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pdfEXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON , D. C . 20503
THE
DIRECTOR
October 20, 2014
M-15-02
ADS OF EXECUTIVE DEPARTMENTS AND AGENCIES
FROM:
SUBJECT:
Appendix C to Circular No. A-123 , Requirements for Effective Estimation and
Remediation ofImproper Payments
The Administration has made reducing improper payments-payments made to the
wrong entity, in the wrong amount, or for the wrong reason-a top priority. Since coming into
office, the President has signed two laws and issued three directives- including an Executive
Order- that created a robust infrastructure for agencies to reduce improper payments in their
programs. Through thi s committed focus , the government-wide improper payment rate has
declined for four consecutive years, from 5.42 percent in fiscal year (FY) 2009 to 3.53 percent in
FY2013.
The enactment of the Improper Payments Elimination and Recovery Improvement Act
(IPERIA) of201 2 provided an opportunity for the Office of Management and Budget (OMB) to
re-examine existing guidance to ensure agencies are able to more efficiently reduce their
improper payment rates, while also complying with multiple legislative and administrative
requirements. The goal of this overhauled version of Appendix C to Circular No . A-123 1 is to
transform the improper payment compliance framework to create a more unified,
comprehensive, and less burdensome set of requirements. Appendix C accomplishes the
following:
• Consolidates and streamlines reporting requirements for agencies and Inspectors
General, and eliminates duplicative and old one-time requirements so agencies can
spend less time producing compliance reports and more time focusing on game
changing solutions for achieving payment accuracy;
• Establishes new categories for reporting improper payments that will provide more
granularity on improper payment estimates- thus leading to more effective corrective
actions at the program level and more focused strategies for reducing improper
payments at the government-wide level;
1
Appendix C implements req uirements from the following: (1) the Improper Payments Information Act of2002
(!PIA), as amended; (2) the Improper Payments E limination and Recovery Act of20 I 0 (IPERA) ; (3) the Improper
Payments Elimination and Recovery Improvem ent Act of2012 (IPERIA) ; and (4) Executive Order 13520
Reducing Improper Payments- iss ued November 20, 2009.
• Introduces a new internal control framework to ensure that payments are made in the
right amount, to the right entity, and for the right purpose; and
• Provides guidance to agencies- as required by the most recent statute, IPERIA- to
strengthen the statistical validity of estimates and include payments to Federal
employees in the definition of improper payments, among other things.
OMB Circular A-123 , Appendix C, Patis I and II (which were issued in April2011 as
OMB Memorandum M-11-16) and Pati III (which was issued in March 2010 as OMB
Memorandum M-10-13) are hereby modified. Unless otherwise noted in the guidance, the
requirements found in Appendix Care effective starting in FY 2014. OMB will continue to
work closely with agencies and Inspectors General to provide further implementation guidance
as needed.
Please contact Flavia Menasce ([email protected]), Heather Pajak
([email protected]), or Mike Wetklow ([email protected]) in OMB's Office of
Federal Financial Management with any questions regarding this guidance.
Attachment
2
APPENDIXC
Requirements for Effective
Estimation and Remediation of
Improper Payments
TABLE OF CONTENTS
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5
7
A. RISK-ASSESSING, ESTIMATING, AND REPORTING IMPROPER PAYMENTS........ ....... ... ....... .. ...... .... 7
1) Which agencies are required to comply with the requirements of IPIA, IPERA, and
IPERIA? .... ...... ..... ........ ..... ..... ........ ..................... ............ ..... ............................ ..... ............ .. 7
INTRODUCTION ...............................................................................................................................
OVERVIEW ......................................................................................................................................
PART I- IMPROPER PAYMENTS ELIMINATION AND RECOVERY ••••••••••••••••••••••••••••••••••••••••••••••••••
2)
What is an improper payment? ........... ....... .... ..... .... .... ...... ........ ... ....... ... .......... ................. .. 7
3)
What is a payment for an ineligible good or service? ....... ..... .. .... ....... .... .. .... ... ........ ......... .. 7
4)
What is a program or activity? ............................................................... .......... ..... ... ..... .... .. 8
5)
Must agencies include payments to employees in improper payment risk assessments? ... 8
6)
Must agencies include payments related to charge cards in improper payment risk
assessments? ............................ ...... ......... ...................... ... ............. ......... ... .... ............. ....... .. 8
7)
Must agencies review intra-governmental transactions? ....... ................ ..... ..... ................... 9
8)
What constitutes an improper loan or loan guarantee payment? ...... ............ ........ .. ... .. ..... .. 9
9)
What specific steps are agencies required to take? ..... ........... ....... .... ... ......... .... ......... .. ..... .. 9
Step 1: Review all programs and activities and identify those that are susceptible to
significant improper payments .... ..... .. .. ... .. .. ......... ......... ................. ............................ .... .. 9
Step 2: Obtain a statistically valid estimate of the annual amount of improper payments
in programs and activities for those programs that are identified in Step 1 as susceptible
to significant improper payments ..... ...... ... .. ......... .... ..... ............... .................................. 11
Step 3: Implement a plan to reduce improper payments ........... ............ ........ ..... ........... 15
Step 4: Report annually in the AFR or PAR. ... ....................... ............. ....... ........... ....... 16
10) When must agencies conduct risk assessments? ...........•.......................... ..... .... ..... ....... .... 16
11) What information should agencies provide to persons or entities producing improper
payment estimates? ... .......... ..... ... ... ......... ... .... ........................ ....... ..... ............... ...... ....... ... 17
12) Are agencies allowed to rely upon self-reporting by recipients of agency payments when
estimating improper payments? ..... .... ......... ...... ... .................... .......... ...... ..... .......... ....... ... 17
13) Are agencies allowed to implement an estimation approach that excludes improper
payments that have been subsequently corrected and recovered from the annual estimate?
