports. 

Congress, which passed improper payments reporting laws in 2002, 2010, and 2012, has failed to act to reduce improper payments despite more than 12 years of reports. One effort to make the federal budget more transparent is being held up by Senate Minority Leader Harry Reid (D., Nev.).

The Taxpayers Right to Know Act, sponsored by Sen. James Lankford (R., Okla.) passed the House and a Senate committee with bipartisan support, but Reid has stalled its passage for what Lankford inferred earlier this year are reasons of political gamesmanship.