April 05,2004
April 5, 2004
The Honorable Joshua Bolten
Director
Office and Management and Budget
Eisenhower Executive Office Building
Washington D.C. 20503
Dear Mr. Bolten:
I was deeply troubled by the response I received to my earlier letter regarding OMB’s guidanceimplementing the Improper Payments Information Act of 2002 (P.L. 107-300).
The statutory language clearly and unequivocally states that agencies are to estimate and report thetotal amount of improper payments identified in accordance with OMB guidance, and with respectto improper payments in excess of $10 million, report on the actions taken to reduce such payments.
Given the explicit reporting requirements with respect to improper payments in excess of $10million, it is inconceivable that OMB could devise guidance that would result in the failure to reportimproper payments in excess of $10 million. Yet, the guidance issued by OMB explicitly states thatagencies “need not report” improper payments in excess of $10 million, if agencies “believe” sucherrors are less than 2.5% of program payments.
Even if OMB could reconcile the inherent contradiction between the 2.5% standard and the $10million threshold, the process by which agencies are instructed to apply the standard is fraught withperil.
OMB’s guidance instructs agencies to identify programs and activities “it believes are susceptibleto significant erroneous payments” without “making a statistically valid estimate.” In other words,if agencies believe their improper payments are less than 2.5%, they don’t have to go to the troubleto find out whether or not they are right.
The assertion that those agencies that previously reported under Section 57 of Circular A-11 willcontinue to report all erroneous payments without regard to the 2.5% standard is belied by the factthat Section 57 was eliminated from Circular A-11 in July of 2003.
OMB’s guidance to the Social Security Administration regarding “unavoidable” payments alsoseems to contradict the assertion that agencies previously subject to Section 57 will continue toreport erroneous payments under the same standards they have used in the past.
Finally, the statutory language requires agencies to submit improper payment estimates in theirannual budget submissions for fiscal years after FY 2003. However, OMB’s guidance instructsagencies to submit estimates in their Performance and Accountability Reports for fiscal years endingon or after September 30, 2004. This guidance will result in a reporting delay of nearly two years.Given the fact that OMB’s guidance will have the effect of understating and delaying the reportingof improper payment information to Congress, I would encourage OMB to promptly review itsguidance and revise it accordingly. To do otherwise, shortchanges taxpayers and denies Congressthe opportunity to review the amount of money that would otherwise be identified and reported.
I know you share my commitment to insuring that the government remains true to the statute whenidentifying improper payment rates. Thank you in advance for your assistance. Please keep meadvised of your progress in this matter. I would appreciate an update no later than June 2, 2004.
Sincerely,
Charles E. Grassley
United States Senator
Chairman, Senate Finance Committee
January 9, 2004
The Honorable Joshua B. Bolten
Director
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
Dear Mr. Bolten,
We are writing to express our concern about guidance issued by the Office of Managementand Budget to assist agencies in implementing the Improper Payments Act of 2002 (Act) P.L. 107-300. OMB’s guidance appears to ease agency reporting of improper payments by eliminating theneed for risk assessments if an agency concludes that improper payments do not exceed 2.5 percentand $10 million of program spending. The statute itself required agency risk assessments andcorrective action plans to be completed on all programs and activities where improper payments areestimated to exceed $10 million. OMB also issued supplemental guidance to the Social SecurityAdministration (SSA) to address the reporting of improper payments that are considered to be“unavoidable.” Specifically, OMB decided that payments determined to be “unavoidable” wouldno longer need to be reported as improper payments.
This guidance appears to change the parameters of what is and is not reported. Moreover,it appears that OMB guidance will artificially reduce improper/erroneous payment figures. In otherwords, the improper payment figures that will eventually be reported to the public will look better,and feel better, than they really are, and the public and the Congress will have a less accurateunderstanding of the integrity of our federal programs.
Federal agencies are responsible for managing tens of thousands of programs and activitiesand expending hundreds of billions of dollars annually to address the needs of the American public.As implementers of these programs and activities, agencies have a stewardship responsibility and,as such, must take all reasonable actions to design, implement and manage them in a manner whichensures that program objectives are met and that controls exist to safeguard federal funds fromimproper or erroneous payments. In the past several years the General Accounting Office (GAO)and OMB reported partial estimates of erroneous payments amounting to tens of billions of dollarsannually; these reports have also noted that government-wide estimates of improper payments donot exist.