·· ···· ··············· ···· ····· ····· ····· ····················· ········ ········· ········ ····· ······· ········································· 18
14) May agencies use alternative sampling and estimation approaches? ...... ....... ........... .... ... 18
15) Should data used for estimating improper payments coincide with the fiscal year being
reported in the AFR or PAR? ... ......... .......... .. ..... .......... ..... ....... .......... ...... ....... .................. 20
16) What are Federally-funded, State-administered programs, and may agencies consider
other approaches for these types of programs? ...... ...... ... ...... ............. ............................... 21
1
17) Are programs that are identified as susceptible to significant improper payments, and that
annually report improper payment estimates, permanently subject to improper payments
reporting requirements? ...................................... ................ ..... ..... .... ..... ...... .... .... .... ..... .... 21
18) Are programs and activities that have been deemed susceptible to significant improper
payments as a result of the Disaster Relief Appropriations Act, 2013, permanently subject
to improper payments reporting requirements? ................................................................ 22
B. IMPROVING THE DETERMINATION OF IMPROPER PAYMENTS ..................................................... 23
1) How
OMB determine the "high-priority" programs as required under IPERIA? .... . 23
will
2) What are the requirements under IPERIA for establishing semi-annual or quarterly
actions for reducing improper payments? ......................................................................... 23
3) Do high-priority programs have any specific requirements regarding corrective actions?
.. ...... .. ......... .... ..... ............. ..... .... ... ......... ....................................... .. ..... .. .... ..... .. ......... ... ...... 24
4) Are there any additional reporting requirements for agencies that have high-priority
programs? ...... ...... ........ .......... .. .. .... ............ .................... .. .... ...... ... ............... ............ .... ...... 24
24
What categories should agencies use when reporting improper payment estimates? ...... 24
C. CATEGORIES FOR REPORTING IMPROPER P AYMENTS ................................................................
1)
2) How should agencies focus on fraudulent activities? ....................................................... 28
28
What are the definitions used for payment recapture auditing in this guidance? ............. 28
D. pAYMENT RECAPTURE AUDITS ... ..... .............. ... .......... .................. ........ ...... ... ................... ........
1)
2)
What are the general agency requirements for implementing a payment recapture audit
program? ................................................................................... .......................... ... ........... 29
3)
Should agencies establish targets for their payment recapture audit programs? .............. 30
4)
What is the scope for payment recapture audit programs? ............................................... 30
5)
What criteria should an agency consider in determining whether a payment recapture
audit is cost-effective? ...................................................................................................... 31
6)
What should an agency do if it determines that a payment recapture audit program would
not be cost-effective? ........................................................................................................ 32
7)
Should the agency follow any particular procedures when conducting payment recapture
audits of grants payments? .... .. ...................... .. ......................................................... .. ....... 32
8)
Can Federal agencies provide money to States and Local governments for Financial
Management Improvement efforts? ....... .. .... .. ..... ... ..... ........... ....... ..... .... ............... ........ .... 33
9)
Who may perform payment recapture audits? .................................................................. 33
10) May contractors perform payment recapture audit services? ........................................... 33
11) Are there any specific requirements when using a contracted payment recapture auditing
firm? ................................................................................................................... ;............ .. 33
12) Are there any prohibitions when using a payment recapture audit contractor? ................ 34
13) Who performs recovery activities once the improper payments are discovered and
verified? ....... ....... ........................ ... ....... ... .......... ........ ........... ....................... ........ ...... ..... .. 34
14) What is the proper disposition of recovered amounts? .................................. .. ...... ........... 3 5
2
15) Are agencies authorized to implement Financial Management Improvement Programs? 37
16) What are the reporting requirements for payment recapture audits? .... .......... ... .. ...... .. ... .. 37
17) How are improper payment estimates different from payment recapture audit efforts? .. 3 8
PART II- COMPLIANCE WITH THE IMPROPER PAYMENT REQUIREMENTS ............................... 39
A. RESPONSIBILITIES OF AGENCY INSPECTORS G ENERAL ........... ... ...... .... ... ....... .. ..... ..................... 39
1) When should each agency Inspector General begin reviewing improper payment
performance to determine whether the agency is in compliance under IPERA? ............. 39
2) When should the agency Inspector General complete its review of agency compliance
under IPERA? .... .... .... ..... ....... ....... ................................. .. .. ..... ....... ... .... ... .... ... ... ........ ....... 39
3) What should each agency Inspector General review to determine if an agency is in
compliance under IPERA? ... ......... .. ... ............ .... ... ... .... .. ... .... ......... .................... ... .... ........ 39
4) What else should the agency Inspector General include in its compliance review and
report? ... .. ............... ................ ....... .. .... .......... ...... ... .......... ..... ....... .............. ............... ....... . 40
5) Who should the agency Inspector General notify when it has completed its determination
of whether an agency is in compliance under IPERA? ......... ................. ................ .......... . 40
B. RESPONSIBILITIES FOR AGENCIES ........... .. ... ........ .... .... ... ............... .... ............. ....................... ... . 40
1) What are the requirements for agencies not compliant under IPERA? ........... ... .............. 40
42
What are the criteria as to when an agency should initially be required to obtain an
opinion on internal control over improper payments? ................... ........ ....... .. ....... .. ......... 42
C. INTERNAL CONTROL OVER IMPROPER PAYMENTS .. ..... ..... ... .......... .... ..... .... .... .... .... .................. .
1)
2) How do internal control standards apply to improper payments? ....... .......... ........ .......... . 43
PART III- REQUIREMENTS FOR IMPLEMENTING EXECUTIVE ORDER 13520 ........................... 46
A. GENERAL G UIDANCE .. .. ...... ..... ....... ... ...... .. .... .. ......... ...... ...... ......... ...... ... .......... ... ... ........... ....... . 46
1)
Which agencies are subject to the requirements of Executive Order 13520? ... ... ... .. ...... .. 46
2)
How will OMB determine the "high-priority" programs as required under Section 2(a)(i)
of the Executive Order? ....... ......... ..... .... ..... ......... ......... ... ...... .. ......................... ... .... ... ...... 46
3)
What are agencies required to submit for the improper payments website as required
under Section 2(b) of the Executive Order? .................. .. ....... ... .. ......... ....... ... ... ............... 46
4)
Why is program access important? ..... ... .. ... ......... ........... ...................... ....... ... ... ............... 46
5)
Does this guidance create any special rights? ................. ........................ ........ ....... ......... .. 4 7
B. SUPPLEMENTAL MEASURES ... .......................... ...... ........ ................. ........... ...... ..... ......... .. ... ....... 47
1) What are the requirements for establishing annual or semi-annual measurements in high
priority programs, also known as supplemental measures? ..... ....... .... ....... .... ................... 47
2)
Which tools should agencies use to identify supplemental measures? ... ... ............ .... ....... 4 7
3)
Who is required to establish annual or semi-annual measurements under the Executive
Order? ...... ......... ... ...... ... ... ............ .. .......... ............. ....... .......... ........... .............. ....... .. .. ....... 48
4)
How should agencies establish annual or semi-annual targets for supplemental measures?
