Federal Government Made at Least $206 Billion in Improper Payments in FY 2020

This year continued a sixteen-year upward trend of improper payments (IP) by the federal government. Agencies reported $206 billion in improper payments FY 2020, double the amount reported in 2009 ($105 billion) and 458 percent of the amount in 2004 ($45 billion). Improper payments—payments that should not have been made or that were made in incorrect amounts—continue to be an area of major concern in the federal government. Between FY2004, when agencies first began reporting improper payments as was required by the Improper Payments Information Act (IPIA) of 2002, and FY2017, the government had almost  $1.3 trillion in erroneous payments. Improper payments’ annual average growth of 11.63 per cent outpaced the federal spending growth of 4.9 per cent between FY2004 and FY2020.

The Improper Payments Elimination and Recovery Act of 2010 (IPERA) requires executive branch agencies to conduct risk assessments of all programs and activities and identify those susceptible to significant improper payments. For any program or activity with estimated IP exceeding $10 million and 1.5 percent, or $100 million regardless of the IP rate, an agency must report to Congress improper payment estimates, corrective action plans, and reduction targets. IPERA also requires that each agency’s Inspector General (IG) report annually whether a respective agency complied with those requirements.

Of the $206 billion in IP payments, more than $145 billion (70 percent) was concentrated in three program areas: (1) Medicaid, (2) Medicare, and (3) Earned Income Tax Credits (EITC). In March 2020, GAO released a report “Federal Agencies’ Estimates of FY 2019 Improper Payments” with a detailed overview of federal agencies’ reporting of improper payments, compliance with the IPERA requirements, and overall compliance trends for FY2016-2018.

GAO found that in FY2019 about $74.6 billion (approximately 42.7 percent) represented “monetary loss,” an amount that should not have been paid and in theory should or could be recovered. However, “the federal government’s ability to understand the full scope of its improper payments is hindered by incomplete, unreliable, or understated agency estimates; risk assessments that may not accurately assess the risk of improper payment.”

Additionally, only half of agencies complied with IPERA for FY2018, as reported by their IGs, with the Department of Human and Health Services (HHS) and Department of Defense being the biggest violators with three areas of noncompliance each. The most-frequently reported areas of noncompliance were: (1) agencies not publishing or meeting annual improper payment reduction targets (eight out of the 14 agencies), and (2) being unable to report that their improper payment rates were below 10 percent (one third of agencies were cited for not meeting this standard.) See the table below.

Per IPERA and OMB Memorandum M-18-20, an agency with a program or activity that is reported noncompliant for three or more consecutive years is required to submit to Congress either (1) a reauthorization proposal for the program or activity, or (2) the proposed statutory changes necessary to bring such program or activity into compliance. The IGs reported 21 such programs for years 2016–2018, up from 14 programs in FY2016 and 18 programs in FY2017. These programs account for 52 percent (about $78 billion) of the government-wide reported improper payment estimates for FY2018.

In sum, no progress has been made in reducing the improper payments. In fact, after 16 years of tracking and reporting such payments, the government’s internal controls have gotten only worse. In the 116th Congress, the Ranking Member of the Senate Homeland Security and Governmental Affairs Committee introduced bipartisan legislation to address improper payments (the Payment Integrity Information Act of 2019 (PIIA) which was signed into law in March 2020) and also introduced a bipartisan bill to address improper payments that go to deceased people. However, based on the Congressional Budget Office’s analysis it is highly uncertain that the activities required by PIIA will be effective in cutting the improper payments.  Given the magnitude of erroneous payments and the overall unsustainability of the federal government’s fiscal path, it is imperative that the new administration takes actions to reverse the trend and to cut down on such payments. This has been long overdue. As President Obama said, “[t]he American people expect their public servants to be good stewards of their tax dollars.”