Thompson Releases Report Detailing $20.7 Billion in Lost Taxpayer Dollars Due to Improper Payments

WASHINGTON, DC – Senate Governmental Affairs Committee Chairman Fred Thompson (R-TN), joined by Citizens Against Government Waste President Thomas A. Schatz, today released a report outlining $20.7 billion – or about $300 for each American family – in improper payments lost by the 20 government programs that reported their fiscal year 1999 losses to the General Accounting Office.

“It’s astounding that more than $20 billion of taxpayer money was sqaundered by just a handful of federal programs. And that’s just a drop in the bucket,” Senator Thompson said. “The total figure for the thousands of government programs would be much, much higher. Federal agencies need to do a better job managing – first in terms of detecting improper payments, and then in stopping them.”

“The unauthorized government payments detailed in the GAO report are not differences of political opinion. They are inexcusable government deficiencies, and they are increasing each year,” Schatz said. “Even more alarming is that several agencies made improper payments but don’t know their magnitude. Stockholders do not tolerate such mismanagement in the private sector; taxpayers should be equally outraged at such neglect of their investment in Washington.”

Thompson announced he is introducing legislation requiring the use of a management technique called ‘recovery auditing’ which would be applied to a Federal agency’s records to identify improper payments or payment errors made by the agency. Recovery auditing utilizes computer programs that are capable of analyzing agency contract and payment records to identify discrepancies between what was owed and what was paid. The legislation has been approved by the House.

Improper payments result from a variety of causes ranging from bureaucratic errors – such as paying someone twice – to outright fraud. Among the improper payments identified in the latest GAO report (with the program’s performance in fiscal year 19998 in parenthesis) are:

  • Medicare Fee-for-Service        $13.5 billion   (up from $12.6)
  • Supplemental Security Income  $1.58 billion  (down from $1.65   billion)
  • Old Age and Survivors Insurance  $1.3 billion (up from $1.2 billion)
  • Food Stamps            $1.29 billion    (down from $1.42 billion)
  • Disability Insurance   $1.1 billion           (up from $941 million)    
  • Housing Subsidies     $935 million         (up from $857 million)

“It’s very disappointing that several programs fared worse the second time around, but at least we now have a way to track their performance. Most agencies still aren’t reporting their losses and we just don’t know how many taxpayer dollars are being lost,” Thompson said, noting that, for example, according to a draft report by IRS Inspector General, overpayments in the Earned Income Tax Credit program could total more than $9 billion annually.

Statement on Recovery Auditing 


Mr. President, I rise today to introduce a bill which begins to address the issue of improper payments in Federal programs.

Each year, the Federal government spends hundreds of billions of dollars for a variety of grants, transfer payments, and the procurement of goods and services. The Federal government must be accountable for how it spends these funds and for safeguarding against improper payments. Unfortunately, the problem of improper payments by Federal agencies and departments is immense. Today, I released a GAO report which I requested which identifies $20.7 billion in improper payments in just 20 major programs administered by 12 Federal agencies in Fiscal Year 1999 alone. And this represents an increase of more than $1.5 billion from the previous year’s estimate. In its report, GAO writes that its “audits and those of agency inspectors general continue to demonstrate that improper payments are much more widespread than agency financial statement reports have disclosed thus far.”

Legislative efforts have focused on improving the Federal government’s control processes. Recently-enacted laws, such as the Chief Financial Officers Act, the Government Management Reform Act, and the Government Performance and Results Act, have provided an impetus for agencies to systematically measure and reduce the extent of improper payments.

However, the risk of improper payments and the government’s ability to prevent them continue to be a significant problem. While we continue to work to improve the government’s widespread financial management weaknesses, we also can attempt to recover the tens of billions of dollars in improper payments. And that’s what the legislation I am introducing today will do.

The legislation is modeled on H.R. 1827, a bill sponsored by House Committee on Government Reform Chairman Dan Burton, to require the use of a management technique called “recovery auditing” which would be applied to a Federal agency’s records to identify improper payments or payment errors made by the agency.

Recovery auditing is used extensively by private sector businesses, including a majority of Fortune 500 companies. These businesses typically contract with specialized recovery auditing firms that are paid a contingent fee based on the amounts recovered from overpayments they identify. Recovery auditing is not “auditing” in the usual sense. Recovery auditing firms do not examine the records of vendors doing business with their client companies or assess the vendors’ performance. Instead, these firms develop and use computer software programs that are capable of analyzing their clients’ own contract and payment records in order to identify discrepancies in those records between what was owed and what was paid. They focus on obvious but inadvertent errors, such as duplicate payments or failure to get credit for applicable discounts and allowances.