········ ··················· ············· ·········· ····· ··· ······ ·· ···· ··· ···· ············· ··············· ······· ··· ······ ········ ·········· 49
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5) Are the reduction targets described in section I.A.9 of this guidance the same as the
supplemental targets that agencies will set to comply with the Executive Order? ........... 49
6) How will agencies report annual or semi-annual supplemental measures and targets? ... 49
C. ACCOUNTABLE OFFICIAL REQUIREMENTS .. .. ..... ... ... ............... ........................... ....................... 50
1)
Which agencies are responsible for establishing accountable officials under Section 3(a)
of the Executive Order? ........ ....................................... ........ .......... ................. .... .. ...... ... ... 50
2) Who may serve as an agency or component accountable official under Section 3(a) of the
Executive Order? .. ..... ..................... .. ............................................. ........... .. .... ...... ... ......... 50
3) What are the accountable officials' roles and responsibilities? ...... .................. .............. .. 50
4) What are the agency requirements for providing a report to their IGs in response to
Section 3(b) of the Executive Order? ......... ..... .............. .. ..... .. ................... ........................ 50
5) What are the Inspector General' s responsibilities with respect to the report under Section
3(b) ofthe Executive Order? ........ .. .......... ..... .... ....... .... .. ................ ................ ................... 51
51
What is a "high-dollar" overpayment? .... ..... ..................... ............................................... 51
D. AGENCY HEAD QUARTERLY HIGH-DOLLAR REPORT TO THE INSPECTOR GENERAL ........ ...... ...
1)
2) Which sources should agencies utilize to identify high-dollar overpayments? ................ 52
3) What information should be included in agency reporting on high-dollar overpayments?
.......... ................................. .......... ..................................... ............. .................................... 52
4) Which agencies must report on high-dollar overpayments? Where shall agencies report
high-dollar overpayments to the public? What if an agency has no high-dollar
overpayments? ......... ........ .. .. ..... ... .... ....... ...... ... .......... .. .. .... ...... .... ......... .. .... ............ .......... 52
5) Are there exceptions to the reporting requirements for the high-dollar report? ..... .......... 52
4
INTRODUCTION
Unless otherwise noted, the requirements found in this guidance are effective for fiscal year (FY)
2014 and beyond. This guidance implements the requirements from the following:
• Improper Payments Information Act of2002 (IPIA; Pub. L. No. 107-300), as amended;
• Improper Payments Elimination and Recovery Act of2010 (IPERA; Pub. L. No. 111
204);
• Improper Payments Elimination and Recovery Improvement Act of2012 (IPERIA; Pub.
L. No. 112-248) 1; and
• Executive Order 13520-Reducing Improper Payments-issued November 20,2009.
Issuance of this guidance hereby modifies the Office of Management and Budget (OMB)
Circular A-123, Appendix C, Parts I and II (which were issued in April2011 as OMB
Memorandum M-11-16) and Part III (which was issued in March 2010 as OMB Memorandum
M-10-13).
OVERVIEW
Before the passage ofiPIA, there was no overarching government-wide framework for
measuring-let alone reducing-Federal improper payments. Between 2002 and 2009, as more
agencies began measuring and reporting improper payment estimates for their programs, it
became increasingly clear that Federal improper payments represented a significant loss to the
government. As a result, between 2009 and present time, the Federal government has built a
robust infrastructure of legislative and administrative requirements with which agencies must
comply in order to achieve tangible results. These requirements-which apply to a wide array of
stakeholders-are described in detail in Appendix C to OMB Circular A-123 . The six
paragraphs below, as well as Figure 1, provide only a cursory overview of some key Appendix C
requirements. However, for a more precise and comprehensive description, readers should
consult the subsequent pages of the guidance.
Payment Recapture Audits. One fundamental requirement that agencies must meet is to recover
any Federal dollars that should not have gone out the door. IPERA requires any program that
expends at least $1 million to implement payment recapture audits, if cost effective to the
agency, in order to recover improper payments (see section I.D).
Low-Risk Programs. Independent of any payment recapture activities, IPERA also requires that
all programs assess their risk for improper payments. If an agency deems a program to be at a
low risk for improper payments, the agency will re-assess that program' s risk at least every three
years (see section I.A.9, step 1).
Programs Susceptible to Significant Improper Payments. If an agency deems a program to be
susceptible to significant improper payments, the agency is required to estimate and report
improper payments for that program annually, in addition to implementing corrective actions to
reduce its improper payments (see section I.A.9, steps 2-4). In doing so, agencies should identify
1
This guidance does not address the Do Not Pay initiative, which is found in Section 5 ofiPERIA.
5
the root causes of, and implement appropriate corrective actions to prevent and reduce the related
improper payments. Agencies should continuously identify innovative corrective actions to
prevent and reduce improper payments. For example, corrective actions could leverage new
technologies and advanced techniques-such as forensic tools, pre-payment software, and data
matches. In addition, for all programs that are susceptible to significant improper payments,
Executive Order 13520-Reducing Improper Payments-requires agencies to produce a
quarterly report of any "high-dollar" overpayments (see section III.D).
High-Priority Programs. IPERIA reinforces the requirements from Executive Order 13520 by:
fostering greater agency accountability; requiring OMB to designate the programs with the most
egregious cases of improper payments as high-priority; and requiring those programs to develop
indicators of improper payments (called supplemental measures) that are more frequent than the
annual estimates, as a tool for tracking progress (see section III.B). Furthermore, Executive
Order 13520 also requires those agencies with high-priority programs to name accountable
officials to oversee efforts to reduce program improper payments (see section III. C).
