OMB redefines federal financial health

By Max Cacas
Federal News Radio

Now armed with a newly signed Improper Payments Law, Office of Management and Budget controller Danny Werfel said it’s time to re-think improper payments as “a key indicator of the health of federal financial management in the government today.”

He told the gathering of federal, state, and local financial managers even though he understands the importance of audits as a tool of financial management in government, he is now also mindful of the shifting public perception of government spending. At the Association of Government Accountants, on the second day of their Internal Control and Fraud Conference Thursday, he suggested the issue of improper payments means more to citizens than the holy grail of the clean audit opinion.

“At the end of the day, it’s difficult for individuals to get their minds around what a clean opinion means, in terms of the bottom line…versus the notion that Tom Smith received a $10,000 check that he was not entitled to, and that’s taxpayer dollars,” he said.

Werfel used his AGA talk to offer some of the most current thinking on the topic of fraud and improper payments to come from OMB since Congress passed, and the President signed, a new Improper Payments bill into law within the last several months.

For one thing, he said his office is mulling over guidance on the issue of single audits, and was asked when it might be forthcoming.

“I think we’re still in R&D (research and development) mode,” Werfel said. “I would imagine that by the turn of the calendar year. I think we’ll start to issue some drafts of potential reforms.”

Werfel also talked about the genesis of the new Improper Payments Law, and how it combined the best of the old Improper Payments Act of 2002, and the Recovery Audit Act. He said the new law reflects some lessons learned, the first being the need for partnerships between the federal, states and local auditing communities.

Werfel said it’s important that financial officials understand the need to make adjustments when rules for good financial accountability and fraud avoidance become an unfair hurdle to citizens.

“If you’re so targeted on error reduction, and you’re relentlessly pursuing it, which is what we want, you also have to think about whether the actions you’re taking are having other impacts,” he said. “These programs, very important social programs such as Social Security, and Medicare and Medicaid and food stamps, are clearly serving an important societal purpose. And to the degree that we start building in controls that are necessary and critical, where it’s harder for people to get the benefit and they’re actually entitled to the benefit, that has concerns, too. Important concerns.”

Finally, Werfel told his AGA audience that he’s very excited about the possibilities surrounding a recently-unveiled fraud detection tool developed by the Recovery, Accountability and Transparency Board, which tracks the economic stimulus program.

“What the tool does is it gathers enormous amounts of information that are open source, and openly available, Google, Lexis-Nexis, and other sources, from all sorts of places, gathers it in real time, but more importantly, layers an analytical algorithm over the data in a way that allows the board to see ‘red flags’ for fraud and/or error that might not have been seen before,” he said.

Responding to a question, Werfel said that as the Recovery Board fraud tool is further developed and refined, OMB will work with the state and local auditing community about the possibility of sharing it.

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