The bill I am introducing today would require Federal agencies to perform recovery audits in order to identify discrepancies between what was actually paid by the agency and what should have been paid. This bill seeks to address concerns with H.R. 1827 which were raised after its passage by the House. For example, this bill would make clear that the relationship established by this bill is one between the agency and the recovery audit contractor, and all communications and interaction on the part of the recovery audit contractor is with the agency. Further, this bill includes exemptions for contracts which, under current law, already are subject to extensive audit scrutiny and oversight. Also, this bill includes Federal agency authority for recovery audit pilot programs for contracts, grants or other arrangements other than those covered by this bill.

I appreciate all the work done by Chairman Burton on H.R. 1827. I believe my legislation appropriately addresses concerns raised with that bill and goes a long way in addressing the wasted taxpayer dollars and government inefficiencies resulting from Federal agency payment errors which are made each year.

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Letter to the Federal Accounting Standards Advisory Board

Mr. David Mosso
Federal Accounting Standards Advisory Board
441 G Street, NW
Room 6K17V
Washington, DC 20548

Dear Mr. Mosso:

As you know, the problem of improper payments in federal programs is immense. In its most recent tally of improper payment estimates, the General Accounting Office (GAO) found that 20 major programs made almost $21 billion in incorrect payments. In its report, GAO wrote that “improper payments are much more widespread than agency financial statement reports have disclosed thus far.” For example, according to a recent report by the Inspector General for Tax Administration, overpayments in the Earned Income Tax Credit program could total an additional $9 billion annually.

This GAO report, which was done at my request, (Financial Management: Improper Payments Reported in Fiscal Year 1999 Financial Statements (GAO/AIMD-00-261R)) demonstrates that the problem has worsened from last year and that too few agencies are reporting their improper payments. GAO notes that only 12 agencies have taken the initiative to disclose improper payment estimates of $20.7 billion for 20 of their programs in their fiscal year 1999 financial statements.

A year ago, when I first asked GAO to address the improper payments problem, GAO tallied reported improper payments at $19.1 billion. In that report, GAO warned that the methodologies used by some agencies to estimate improper payments do not always result in complete estimates and that many other agencies have not attempted to identify or estimate improper payments. Consequently, GAO recommended that the Office of Management and Budget “develop and issue guidance to executive agencies to assist them in (1) developing and implementing a methodology for annually estimating and reporting improper payments for major federal programs and (2) developing goals and strategies to address improper payments in their annual performance plans.”

Following up on this GAO recommendation, I wrote to OMB Director Jack Lew a year ago and asked that he “issue the guidance necessary to require agencies to (1) estimate and report improper payments and (2) develop goals and strategies for improving programs in which improper payments are made.” In his response to me, Director Lew wrote that he intended to “develop improved methodologies for estimating improper payments for major programs” and “issue general guidance to agencies.” Regrettably, OMB has not acted on either of these recommendations. I hope the Federal Accounting Standards Advisory Board will take the necessary action to ensure that GAO?s recommendations are implemented.

Disclosing overpayment levels and then undertaking specific and measurable performance commitments to reduce them provides the discipline and incentive agencies need to take these problems seriously. More importantly, such commitments make agencies accountable to Congress and the public. The progress of the Health Care Financing Administration (HCFA) in reducing Medicare overpayments proves this point. While Medicare overpayments are still much too high, they have dropped by almost one half since HCFA began disclosing estimated overpayment levels in its financial statements and adopting specific overpayment reduction goals in its Results Act performance plans.

Because of the critical importance of this issue to the Congress and the public and because of the variation in reporting improper payment estimates by the 24 Chief Financial Officer (CFO) Act agencies, I am requesting that FASAB undertake a project to determine such reporting and disclosure requirements. My expectation is that beginning with the FY 2000 financial statements, all 24 CFO Act agencies that have estimated improper payments would be disclosing these amounts and having this information audited, as is now the case for the Medicare Fee-for-Service program. A number of options exist for disclosing improper payment estimates. At a minimum, all agencies should be making the necessary evaluations to estimate improper payments.

I understand the difficulty some agencies may have in developing appropriate methodologies for preparing such estimates. However, only when we have some sense of the extent of the problem can we begin to solve it.

Thank you for your consideration of this request. If you have any questions regarding the information provided in this letter, please do not hesitate to contact me directly.


Fred Thompson