Annual Reporting. Once a year, agencies will report in the Agency Financial Report (AFR) or
the Performance and Accountability Report (PAR) most of the required components listed in
Appendix C. 2 As agencies implement Appendix C, they should approach improper payments
with an internal control framework in mind and provide a thoughtful analysis linking agency
efforts in establishing internal controls and reducing improper payment rates (see section II. C).
Annual Inspector General Compliance Review. IPERA adds an important component of
accountability to the entire spectrum of improper payment efforts. Every year, each agency
Inspector General reviews agency improper payment reporting in the agency's AFR or PAR to
determine if the agency is in compliance with Appendix C requirements listed under section
II.A.3.
Figure 1: Appendix C at a Glance
• IP > $750 M
• Accountable Officials
• Supplemental Measures
• Meets $10M & 1.5% (or $100M)
Susceptible to
Significant IPs
...lrlr... • Annual Estimates
~ • Corrective Actions
• High-Dollar Reports
Low Risk
• If Program> $1 M
• If Cost-Effective
2
Per OMB Circular No. A-136, agencies may choose either to produce a consolidated PAR or to produce a separate
AFR and Annual Performance Report (APR).
6
PART I- IMPROPER PAYMENTS ELIMINATION AND RECOVERY
Part I discusses the requirements ofiPIA3, IPERA, and IPERIA.
A. RISK-ASSESSING, ESTIMATING, AND REPORTING IMPROPER PAYMENTS
1) Which agencies are required to comply with the requirements of IPIA, IPERA, and
IPERIA?
The agencies required to comply with IPIA, IPERA, and IPERIA are defined broadly as "a[ny]
department, agency, or instrumentality in the executive branch of the United States" as defined in
Title 31, Section 102 of the United States Code.
2) What is an improper payment?
An improper payment is any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other legally applicable
requirements. Incorrect amounts are overpayments or underpayments that are made to eligible
recipients (including inappropriate denials of payment or service, any payment that does not
account for credit for applicable discounts 4 , payments that are for an incorrect amount, and
duplicate payments). An improper payment also includes any payment that was made to an
ineligible recipient or for an ineligible good or service, or payments for goods or services not
received (except for such payments authorized by law). In addition, when an agency's review is
unable to discern whether a payment was proper as a result of insufficient or lack of
documentation, this payment must also be considered an improper payment.
The term "payment" in this guidance means any disbursement or transfer of Federal funds
(including a commitment for future payment, such as cash, securities, loans, loan guarantees, and
insurance subsidies) to any non-Federal person, non-Federal entity, or Federal employee, that is
made by a Federal agency, a Federal contractor, a Federal grantee, or a governmental or other
organization administering a Federal program or activity. The term "payment" includes Federal
awards subject to the Single Audit Act and the Uniform Guidance for Federal assistance (2 CFR
200 Subpart F) (Single Audits) that are expended by both recipients and sub-recipients.
3) What is a payment for an ineligible good or service?
A payment for an ineligible good or service includes a payment for any good or service that is
not permitted under any provision of a contract, grant, lease, cooperative agreement, or other
funding mechanism.
3
Unless otherwise indicated, from this point forward in the guidance the term "IPIA" will imply "IPIA, as amended
by IPERA and IPERIA."
4
Applicable discounts are only those discounts where it is both advantageous and within the agency's control to
claim them.
7
4) What is a program or activity?
The law anticipates that agencies will examine the risk of, and feasibility of recapturing,
improper payments in all programs and activities administered. The term "program" includes
activities or sets of activities recognized as programs by the public, OMB, or Congress, as well
as those that entail program management or policy direction. 5 This definition includes, but is not
limited to, all grants including competitive grant programs and block/formula grant programs,
non-competitive grants such as single-source awards, regulatory activities, research and
development activities, direct Federal programs, all types of procurements (including capital
assets and service acquisition), and credit programs. It also includes the activities engaged in by
the agency in support of its programs.
For Federal awards subject to the Single Audit Act or otherwise listed in the Catalog of Federal
Domestic Assistance (CFDA), agencies should consider using the groupings in the Compliance
Supplement for Single Audits (referred to as "clusters of programs") and the CFDA. However,
unless otherwise specified in OMB Circular A-11, each Federal agency, after consultation with
OMB, is authorized to determine the grouping of programs which most clearly identifies and
reports improper payments for their agency. Agencies must1 not put programs or activities into
groupings that may mask significant improper payment rates by the large size or scope of a
groupmg. For transparency, the basis for these groupings must be reported in the agency's AFR
or PAR.
5) Must agencies include payments to employees in improper payment risk assessments?
Yes. IPERIA amended the definition of"payment" in IPIA to include payments made to Federal
employees, in addition to payments made to non-Federal persons or entities. Therefore, agencies
must include payments made to employees (including salary, locality pay, travel pay, and other
payments to Federal employees) in the risk assessments (beginning in FY 2014) and, if
applicable, in improper payment estimates (the following fiscal year). For improper payment
reporting purposes, when a shared service provider is responsible for the actual disbursements of
payments to employees (for example, payroll) on behalf of a customer agency, the customer
agency and shared service provider6 should assess only the portions of the process that are within
their respective control.
6) Must agencies include payments related to charge cards in improper payment risk
assessments?
Yes. Agencies should include such payments in risk assessments (beginning in FY 2014) and, if
applicable, in improper payment estimates (the following year). Agencies should leverage
guidance in OMB Circular A-123, Appendix B-Jmproving the Management ofGovernment
Charge Card Programs-and OMB Memorandum M-13-21-Jmplementation ofthe
5
The term "program" in this guidance implies "program and activity."
Shared service providers can leverage service organization internal control reports such as Reports on Controls at a
Service Organization Relevant to User Entities' Internal Control over Financial Reporting (also known as SOC 1
Reports) or other OMB A-123 assessments.
6
8
Government Charge Card Abuse Prevention Act of2012-when performing these risk
assessments.
7) Must agencies review intra-governmental transactions?
