From the U.S. Government Accountability Office, www.gao.gov Transcript for: Federal Improper Payments Description: Federal improper payments include scenarios where government agencies make payments to the wrong beneficiary, payments were made in the wrong amount, or payments were made when they shouldn’t have been at all. In Fiscal Year 2019, there were an estimated $175 billion dollars in improper payments. Berri Davis joins the Watchdog Report to fill us in. Related GAO Work: GAO-20-344, Payment Integrity: Federal Agencies' Estimates of FY 2019 Improper Payments Released: March 2020 [ Background Music ] [Berri Davis:] You have to be sure that the money that you have responsibility for that comes from the American taxpayer is wisely spent. [Matt Oldham:] Welcome to GAO's Watchdog Report, your source for news and information from the US Government Accountability Office. I'm Matt Oldham. Federal agencies made an estimated 175 billion dollars' worth of improper payments in fiscal year 2019. These were payments that were either sent in the wrong amount or shouldn't have been made at all. And Berri Davis, a Financial Management and Assurance Director, is with me to talk about a GAO report on these improper payments. Thanks for joining me, Berri. [Berri Davis:] Thank you. Glad to be here. [Matt Oldham:] So, does this mean the US government overpaid $175 billion last year? [Berri Davis:] Let me emphasize that the 175 billion is actually an estimated sample of improper payments, and it's based on a statistical sample that agencies develop regarding their areas of improper payments each year. The important thing to note, too, is that there are multiple components of the 175 billion, so to be specific, improper payments that are overpaid represent close to half of that amount, but probably about 7% are underpayments, payments that were not sufficient, that should have been, more money should have been given to beneficiaries, for example. And then there's a very large component that has to do with insufficient documentation. So, the agency was not able to determine whether the right person was paid, or the amount was paid in the correct number or figure, or even whether the payment should have been made at all. Maybe nobody should have been paid at all. But that is not determinable, and so the agency categorizes that as a potential improper payment. [Matt Oldham:] So, are there certain agencies or programs that have made up the bulk of these improper payments? [Berri Davis:] Yes. There are three programmatic areas: Medicaid, Medicare, and the Earned Income Tax Credit. And Medicaid estimated improper payments this past year of about $57 billion. Now, that was an increase of about 21 billion from the prior year. Medicare was about $46 billion, and the Earned Income Tax Credit was about 17. [Matt Oldham:] And what are some of the factors that could lead to these improper payments? [Berri Davis:] You know, agencies have a responsibility to get money out the door quickly. I mean, they want to pay the contractors that they work with for their services on a timely basis. They want to pay beneficiaries timely so they're entitled to receive the benefits that they're entitled to. And so, there's a desire to ensure that monies get paid promptly and to the benefit of those that are receiving them. On the other hand, there needs to be internal controls that balance that to ensure that, you know, the money gets paid properly but that the correct checks and balances are in place. So, for example, if somebody calculates a payment to a beneficiary but there's nobody that does a second check or review of that, that might be an internal control weakness that could create an improper payment. So, really the thing to do is to ensure that the agencies, because of their fiduciary responsibility over these funds, take the proper precautions, they design policies, they develop, implement those policies and develop operating procedures that ensure that those policies, you know, are carried out, and that the payments are only made to the right people for the right amount. [Matt Oldham:] So, it sounds like the majority of these improper payments came from Medicaid, Medicare, and the Earned Income Tax Credit, and this totals about 121 billion of the estimated $175 billion that we're talking about. So, Berri, how can agencies cut down on improper payments? [Berri Davis:] Agencies can cut down on improper payments by first acknowledging the problem, developing good estimates, and then determining what their problems are, specifically what their root causes are of those improper payments, and once they determine what the root causes are, then they're in the position where they can actually develop corrective action plans. And, of course, implementing those corrective action plans sort of completes the cycle at that point and then determining what internal controls you need to make sure that going forward you're not continuing to make improper payments is very important. [Matt Oldham:] Is it possible that bolstering internal controls could cost more money? [Berri Davis:] That's true. There absolutely has to be a cost-benefit analysis to determine what those internal controls are, and yes, it could cost more money. On the other hand, you have to be sure that the money that you have responsibility for that comes from the American taxpayer is wisely spent, so there's a give and take there, that's true. [Matt Oldham:] So then, last question. What's the bottom line of this report? [Berri Davis:] Just generally, agencies need to give attention or put their antenna up. Let me put it that way. Pay attention to this issue. See what they can do to resolve it. If, in fact, there are state agencies that get some of this money, some of the money is pass-through money or non-profit organizations might get the pass-through money, as well. The federal government still has that fiduciary responsibility. They need to work with the state agencies. They need to work with the individuals that are actually the ultimate beneficiaries to make sure that that money, the controls are in place and that money is properly spent. [Matt Oldham:] Berri Davis was talking about a GAO report on an estimated $175 billion of federal improper payments in fiscal year 2019. Thank you for your time, Berri. [Berri Davis:] Thank you. [Matt Oldham:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. Make sure you leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the US Government Accountability Office, visit us at gao.gov.