The Improper Payments Information Act of 2002 (Act) was enacted on November 26, 2002,to address this problem. It requires all federal agencies to estimate improper payments in theirprograms and activities and to report these amounts to the Congress annually. The Act gave OMBa significant role in its implementation, by requiring OMB to issue agency guidance on how toimplement its provisions. OMB issued this guidance in May 2003 and has been working withagencies to clarify the Act’s requirements and respond to agency questions on implementation andreporting issues.
Because of the magnitude and implications of improper payments government-wide, and theimplications of OMB’s guidance, it is critical that agencies take their responsibilities under the Actseriously. Agency reports must be the epitome of honest and complete disclosure on the amountsof improper payments occurring, their causes, barriers to eliminating these causes, planned actionsto reduce or eliminate these payments, and the results of those actions.
We consider the reports required by the Act to provide critical information that will assistin the Committee’s oversight and monitoring of federal programs and activities, as well as theCongress’ evaluation of agency management and control over federal funds. The information onimproper payments is critical to Congress’ understanding of existing problems and its ability tolegislate to reduce improper payment levels. Only with careful analysis of this information can weensure the most effective, efficient and economical operation of federal programs.
In light of the importance of the improper payment issue, and the concerns that we haveexpressed regarding the implementation of the guidance recently issued by OMB, we wouldappreciate receiving responses to the attached questions.
Thank you in advance for your attention to this matter. We would appreciate receivingOMB’s responses by January 28, 2004.
Sincerely,
Charles E. Grassley
Chairman
Max Baucus
Ranking Member
IMPROPER PAYMENT QUESTIONS
1. OMB’s Improper Payments Information Act guidance issued on May 21, 2003, called for all agencies covered bySection 57 of OM B Circular A-11 to continue reporting improper payment information as required in previous years.Please describe whether or not the agencies covered by Section 57 provided to OMB all of the information required bySection 57 for the past three-year period.
a. For each agency identified, please summarize the information provided to OMB, including the amounts ofimproper payments, causes and results of corrective action(s), if any.
b. Please identify each agency covered by Section 57 that did not provide OMB with all the requiredinformation and each program for which the information was not provided. Please describe the nature of eachreporting deficiency, and any action(s) OM B took to correct the deficiency.
2. The Improper Payments Information Act requires agencies to report improper payments to Congress each year. Whenthese payments are estimated to exceed $10 million or more in any program or activity, agencies are required to reportadditional information as well. However, OMB guidance modifies this reporting requirement by adding an additionalrequirement: that improper payments exceed both 2.5 percent and $10 million.
a. Please explain in detail OMB’s justification for imposing the 2.5 percent standard.
b. Please list the agencies and programs that have previously reported improper payments under Section 57 ofCircular A-II that would not meet the two-prong OM B guidance standard, in other words how much of thepreviously reported improper payments exceed the $10 million threshold, but not the 2.5 percent threshold?
3. Please explain why 2.5 percent of program spending on improper payments is a reasonable threshold for additionalreporting requirements, especially given that much smaller percentages could amount to hundreds of millions or billionsof dollars in improper payments in programs such as M edicare or SSA’s OASI and DI programs?
4. GAO has reported that the principal cause of improper payments is a breakdown in systems of internal controls. TheFederal Manager’s Financial Integrity Act (FMFIA) has required annual executive agency reviews and reporting oninternal contro ls since ab out 1984. OMB was heavily involved in FMFIA’s implementation across the government. Whyis it that the problems that cause improper payments weren’t previously identified and corrected? Are agencies takingtheir FM FIA review and reporting responsibilities seriously?
5. What is OMB doing to ensure that federal agencies take proactive measures to improve weak internal controls andimplement safeguards to ensure against improper payments?
SSA-Specific Issues
1. OMB provided SSA with supplemental guidance on improper payments reporting that establishes a distinctionbetween “avoidable” and “unavoidable” payments – terms that have not been part of the general improper paymentlexicon. Why did OMB decide to adopt this d istinction in this context?
2. For items considered to be “unavoidable”, we understand that OMB guidance would not require agencies to reportthat information to the Congress under the Improper Payments Information Act. Is our understanding correct? W ouldso-called “unavoidable” improper payment statistics be collected at all? Would they be reported to OMB?