No. IPIA does not require agencies to include payments made by a Federal agency to another
Federal agency. Therefore, agencies are not obligated to review intra-governmental transactions.
However, any agency may review such payments, and must do so if directed by OMB.
8) What constitutes an improper loan or loan guarantee payment?
Under a direct loan program, improper payments may include disbursements to borrowers or
other payments by the Government to non-Federal entities that are based on incomplete,
inaccurate, or fraudulent information. They may also include disbursements or other payments
that are duplicate, in an incorrect amount, or for purposes other than those allowed by law,
program regulations, or agency policy.
Under a loan guarantee program, an improper payment may include payments by the
Government to non-Federal entities for defaults, delinquencies, interest and other subsidies, or
other payments that are based on incomplete, inaccurate, or fraudulent information. They may
also include duplicate payments, payments in an incorrect amount, or any payments that are not
in compliance with law, program regulations, or agency policy.
9) What specific steps are agencies required to take?
Unless an agency has specific written approval from OMB to deviate from the steps explained
below, agencies are required to follow these steps to determine whether the risk of improper
payments is significant and to provide valid annual estimates of improper payments 7• The
agency is responsible for maintaining the documentation to demonstrate that the following steps
(if applicable) were satisfied.
Step 1: Review all programs and activities and identify those that are susceptible to
significant improper payments.
a. Definition. For the purposes of this guidance, beginning with FY 2014 reporting and
beyond, "significant improper payments" are defined as gross annual improper
payments (i.e., the total amount of overpayments and underpayments) in the program
exceeding (1) both 1.5 percent of program outlays and $10,000,000 of all program or
activity payments made during the fiscal year reported or (2) $100,000,000
(regardless of the improper payment percentage of total program outlays).
7
Improper payment rates referenced here and throughout this guidance should be based on dollars rather than
number of occurrences. In other words, the improper payment rate should be the amount in improper payments
divided by the amount in program outlays for a given program in a given fiscal year (rather than the number of
improper payments divided by the total number of payments).
9
b. Systematic Method. All agencies shall institute a systematic method of reviewing all
programs and identify programs susceptible to significant improper payments. This
systematic method could be a quantitative evaluation based on a statistical sample or
a qualitative method (e.g., a risk-assessment questionnaire). At a minimum, agencies
shall take into account the following risk factors likely to contribute to improper
payments, regardless of which method (quantitative or qualitative) is used:
1.
Whether the program or activity reviewed is new to the agency;
11.
The complexity of the program or activity reviewed, particularly with respect
to determining correct payment amounts;
111.
The volume of payments made annually;
1v.
Whether payments or payment eligibility decisions are made outside of the
agency, for example, by a State or local government, or a regional Federal
office;
v.
Recent major changes in program funding, authorities, practices, or
procedures;
v1.
The level, experience, and quality of training for personnel responsible for
making program eligibility determinations or certifying that payments are
accurate;
Vll.
Inherent risks of improper payments due to the nature of agency programs or
operations;
vm.
Significant deficiencies in the audit reports of the agency including, but not
limited to, the agency Inspector General or the Government Accountability
Office (GAO) audit report findings, or other relevant management findings
that might hinder accurate payment certification; and
1x.
Results from prior improper payment work.
When appropriate, agencies may leverage other existing processes to help implement
this systematic method. For example, if an agency chose to develop and implement
an improper payment risk-assessment questionnaire, the agency might consider
leveraging another existing similar tool, such as an internal control questionnaire.
c. Other Risk Susceptible Programs. OMB may determine on a case-by-case basis (e.g.,
if an audit report raises questions about an agency's risk assessment or improper
payments results) that certain programs that do not meet the threshold requirements
described above may still be subject to the annual AFR or PAR reporting
requirement.
d. Examples. To further clarify use of the quantitative evaluation method for
performing risk assessments in this step, we provide four examples:
Example 1: Under the analysis in Step 1, a program has a potential improper
payment rate of 1.2 percent or $14 million. Under this guidance an agency need
not perform Step 2-obtaining a statistically valid estimate of improper payments
in the program-because even though the potential amount of improper payments
in the program exceeds $10 million, the potential improper payment rate does not
exceed 1. 5 percent.
10
Example 2: Under the analysis in Step 1, a program has a potential improper
payment rate of 1.8 percent or $9 million. Under this guidance, an agency need
not perform Step 2-obtaining a statistically valid estimate of improper payments
in the program-because even though the potential improper payment rate
exceeds 1.5 percent, the potential amount of improper payments in the program
does not exceed $1 0 million.
Example 3: Under the analysis in Step 1, a program has a potential improper
payment rate of 1.8 percent and $11 million. Under this guidance, an agency
must perform Step 2-obtaining a statistically valid estimate of improper
payments in the program-because the potential improper payment rate exceeds
1.5 percent and the potential amount of improper payments exceeds $10 million.
The agency must report a statistically valid improper payment rate for the
program in its annual AFR or PAR.
Example 4: Under the analysis in Step 1, a program has a potential improper
payment rate of0.6 percent and $125 million. Under this guidance, regardless of
the potential improper payment rate, the agency must perform Step 2-obtaining
a statistically valid estimate of improper payments in the program-because the
potential amount of improper payments in the program exceeds $100 million.
Step 2: Obtain a statistically valid estimate of the annual amount of improper
payments in programs and activities for those programs that are identified in Step 1
as susceptible to significant improper payments. 8
Programs reporting improper payments for the first time and programs revising their
current methodology shall conform to the process and content described below in steps
2.1 and 2.2. Programs that are currently using methodologies approved by OMB under
the previous version ofOMB A-123 Appendix C do not need to resubmit a methodology
plan-unless an update to the plan is warranted. Programs should consider updating their
plan if the program undergoes any significant changes such as legislative, funding,
structural, etc.
