Why agencies break the law on improper payments

Of the 24 CFO Act agencies — those required to have audited financial statements — about half failed to comply with the law on improper payments, according ...

Despite an attempted crackdown by the Obama administration, agencies are increasingly likely to make payment mistakes. The error rate rose from 3.53 percent in fiscal 2013 to 4.02 percent in fiscal 2014. In other words, the government misspent about $10 billion more last year than the year earlier.

That we knew, thanks to a Government Accountability Office report issued a few months back. But recent inspector general reports round out the picture by showing where agencies go wrong.

Of the 24 CFO Act agencies — those required to have audited financial statements — about half failed to comply with the law on improper payments, according to a preliminary analysis of the IG reports by the accounting firm Grant Thornton. The low scorers include the agencies that misspent the most money: the departments of Health and Human Services, Treasury, Agriculture and the Social Security Administration.

The overall picture seems, at first glance, worse than in past years, when inspectors general evaluated agencies on a multilevel scale that ranged from “compliant” to “noncompliant.” While agencies have made strides in some of their programs, complying with the improper payments law is now pass-fail, thanks to guidance the White House issued in October.

“They’re trying to say, ‘No more wiggle room. You’re either compliant or not compliant,'” said Grant Thornton Principal Robert Shea.

Inspectors general evaluate agencies’ compliance based on seven criteria. Those are whether they’ve published improper payment information and corrective action in their annual financial reports; conducted risk assessments for each program or activity; published improper payment estimates for those programs; met annual reduction targets; and reported gross improper payment rates of less than 10 percent.

Tracing problems to standardization and staffing

Despite the pass-fail nature of the evaluations, a typical inspector general report can be summed up as “Yes, but.” Under the new guidance, one agency program gives the whole department a black eye. That’s the case at Treasury, where a singular IRS program — the Earned Income Tax Credit — has caused the department to receive a failing grade repeatedly. The program has an error rate of 27 percent — far above the maximum of 10 percent. Agencies that fail to comply with the law repeatedly, like Treasury, must submit reform plans to Congress.

The audits show agencies often misstep despite their efforts. More than half of the Agriculture Department’s high-risk programs improved last year. But two used flawed methods to calculate their improper payment rates.  Some chose to take corrective action that didn’t work. And one got so much better at catching improper payments that it found more than expected and its error rate increased.

Grant Thornton Principal Wendy Morton Huddleston said, in general, agencies are doing a better job of going through the criteria and trying to address problems. But they make mistakes by failing to document all their information. They also fail to standardize their processes, she said.

“Some of the missteps we’ve observed include the lack of accuracy and validation of the information,” she said. Agencies may publish reports on some, but not all, of their high-risk programs.

There is also a human-capital component, she said. She attributed the lack of progress, in part, on staff that may lack the training or time to validate and interpret data.

Agencies should “[make] adequate assurance that individuals have relevant knowledge and have been trained on what to look for and what the IGs look for,” she said.

In contrast, agencies that received high marks from their inspectors general have embedded controls in their documented guidance, she said, adding that the Homeland Security Department has received high marks two years in a row.

DHS “made sure information was propagated out to component levels from the department level so everyone was operating out of same degree of instruction and guidance,” she said. “The left hand is aware of what the right hand is doing agencywide.”

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