3. What dollar impact does the introduction of this avoidable/unavoidable distinction have on the amounts of improperpayments reported by SSA for 2003? What would the improper payment rate or amount be for SSA for 2003 under 2002improper payment definitions?
4. If statutory or regulatory provisions require agencies to make payments that the agency otherwise would considerimproper, why shouldn’t an agency communicate this to the Congress so that the Congress can co nsider appropriatelegislative solutions?
5. Is SSA the only agency where “unavoidable” and “avoidable” improper payment distinctions arise? If not, whichother agencies have raised these issues and what has OMB’s response to them been?
6. Another area classified as “unavoidable” is payment made for Title II based on earnings estimates because of programdesign requirements. Again, why should this information not be reported, tracked, and updated to identify agency actionsto recover improperly paid amounts and identify the status of corrective actions?
7. Why shouldn’t “Undetected Error” amounts be reported since it appears that they would represent amounts that werepaid that should not have been paid – are these not improper payments?
8. OMB’s SSA-specific guidance for the category “Undetected Error” concluded that OASI, DI, and SSI should notinclude estimates of these amounts as improper payments unless SSA had evidence that a specific type of erroneouspayment was made. Wouldn’t the statistical sampling you require in other guidance provide the estimates of thesepayments? If so, why not report the results?
Grassley Works to Ensure Disclosure of Improper Payments Made by Government Agencies
WASHINGTON — Sen. Chuck Grassley is keeping the heat on the Office of Management and Budget to revise its guidelines to federal agencies on reporting improper payment informationto Congress.
Grassley is protesting new guidelines that say agencies don't need to report improperpayments in excess of $10 million if the payments are less than 2.5 percent of program spending.Grassley says if this limit had been applied in previous years, most of the agencies that reportedimproper payments in 2001 and 2002 would not have been required to do so.
For example, the Social Security Administration reported $1.3 billion in improper paymentsin the disability insurance program. This figure is 2.2 percent of program expenditures, so it wouldnot meet the new 2.5 percent threshold set by the Office of Management and Budget.
"The new guidelines appear to let federal agencies off the hook even when billions of dollarsin improper payments have been made," Grassley said. "That violates the spirit and letter of the law passed by Congress, to make sure information about improper payments saw the light of day and agencies were held accountable for such expenditures."
The Improper Payments Information Act of 2002 requires federal agencies to identifyprograms that are vulnerable to improper payments and to estimate annually the amount of underpayments and overpayments made by these programs. For any program where improper payments are estimated to exceed $10 million, the agency is to include a report on actions beingtaken to reduce the improper payments.
Improper payments by the federal government exceeded $20 billion in 2001 and again in 2002.
Grassley has also taken issue with the Office of Management and Budget's new instructionon submitting estimates, which he says will result in a reporting delay of nearly two years. The newguidelines were issued by the Office of Management and Budget last May. The Office ofManagement and Budget evaluates, formulates and coordinates management procedures within andamong federal departments and agencies.
Grassley is a senior member of the Senate Budget Committee and chairman of the FinanceCommittee. The text of Grassley's letter to Director Joshua Bolten follows here. It is the secondletter from Grassley on this matter. The text of his January letter is also included in this document.
April 5, 2004
The Honorable Joshua Bolten
Director
Office and Management and Budget
Eisenhower Executive Office Building
Washington D.C. 20503
Dear Mr. Bolten:
I was deeply troubled by the response I received to my earlier letter regarding OMB’s guidanceimplementing the Improper Payments Information Act of 2002 (P.L. 107-300).
The statutory language clearly and unequivocally states that agencies are to estimate and report thetotal amount of improper payments identified in accordance with OMB guidance, and with respectto improper payments in excess of $10 million, report on the actions taken to reduce such payments.
Given the explicit reporting requirements with respect to improper payments in excess of $10million, it is inconceivable that OMB could devise guidance that would result in the failure to reportimproper payments in excess of $10 million. Yet, the guidance issued by OMB explicitly states thatagencies “need not report” improper payments in excess of $10 million, if agencies “believe” sucherrors are less than 2.5% of program payments.
Even if OMB could reconcile the inherent contradiction between the 2.5% standard and the $10million threshold, the process by which agencies are instructed to apply the standard is fraught withperil.
OMB’s guidance instructs agencies to identify programs and activities “it believes are susceptibleto significant erroneous payments” without “making a statistically valid estimate.” In other words,if agencies believe their improper payments are less than 2.5%, they don’t have to go to the troubleto find out whether or not they are right.
