Jan 31 2008

To Fix It, You Have to Find It

With the 2007 improper payment figures now available, here are tips to help agencies whittle away at errant payments.

Creating better data management tools for financial accounting has pushed up — rather than down — the figure for improper payments made by the government. Even so, agencies should take heart and also incorporate a few best practices, according to the Government Accountability Office.

For fiscal 2007, the government reported total improper payments of $55 billion, up $13 billion over the previous year — mostly because the Health and Human Services Department reported a new category for Medicaid payments.

But that’s all right, GAO noted this month when reporting the past year’s statistics. “We view this increased reporting as a positive step to improve transparency over the full magnitude of improper payments across the federal government.”

Despite this positive perspective, the government’s auditors say agencies must not back off their efforts and must improve their practices for analyzing and managing the financial data they collect.

Keep at It

Here are some pointers GAO picked up from its improper payments reviews during the waning months of 2007:

TIP #1: Create a strategy and data review program to make sure that your agency can confidently report on the true level of errant payments.

GAO found in a separate review of the Defense Finance and Accounting Service that although DFAS had collected financial data on travel spending in the Defense Department, it had no method for adequately sampling and reviewing these database records. The result: Its improper payments estimate could be off by as much as $4 million.

TIP #2: Make sure that reporting organizations compute statistically valid accounting from the collected data. An agency can have the best data collection process and systems records but that will do little good if all the organizations that must report improper payments aren’t using a consistent computational model, GAO says.

The DOD review also revealed that Defense agencies were not informed adequately of the right sampling computations. The comptroller and the IT teams must work with agencies in a department; otherwise, the data will be skewed, and then the action plans to target reductions will be misaligned.

TIP #3: Check and then recheck that data reports are complete. Once an agency creates a method for culling improper payments data and then samples it, that’s only the beginning. Agencies need to periodically review these processes to see if adjustments are needed, recommends GAO. Among the reasons: Agencies regularly identify new “risk susceptible” programs, and other organizational or systems changes can also affect reporting.

Meeting the reporting requirements and then ultimately reducing payments, as required by the President’s Management Agenda, demands “sustained attention to implementation and oversight,” says McCoy Williams, GAO’s managing director for financial management and assurance.

This is particularly crucial in a large organization, such a DOD, where the data and reports come from many disparate agencies.

TIP #4: Make use of IT to help centralize payment information if at all possible. That’s an approach that worked for the Agency for International Development, GAO found when it looked at what AID had done to improve controls over payments during the past three years. Of course, AID is at the opposite end of the spectrum in size compared with DOD, but it too has operations worldwide.

The agency plans to use this database “to annually identify its payment streams and corresponding volume and dollar amounts by mission or geographic location, data mine for duplicate payments, research other payment anomalies and perform tests of transactions,” AID officials told GAO.

Making Progress

Focusing on data collection and reporting pays off. “The results from the past three years of reporting on improper payments demonstrate that once an agency has measured and reported program errors, it is able to implement corrective actions to reduce those errors in subsequent years,” notes the Treasury Department in its financial overview report on the government for fiscal 2007. But there’s room for improvement: Agencies have reported improper payments measurements for 86 percent of high-risk outlays. That leaves 14 percent of such expenditures that, if reviewed, could result in agencies finding and resolving more problem disbursements.