From the U.S. Government Accountability Office, www.gao.gov Transcript for: Watchdog Report: Reviewing Improper Government Payments Audio interview by GAO staff with Kay Daly, Director, Financial Management & Assurance Related GAO Work: GAO-11-443R: Status of Fiscal Year 2010 Federal Improper Payments Reporting Released on: April 18, 2011 [ Background music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the Government Accountability Office. It's April 18, 2011. This past fiscal year, federal agencies reported having made improper payments worth more than $125 billion. A group led by Kay Daly, a director in GAO's Financial Management and Assurance team, recently reviewed payment data from 35 federal agencies and government entities. GAO's Jeremy Cluchey sat down with Kay to learn about what they found. [ Jeremy Cluchey: ] How are improper payments defined? [ Kay Daly: ] Well, improper payments are defined as any payment that should not have been made or was made for an incorrect amount. And this includes both overpayments and underpayments, and payments such as duplicate payments, payments for goods and services that hadn't been received, or for an ineligible good or service. For example, the Earned Income Tax Credit Program that's administered by the Internal Revenue Service—to be eligible for that program, you have to meet certain criteria, such as the amount of your income, participants in your household, and so forth. So if you don't meet those criteria, yet still receive the payment, that would be an improper payment. [ Jeremy Cluchey: ] Your team collected data from federal agencies, which last year, reported about $2.3 trillion in total outlays. And you calculated the extent to which improper payments contributed to that total. What did you find? [ Kay Daly: ] We found that roughly 20 agencies reported for about 70 programs, an improper payment estimate of $125.4 billion. I know that's a lot of money. And it's important to note, though, that this $125 billion estimate is not an estimate of fraud. Fraud represents an intentional act of deception that could result in an inappropriate gain. And improper payments covers, as we just discussed, a much broader area and includes things like inadvertent errors or, you know, just lack of documentation to support a payment. The $125 billion represents about 5 1/2 percent error rate. [ Jeremy Cluchey: ] That $125.4 billion is, represents a $16.2 billion increase in improper payments from the previous fiscal year. Your team found that that increase was largely attributable to a handful of major programs. Can you elaborate on this? [ Kay Daly: ] Absolutely. About 10 programs account for roughly 94 percent of the total estimated improper payments, or about $118 billion. And these are commonly, you know, known programs like Medicare, Social Security, and so forth. Now, for the $16.2 billion, the growth in that amount from last year to this year, was primarily due to about four programs. We have the Department of Labor's Unemployment Insurance Program, the Treasury's Earned Income Tax Credit Program, the Health and Human Services Medicaid Program, and the Medicare Advantage part of that program. [ Jeremy Cluchey: ] Did the other programs that you reviewed generally see a decrease in improper payments from previous years? [ Kay Daly: ] Our analysis showed that about 53 percent of the programs reporting an estimate in fiscal year 2010, they actually reported a reduction in their rate of improper payments. Let me give you an example, Jeremy. The Department of Veterans Affairs reported a decrease in their Pension Program, and that represents an estimate that went down to about $356 million in improper payments. And that represents a decrease in their error rate of about 3 percentage points, down to about an 8 percent error rate. [ Jeremy Cluchey: ] Obviously, this is a challenging fiscal climate for the nation and the federal government. What would you say are the important takeaways from this report? [ Kay Daly: ] I think, in today's fiscal environment, establishing effective accountability mechanisms are really critical to help not only reduce improper payments, ultimately to prevent them. To do so effectively, you’ve got to understand the root causes of those improper payments so that you can identify and take steps to improve the internal controls that will ultimately prevent them. I think this year, we've gotten some new presidential initiatives issued, you know, and executive order and some memorandums, along with, of course, the new improper payments legislation that was issued this past summer. And it's still too soon to tell how successful these efforts are going to be because they are new, but we’re hopeful that they are providing a strong framework for improving these, the issue of improper payments in the future. [ Background Music ] [ Narrator: ] To learn more, visit GAO's Web site at GAO.gov and be sure to tune in to the next edition of GAO's Watchdog Report for more from the congressional watchdog, the Government Accountability Office.