The assertion that those agencies that previously reported under Section 57 of Circular A-11 willcontinue to report all erroneous payments without regard to the 2.5% standard is belied by the factthat Section 57 was eliminated from Circular A-11 in July of 2003.
OMB’s guidance to the Social Security Administration regarding “unavoidable” payments alsoseems to contradict the assertion that agencies previously subject to Section 57 will continue toreport erroneous payments under the same standards they have used in the past.
Finally, the statutory language requires agencies to submit improper payment estimates in theirannual budget submissions for fiscal years after FY 2003. However, OMB’s guidance instructsagencies to submit estimates in their Performance and Accountability Reports for fiscal years endingon or after September 30, 2004. This guidance will result in a reporting delay of nearly two years.Given the fact that OMB’s guidance will have the effect of understating and delaying the reportingof improper payment information to Congress, I would encourage OMB to promptly review itsguidance and revise it accordingly. To do otherwise, shortchanges taxpayers and denies Congressthe opportunity to review the amount of money that would otherwise be identified and reported.
I know you share my commitment to insuring that the government remains true to the statute whenidentifying improper payment rates. Thank you in advance for your assistance. Please keep meadvised of your progress in this matter. I would appreciate an update no later than June 2, 2004.
Sincerely,
Charles E. Grassley
United States Senator
Chairman, Senate Finance Committee
January 9, 2004
The Honorable Joshua B. Bolten
Director
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
Dear Mr. Bolten,
We are writing to express our concern about guidance issued by the Office of Managementand Budget to assist agencies in implementing the Improper Payments Act of 2002 (Act) P.L. 107-300. OMB’s guidance appears to ease agency reporting of improper payments by eliminating theneed for risk assessments if an agency concludes that improper payments do not exceed 2.5 percentand $10 million of program spending. The statute itself required agency risk assessments andcorrective action plans to be completed on all programs and activities where improper payments areestimated to exceed $10 million. OMB also issued supplemental guidance to the Social SecurityAdministration (SSA) to address the reporting of improper payments that are considered to be“unavoidable.” Specifically, OMB decided that payments determined to be “unavoidable” wouldno longer need to be reported as improper payments.
This guidance appears to change the parameters of what is and is not reported. Moreover,it appears that OMB guidance will artificially reduce improper/erroneous payment figures. In otherwords, the improper payment figures that will eventually be reported to the public will look better,and feel better, than they really are, and the public and the Congress will have a less accurateunderstanding of the integrity of our federal programs.
Federal agencies are responsible for managing tens of thousands of programs and activitiesand expending hundreds of billions of dollars annually to address the needs of the American public.As implementers of these programs and activities, agencies have a stewardship responsibility and,as such, must take all reasonable actions to design, implement and manage them in a manner whichensures that program objectives are met and that controls exist to safeguard federal funds fromimproper or erroneous payments. In the past several years the General Accounting Office (GAO)and OMB reported partial estimates of erroneous payments amounting to tens of billions of dollarsannually; these reports have also noted that government-wide estimates of improper payments donot exist.
The Improper Payments Information Act of 2002 (Act) was enacted on November 26, 2002,to address this problem. It requires all federal agencies to estimate improper payments in theirprograms and activities and to report these amounts to the Congress annually. The Act gave OMBa significant role in its implementation, by requiring OMB to issue agency guidance on how toimplement its provisions. OMB issued this guidance in May 2003 and has been working withagencies to clarify the Act’s requirements and respond to agency questions on implementation andreporting issues.
Because of the magnitude and implications of improper payments government-wide, and theimplications of OMB’s guidance, it is critical that agencies take their responsibilities under the Actseriously. Agency reports must be the epitome of honest and complete disclosure on the amountsof improper payments occurring, their causes, barriers to eliminating these causes, planned actionsto reduce or eliminate these payments, and the results of those actions.
We consider the reports required by the Act to provide critical information that will assistin the Committee’s oversight and monitoring of federal programs and activities, as well as theCongress’ evaluation of agency management and control over federal funds. The information onimproper payments is critical to Congress’ understanding of existing problems and its ability tolegislate to reduce improper payment levels. Only with careful analysis of this information can weensure the most effective, efficient and economical operation of federal programs.
