Agencies cut the amount of improper payments by another $5 billion in 2011. But to reach the administration’s three-year goal to reduce the amount of improper payments by $50 billion by the end of the year, they will need a lot of help.

“Obviously it’s a big year ahead to try to make the President’s goal,” said Danny Werfel, the controller of the Office of Management and Budget after a House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management hearing on improper payments Tuesday. “The good news is that just about every major program is trending downward.”

OMB reported in November the improper payment error rate dropped to 4.7 percent in 2011 from 5.3 percent in 2010.

Over the last two years, the OMB-led effort reduced the amount of improper payments by $20 billion — meaning the government is $30 billion short of Obama’s goal.

Werfel, however, said he still is hopeful that several of the initiatives the administration has put in place over the last two years will bear fruit in 2012.

OMB, the Treasury Department and the Recovery Accountability and Transparency (RAT) Board have several new software and analytical tools in the final stages of testing and will be rolled out to more users this year.

Prevention tools to be applied more broadly

The RAT Board is running a pilot with a small number of agencies who are using the federalaccountability.gov portal. Mike Wood, the board’s executive director, said the fraud prevention tool will be expanded to non-Recovery Act spending using funding allocated in the 2012 appropriations bill.

“Our goals are to help agencies in performing their own risk evaluations before awarding federal funds, and to help enforcement officials conduct reviews in order to prevent and detect fraud, waste and abuse in federal spending,” he said. “Pilots with agency procurement, grant and financial officials just began.”

One part of federalaccountability.gov is a new software tool called FastAlert.

Wood said FastAlert “provides awarding officials the ability to quickly assess risk factors associated with entities that seek or have received federal funds. The board feels that FastAlert can be applied to all federal spending from pre-award to payment phases.”

Treasury and OMB are borrowing heavily from the RAT Board’s experience and the technologies in its Recovery Operations Center.

Werfel said Treasury is testing tools in its new GoVerify.gov center.

GoVerify.gov is a one-stop portal that provides a variety of data sets making it easy for agencies to search before making contract awards or grants. It will not include every database at first, but Werfel said over time more will be added.

The second part of the site is analytics.

“You need human beings who know how to ask the questions of the data,” Werfel said. “It can’t simply be the technology doing the match. You have to be smart enough to look for patterns and trends and profile some of this information to say ‘this is the type of company we’ve seen before who has been reincorporated in a new name,’ so we know exactly how to ask the data. It’s not easy to do.”

He added a handful of agencies are testing GoVerify.gov on a small scale, and it should be ready for wider adoption in the coming weeks. Werfel said over the next year the portal will include more data and more analytical tools.

Agencies still unsure of root causes

While the new tools will help, agencies still are struggling with some of the basics needed to stop improper payments. Beryl Davis, the Government Accountability Office’s director of financial management and assurance, said about half of all agencies still do not have identified the root causes of their improper payments. In fact, Davis said the Department of Health and Human Services, which has the largest incidence of improper payments, has not met the 2002 improper payments law in eight years.

“There are many reasons, many of them administrative errors,” Davis said. “The issues that are presented have been categorized into three different areas, documentation and administrative, authentication medical necessity and verification errors. We noted that the explanations were in all three areas when we received information from different agencies. The first area, documentation and administrative area, seem to have the highest frequency of reasons for root cause information.”

Agencies are under pressure to identify and fix those root causes. The 2010 improper payments bill calls for OMB and Congress to penalize agencies for not improving their improper payments error rate.

Werfel said the first reports to agency inspectors general are due in March.

“At that time we will have a good sense of what the landscape of non-compliance is and the statue will trigger a variety of repercussions such as special reports to Congress or requirements for how discretionary funds are used to combat improper payments,” he said.

But even with two laws on the books, several White House memos and a concentrated effort over the last decade, Werfel said Congress needs to solve one outstanding problem.

Congressional help needed

Werfel, Wood and others say the 1974 Privacy Act needs to be updated to address new technologies and requirements for agencies to share data.

Werfel said access to and the sharing of data is the biggest impediment to reducing improper payments more quickly.

“I think one that of the most important things Congress can do to help on improper payments is to help us pull back the onion layer on these various database and figure out how to navigate this important tension between privacy and security and the need to have this information to enforce program integrity outcomes,” he said. “Right now we haven’t tackled the issue directly and therefore every time we determine that access to a database is going to be helpful to drive down improper payments, we go through a very long and laborious process to try to figure out how to thread the needle and get the data in. We aren’t serving the taxpayer effectively by taking it one at a time.”

Sens. Tom Carper (D-Del.) and Susan Collins (R-Maine) introduced legislation to add another layer of oversight and reporting requirement around improper payments. Carper testified before the House subcommittee on his bill Tuesday, encouraging lawmakers to introduce a companion bill.

Reps. Todd Platts (R-Pa.) and Ed Towns (D-N.Y.), the chairman and the ranking member of the subcommittee, respectively, didn’t commit to their own bill, but did want to continue looking into this topic. Platts said he wants to bring HHS before the committee to discuss in more detail their efforts to reduce improper payments.

“Some of these high error problems are uniquely challenged due to the large budgetary obligations,” Platts said. “However they all share similar problems of ineffective internal controls. In order to reduce improper payments, agencies must reevaluate their internal control structures and increase accountability in program management.”

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