Step 2.1: Process. All programs and activities susceptible to significant improper
payments shall design and implement appropriate statistical sampling and estimation
methods to produce statistically valid improper payment estimates. In doing so, agencies
shall conform to the following process:
a. Annual Estimated Amount. For all programs and activities susceptible to significant
improper payments, agencies shall determine an annual estimated amount of
improper payments made in those programs and activities. When calculating a
program's annual improper payment amount, agencies should only utilize the amount
paid improperly. For example, if a $100 payment was due, but a $110 payment was
8
Step 2 should occur in the fiscal year following the fiscal year in which the risk assessment was conducted under
Step 1.
11
made erroneously, then the amount applied to the annual estimated improper payment
amount should be $10, rather than the payment amount of $110. Similarly, if a $100
payment was due, but a $90 payment was made erroneously, then the amount applied
to the annual estimated improper payment amount should be $10, rather than the
payment amount of $90. However, if a $100 payment was due and made, but there is
insufficient documentation to support the appropriateness of the payment or if a
duplicate payment was made, then the amount applied to the annual estimated
improper payment amount should be $100. Agencies are required to determine an
annual estimate that is a gross total of both over and underpayments (i.e.,
overpayments plus underpayments). However, in addition to the gross total, agencies
are also allowed to calculate and disclose in their AFRs or PARs the net total (i.e. ,
overpayments minus underpayments).
b. Statistical Sampling and Estimation Plans. Agencies are responsible for designing
and documenting their sampling and estimation plan. Each plan shall be prepared by
a statistician9 (either an agency employee or a contractor) and submitted to OMB no
later than June 30 of the fiscal year for which the estimate is being produced (e.g. , the
sampling methodology to be used for the FY 2014 reporting cycle must be submitted
by June 30, 2014). The agency shall also include a summary oftheir sampling
methodology plan in its AFR or PAR. The sampling and estimation plan shall be
accompanied by a document certifying that the methodology will yield a statistically
valid improper payment estimate (see below).
c. Certification. IPERA requires agencies to produce statistically valid estimates of
improper payments, and therefore each plan shall be accompanied by a certification
stating that the methodology will produce a statistically valid estimate. The
certification shall be signed by an agency official ofthe agency's choosing (e.g., this
could be the Chief Financial Officer, his/her Deputy, a program official, etc.). Upon
receipt, OMB will review the documents (i.e., the proposed statistical sampling plan
and the accompanying signed certification) to verify that they are complete and
include all the requisite components listed in Step 2.2 below. It is important to note
that OMB will not be issuing a formal approval to the agency for the sampling plan
rather, it is the agency's responsibility to produce a statistically valid methodology.
The signed certification will serve as evidence that the agency believes the
methodology is statistically sound. OMB does reserve the right to raise questions
about the particular methodology, should the need arise.
d. Working with other Entities. Agencies should consider working with entities-such
as grant recipients-that are subject to Single Audits to leverage ongoing audits to
assist in the process to estimate an improper payment rate and amount.
e. Incorporating Recommendations. Whenever possible, agencies should incorporate
refinements to their improper payment methodologies based on recommendations
9
This person should have training and experience designing statistical samples and using statistical methods to
calculate population estimates and sampling errors from a probability sample. This person would generally have an
advanced degree in statistics, biostatistics, mathematics, a quantitative social science, or a similar field.
12
from agency staff or auditors (such as their agency Inspector General, GAO, or
private auditors).
f. Example Plans from Other Agencies. OMB will make available to agencies
examples of statistical sampling and estimation plans submitted by agencies.
Agencies are encouraged to review these examples and consult with other agencies
when preparing their sampling plans. While each plan will likely be slightly different
given the unique nature of each program, there are some characteristics that are
common across many programs, and agencies should benefit from each other's work.
However, each agency is responsible for designing and executing an appropriate
sample to statistically estimate improperly paid dollars that meets the requirements in
this guidance.
Step 2.2: Content of Statistical Sampling and Estimation Plans. Agencies shall clearly
and concisely describe the statistical methods that will be used to design and draw the
sample and produce an improper payment estimate for the program in question. The
plans shall explain and justify why the proposed methodology is appropriate for the
program in question-this explanation must be supported by accurate statistical formulas,
tables, and any additional materials to demonstrate how the sampling and estimation will
be conducted and the appropriateness of those statistical methods for the program.
Agency sampling and estimation plans must be complete and internally consistent. The
following aspects must be clearly addressed:
a. Probability Sampling. Improper payment estimates shall generally be based on
probability samples and shall provide estimates of the sampling error for the amount
of the improper payments. Agencies may use simple random samples if those are
appropriate, but many agencies have employed more complex stratified or multi-stage
or clustered samples in order to obtain estimates of different components of the
program that are more actionable than can be afforded by simpler sample designs.
Depending on the nature and distribution of the payments made by a program, many
agencies also use unequal probabilities of selection to capture larger payments with
higher probability (i.e., probability proportionate to size). If the universe of payments
for a program or a component/stratum of the program is small, agencies may review a
complete census of payments in those cases and would not have any sampling error
for that component or stratum-assuming a statistician is consulted on this approach.
b. Assumptions about the amount of Improper Payments. The agency may use their
initial determination of the potential improper payment in Step 1, above, to aid in
determining the sample size. Since most agencies have been conducting ongoing
reviews of their improper payments for some time, they should utilize results from
previous years and make appropriate adjustments to the sample size and even the
sample design based on previous findings in order to obtain a more efficient sample
or obtain more useful estimates of improper payments by program component.
c. Appropriate Sample Sizes. Because of the imprecision of the risk assessment
performed in Step 1, agencies should ensure that they select a sample that will meet
13
the minimum precision requirements in Step 2.2.d below. For initial estimates of
improper payments, agencies should take a conservative approach and use higher
estimated improper payments in their sample size calculations to ensure that they will
meet the precision targets. As noted above, since most agencies have been
conducting ongoing reviews of their improper payments for some time, they should
utilize results from previous years and make appropriate adjustments to the sample
SIZe.
d. Precision. Agencies should design the sample and select a sample size sufficient to .
yield an estimate of improper payments with a 90 percent confidence interval of plus
or minus 2.5 percent of the total amount of all payments for a program around the
estimate of the dollars of improper payments. 1 For example, if the total amount of
all payments for a program was $1 ,000,000,000 and the estimated total of improper
payments based upon the statistical sample was $80,000,000, the 90 percent
confidence interval around the estimate should be no more than plus or minus
$25,000,000-i.e., $55,000,000 to $105,000,000. These guidelines for precision shall
be taken as the minimum, and agencies are encouraged to increase samples above the
minimum to achieve greater precision in their estimates in order for agencies to better
understand underlying causes of improper payments and creating action plans.