In light of the importance of the improper payment issue, and the concerns that we haveexpressed regarding the implementation of the guidance recently issued by OMB, we wouldappreciate receiving responses to the attached questions.
Thank you in advance for your attention to this matter. We would appreciate receivingOMB’s responses by January 28, 2004.
Sincerely,
Charles E. Grassley
Chairman
Max Baucus
Ranking Member
IMPROPER PAYMENT QUESTIONS
1. OMB’s Improper Payments Information Act guidance issued on May 21, 2003, called for all agencies covered bySection 57 of OM B Circular A-11 to continue reporting improper payment information as required in previous years.Please describe whether or not the agencies covered by Section 57 provided to OMB all of the information required bySection 57 for the past three-year period.
a. For each agency identified, please summarize the information provided to OMB, including the amounts ofimproper payments, causes and results of corrective action(s), if any.
b. Please identify each agency covered by Section 57 that did not provide OMB with all the requiredinformation and each program for which the information was not provided. Please describe the nature of eachreporting deficiency, and any action(s) OM B took to correct the deficiency.
2. The Improper Payments Information Act requires agencies to report improper payments to Congress each year. Whenthese payments are estimated to exceed $10 million or more in any program or activity, agencies are required to reportadditional information as well. However, OMB guidance modifies this reporting requirement by adding an additionalrequirement: that improper payments exceed both 2.5 percent and $10 million.
a. Please explain in detail OMB’s justification for imposing the 2.5 percent standard.
b. Please list the agencies and programs that have previously reported improper payments under Section 57 ofCircular A-II that would not meet the two-prong OM B guidance standard, in other words how much of thepreviously reported improper payments exceed the $10 million threshold, but not the 2.5 percent threshold?
3. Please explain why 2.5 percent of program spending on improper payments is a reasonable threshold for additionalreporting requirements, especially given that much smaller percentages could amount to hundreds of millions or billionsof dollars in improper payments in programs such as M edicare or SSA’s OASI and DI programs?
4. GAO has reported that the principal cause of improper payments is a breakdown in systems of internal controls. TheFederal Manager’s Financial Integrity Act (FMFIA) has required annual executive agency reviews and reporting oninternal contro ls since ab out 1984. OMB was heavily involved in FMFIA’s implementation across the government. Whyis it that the problems that cause improper payments weren’t previously identified and corrected? Are agencies takingtheir FM FIA review and reporting responsibilities seriously?
5. What is OMB doing to ensure that federal agencies take proactive measures to improve weak internal controls andimplement safeguards to ensure against improper payments?
SSA-Specific Issues
1. OMB provided SSA with supplemental guidance on improper payments reporting that establishes a distinctionbetween “avoidable” and “unavoidable” payments – terms that have not been part of the general improper paymentlexicon. Why did OMB decide to adopt this d istinction in this context?
2. For items considered to be “unavoidable”, we understand that OMB guidance would not require agencies to reportthat information to the Congress under the Improper Payments Information Act. Is our understanding correct? W ouldso-called “unavoidable” improper payment statistics be collected at all? Would they be reported to OMB?
3. What dollar impact does the introduction of this avoidable/unavoidable distinction have on the amounts of improperpayments reported by SSA for 2003? What would the improper payment rate or amount be for SSA for 2003 under 2002improper payment definitions?
4. If statutory or regulatory provisions require agencies to make payments that the agency otherwise would considerimproper, why shouldn’t an agency communicate this to the Congress so that the Congress can co nsider appropriatelegislative solutions?
5. Is SSA the only agency where “unavoidable” and “avoidable” improper payment distinctions arise? If not, whichother agencies have raised these issues and what has OMB’s response to them been?
6. Another area classified as “unavoidable” is payment made for Title II based on earnings estimates because of programdesign requirements. Again, why should this information not be reported, tracked, and updated to identify agency actionsto recover improperly paid amounts and identify the status of corrective actions?
7. Why shouldn’t “Undetected Error” amounts be reported since it appears that they would represent amounts that werepaid that should not have been paid – are these not improper payments?
8. OMB’s SSA-specific guidance for the category “Undetected Error” concluded that OASI, DI, and SSI should notinclude estimates of these amounts as improper payments unless SSA had evidence that a specific type of erroneouspayment was made. Wouldn’t the statistical sampling you require in other guidance provide the estimates of thesepayments? If so, why not report the results?
Next Article Previous Article