Government spending part 1:

Tackling improper payments in the Federal Government

For more than 20 years, the United States government has been working diligently to address the challenge of improper payments. According to the Government Accountability Office (GAO), there have been an estimated $2.4 trillion in improper payments since 2003, including $247 billion in FY 2022 alone. Despite this astronomical figure from the last two decades, the Office of Management and Budget (OMB) reported that “the improper payment rate, including unknown payments, in FY 2022 declined—from 7.2 percent to 5.1 percent —even as a number of new programs, including pandemic relief programs, reported for the first time.” This indicates agencies are moving in the right direction. As good as this is, however, there is still work to be done, and in recognition of Cybersecurity Awareness Month in October, we look at a brief history of improper payments, and how agencies can improve payment integrity to continue to reduce the occurrences of improper payments.

Improper Payments and the Federal Government

Each year, the federal government makes more than $2 trillion in payments to individuals or other entities, according to the OMB. Ensuring that these transactions are paid securely is an important undertaking. The OMB defines an improper payment as occurring “when the funds go to the wrong recipient, the recipient receives the incorrect amount of funds, or the recipient uses the funds in an improper manner.” T he OMB makes sure to note that not all improper payments are fraudulent or represent a monetary cost to taxpayers.

Linda Miller, CEO of Audient Group, LLC, a recognized subject matter expert in fraud and improper payments, said in an interview with Government Technology Insider that improper payments have been a longtime issue for federal agencies, but the new millennium brought new legislation that helped drive and improve accountability. With the Improper Payments Act of 2002 (IPIA), agencies are not only required to report improper payments each year, but they must also provide Congress with estimates, corrective action plans, and reduction targets if the number of improper payments exceeds $10 million. Building on this, the Obama Administration established PaymentAccuracy.gov in June 2010, which creates scorecards to provide transparency and increase citizens’ trust in government.

Although it’s true there was a “meaningful decline” in improper payments between FY 2021 and FY 2022, this doesn’t acknowledge the large increase in improper payments in FY 2021 compared to before the pandemic, due in large part to COVID relief fraud and errors in disbursements. Representative Abigail Spanbeger, D-Va., wrote a letter to President Biden after the release of the improper payments report, stating, “The American people deserve an efficient, accountable, and transparent government” and calling for the President to “initiate another government-wide effort to cut unnecessary spending, similar to the ‘Campaign to Cut Government Waste.’” The Campaign to Cut Government Waste referenced by Spanberger was a 2011 campaign led by then-Vice President Biden that reportedly saved the government $17 million in six months.

The Problem with Verifications and Authentications

“If you read the report cards on paymentaccuracy.gov, the root causes have remained the same for the entire time they’ve been reporting them,” Miller noted. She said 80 percent of the issues are related to a failure to verify information or an inability to access information. A nearly 90-page report published last year by the United States Chief Financial Officers Council (CFO) detailed the issues of verifying identities, as well as benefit-relevant information, like provider, employment, financial, benefits, and residency status, and the changes that agencies can make to reduce the impact.

Verification is the root cause of the majority of improper payments, but there are many reasons why it’s an issue. As Miller explained, “Sometimes it’s that they are statutorily barred from collecting that information.” School meal programs, for example, are highly susceptible to abuse and improper payments because the USDA is not permitted to fully verify the income of parents and guardians. Miller said that this is a prime example of where statutes have actually limited an agency’s ability to collect information.

“But in far more cases, it’s that the agency either doesn’t know how to get that information from a reliable source or they have not entered into any kind of data sharing agreements with the agencies or the external entities to get that information,” Miller declared. Many federal agencies are hesitant to share personal identifiable information (PII) with other agencies because of a concern that the information could be breached or compromised. While agencies think they are protecting this information, finding secure data sharing solutions that can protect PII that is shared between agencies can help cut back on fraud and as a result, improper payments.

A surge in identity theft-based fraud during the pandemic underscored the urgent need for innovative solutions to verify the identities of benefit applicants. As the pandemic unfolded, the Department of Labor identified one in three payments within the pandemic unemployment assistance program as improper, with a vast majority of these issues stemming from identity theft-based fraud. Organized crime rings and sophisticated nation-state actors exploited this situation, orchestrating large-scale identity theft operations to fraudulently claim benefits.

Tackling Improper Payments: The Journey Towards Payment Integrity

The persistent issue of improper payments remains a challenge for federal agencies. While strides have been made over the past two decades to address this problem through legislation, reporting requirements, and transparency initiatives, improper payments continue to drain valuable resources. The misuse of funds can have far-reaching consequences, and government agencies must continue to explore innovative solutions to ensure that taxpayer dollars are disbursed with precision and accuracy. Stay tuned to discover how payment integrity is reshaping the fight against improper payments and forging a path toward a more efficient, accountable, and transparent government.

Check out part two of this series here, where we delve into solutions for improper payments, exploring the concept of payment integrity with the help of Scott Andersen, Federal Solutions Architect, Verizon, and Brett Barganz, Public Sector Senior Principal, Verizon.