Agencies shall maintain documentation to support the calculation of these estimates.
°
e. Sample Design Documentation. Agency sampling and estimation plans shall .
generally provide sufficient documentation of the sample design so that a qualified
statistician would be able to replicate what was done or so that OMB, agency
Inspector General, or GAO personnel can evaluate the design. Agencies shall clearly
identify the frame or source for sampling payments and document its accuracy and
completeness. All stages of selection, any stratification, and/or any clustering shall
be clearly described. Explicit strata shall be clearly defined, as should any variables
used for implicit stratification. Tables shall generally be provided showing the size of
the universe and sample by strata (if applicable). Sampling plans shall also specify
whether cases are selected with equal or unequal probabilities and how the
probabilities of selection are determined when they are unequal.
f. Documentation of Estimation Formulas. Agency sampling and estimation plans shall
include documentation of the statistical formulas that will be used to estimate the
amount of improper payments (and the associated confidence intervals for the
sample) and to project those results to the entire program. Documentation should
include appropriate citations for these formulas. Agency sampling and estimation
plans must be complete and internally consistent (for instance, estimation formulas
must appropriately reflect the complexity of the sample design).
g. Updates and Changes to Agency Plans. Agencies should update their sampling and
estimation plans, as needed, to reflect the current design and methods being used and
incorporate refinements based on previous results, consultations with others, and/or
10
Agencies may alternatively use a 95 percent confidence interval of plus or minus 3 percent around the estimate of
the dollar amount of improper payments.
14
recommendations from Inspectors General, GAO, or OMB. Any updated plans will
need to be submitted to OMB no later than June 30 of the fiscal year for which the
estimate is being produced (e.g., the sampling methodology to be used for the FY
2014 reporting cycle must be submitted by June 30, 2014). The plans shall include
all the components described in steps 2.1 and 2.2 above. A plan that is being updated
or changed should include some language explaining why the plan is changing and
how the plan is different from the one previously submitted.
Agencies shall submit an explanation and justification to OMB for any instances where a
program is not able to fulfill the requirements described in Step 2. OMB will review
requests for deviation from these requirements and must approve any alternative methods
(see section I.A.14 below).
Step 3: Implement a plan to reduce improper payments.
a. Root Causes and Corrective Actions. For all programs and activities as determined
under Step 2 with improper payments exceeding the thresholds listed earlier in Step 1,
agencies shall identify the reasons their programs and activities are at risk of
improper payments and put in place a corrective action plan to reduce them. In many
cases, agencies will implement long-term, on-going corrective actions that will be
implemented and refined on a continuous basis (e.g., the corrective action is in place
for many years, though it may be refined from year to year). Agencies should
annually review their existing corrective actions to determine if any existing action
can be intensified or expanded, resulting in a high-impact, high return-on-investment
in terms of reduced or prevented improper payments. In addition, IPERIA requires
agencies to tailor their corrective actions for programs that are deemed high-priority
to better reflect the unique processes, procedures, and risks involved in each specific
program. This information shall be reported in the agency's AFR or PAR annually.
More detailed information about high-priority programs can be found below in
section I.B.
b. Reduction Targets. When compiling plans to reduce improper payments, agencies
shall set reduction targets for future improper payment levels and a timeline within
which the targets will be reached. Reduction targets must be approved by the
Director of OMB (this approval process will take place during the OMB review and
approval process of draft AFRs and PARs). In cases in which a program needs a few
years to fully establish an improper payment rate baseline (for example, state
administered programs with a "rolling rate" in which only a fraction of the states
report each year), OMB does not expect the program to publish a reduction target
until a full baseline has been established and reported.
c. Accountability. Agencies must ensure that managers and accountable officers
(including the agency head), programs and program officials, and where applicable
States and local partners, are held accountable for reducing improper payments. In
addition, for programs that are not implemented directly by Federal or State agencies
or government, agencies may also consider establishing these accountability
15
mechanisms. For example, non-Federal entities could include colleges that disburse
grants and loans to students, or banks that disburse loans to students. Agencies shall
assess whether the organizations have the internal controls, human capital,
information systems, and other infrastructure needed to reduce improper payments to
minimal cost-effective levels, and identify any statutory or regulatory barriers which
may limit the agencies' corrective actions in reducing improper payments. This
information shall be reported in the agency' s AFR or PAR annually.
Step 4: Report annually in the AFR or PAR.
a. Reporting. Agencies shall report to the President and Congress (through AFRs or
PARs in the format required by 0 MB Circular A -13 6 for improper payment
reporting) an estimate of the annual amount and rate of improper payments for all
programs and activities determined to be susceptible to significant improper payments
under Step 1, regardless of the dollar amount of the estimate, as further explained
below. OMB approval of some improper payment requirements (e.g. , reduction
targets) occurs through OMB ' s review of the improper payment section of each
agency's AFR or PAR. Improper payment information from AFRs and PARs is
subsequently analyzed for inclusion in OMB ' s government-wide reporting on
improper payments. This information (i.e., government-wide improper payment rates
and improper payment amount estimates) is also posted on PaymentAccuracy.gov
the improper payments website created under Executive Order 13520, Reducing
Improper Payments.
b. Improper payment estimates that meet statutory thresholds. For programs and
activities reporting improper payment estimates that meet the statutory thresholds
described in Step 1(a) above, agencies shall follow all the improper payment
reporting requirements delineated in OMB Circular A-136. The improper payments
section in Circular A-136 outlines what information agencies are required to include
in their annual AFRs or PARs regarding improper payment estimates, reduction
targets, root causes, corrective actions, and other areas.
c. Improper payment estimates that DO NOT meet statutory thresholds. For programs
and activities reporting improper payment estimates that DO NOT meet the statutory
thresholds described in Step 1(a) above, agencies are still required to report an
estimate of the annual amount and rate of improper payments, as well as reduction
targets, in their annual AFRs or PARs, but they are not required to complete the
additional steps referenced above in Step 4(b) and outlined in Circular A-136 (e.g. ,
root causes, corrective actions, etc.).
10) When must agencies conduct risk assessments?
IPERA required agencies to conduct improper payment risk assessments for all programs starting
in FY 2011 , unless they received a waiver from OMB. For programs that are deemed to be low
risk of significant improper payments, agencies must perform risk assessments at least once
every three years thereafter (programs that have been determined to be susceptible to significant
16
improper payments and that are already reporting an estimate-or in the process of establishing
an estimate-do not have to perform additional risk assessments). However, if a low risk
program experiences a significant change in legislation and/or a significant increase in its
funding level, agencies are required to re-assess the program's risk susceptibility during the next
annual cycle, even if it is less than three years from the last risk assessment.
11) What information should agencies provide to persons or entities producing improper
payment estimates?
IPERIA requires OMB to instruct agencies to give persons or entities producing improper
payment estimates access to all necessary payment data, including access to relevant
documentation. In order to produce accurate improper payment estimates, agencies must provide
full documentation to persons or entities producing their improper payment estimates. In
addition, this documentation must be maintained for the length oftime required by the National
Archives and Records Administration for the particular type of material being held in order for
post-payment audits to be performed and to allow internal and external auditors to replicate
reported results. For specific records retention requirements, agencies may contact their Senior
Agency Official, a listing of which can be found at http://www.archives.gov/records
mgmt/agencyI sao-list.html.
12) Are agencies allowed to rely upon self-reporting by recipients of agency payments when
estimating improper payments?
IPERIA requires OMB to explicitly bar agencies from relying on self-reporting by the recipients
of agency payments as the sole source basis for improper payments estimates. Specifically,
agencies shall not base their improper payment estimates solely on self-reporting of actual
improper payments by the sub-agencies that made the payments or individuals or entities who
received the payments. In other words, agencies may not use self-reporting by recipients of
actual improper payments in lieu of a statistical estimate.
However, agencies may continue to utilize sub-agencies and recipients of Federal funding to
assist in the improper payment rate estimation process if the methodology is statistically valid
(or, in the case of alternative methodologies, if approved by OMB) and if the appropriate checks
and balances are in place, including Federal oversight to ensure the integrity of the process. For
example, a Federal agency overseeing a Federally-funded, State-administered program may
choose to ensure that a structured sampling methodology and procedures are prescribed for
states' use for estimating and reporting improper payments using information from a variety of
sources 11 , and not just from the beneficiaries of the program.
Historically, some agencies used alternative methodologies for estimating and reporting
improper payments that relied solely on self-reporting of actual improper payments. Current law
no longer supports alternative methodologies that are comprised strictly of self-reporting or
identification of actual improper payments by employees, vendors, or agency staff, instead of a
11
These sources should be reliable and the information provided should be accurate and complete. Documentation
of data reliability testing should be maintained by the sources.
17
statistical sample resulting in program estimates. Therefore, self-reported improper payments
may be reported, but only in addition to the agency's statistical estimates.
13) Are agencies allowed to implement an estimation approach that excludes improper
payments that have been subsequently corrected and recovered from the annual
estimate?
IPERIA requires agencies to include all improper payments that were identified in the sample in
the reported estimate, regardless of whether the improper payment has been or is being
recovered. Prior to the passage of IPERIA, OMB guidance allowed agencies-in limited cases,
and with prior approval from OMB-to implement an estimation approach that excluded
improper payments that had been subsequently corrected and recovered from the annual estimate
reported in the agency's AFR or PAR. Therefore, any program that currently excludes recovered
amounts identified in the sample from its estimate shall update its methodology to reflect the
new IPERIA requirement. In this case, OMB will work with the agency to help determine how
and when the new methodology will go into effect, and how to report the change in the AFR or
PAR (for example, possibly allowing the agency to use an additional figure to disclose the effect
of recovered funds on the improper payment rate).
14) May agencies use alternative sampling and estimation approaches?
Yes, Section 2(b) of IPERA requires agencies to produce a statistically valid estimate, or "an
estimate that is otherwise appropriate using a methodology approved" by the Director of
OMB. This means that if, and only if, agencies are unable to develop a sampling methodology
that follows the guidance described above in section I.A.9, step 2, they may utilize an alternative
sampling and estimation approach after obtaining OMB approval. A request for approval and
the proposed alternative sampling and estimation approach must be submitted in writing to OMB
no later than June 30 in the fiscal year for which the alternative approach is being developed
(e.g., an alternative approach to be used for the FY 2014 reporting cycle must be submitted by
June 30, 2014). The request must describe the proposed alternative methodology in detail, and
clearly explain why the agency is unable to produce a statistically valid estimate (as described in
section I.A.9, step 2). OMB anticipates that a statistician 12 (either an agency employee or a
contractor) will be consulted when preparing an alternative sampling and estimation approach.
If approved by OMB, agencies are responsible for maintaining documentation for the alternative
sampling and estimation approach. The agency shall also include a summary of this alternative
methodology in its AFR or PAR, including the justification for using an alternative
methodology.
The scenarios described below are examples of the types of approaches that may be approved by
OMB as alternatives to section I.A.9, step 2 of this guidance. However, agencies are required to
12
This person should have training and experience designing statistical samples and using statistical methods to
calculate population estimates and sampling errors from a probability sample. This person would generally have an
advanced degree in statistics, biostatistics, mathematics, a quantitative social science, or a similar field.
18
obtain OMB approval prior to implementation. The scenarios below are merely illustrations, and
other alternatives may be presented to OMB.
Scenario 1. An agency has a previous baseline improper payment rate, and has a plan in
place to obtain another full program improper payment rate within five years from the
baseline year.
Step 1: Aging the baseline rate. The agency should use statistical methods to update or
"age" the baseline improper payment rate in the intervening years, until the next program
rate is established. Specifically, the agency should use available data to extrapolate
updates of the baseline rate. At a minimum, the analysis should provide a reasonable
basis to conclude whether the baseline rate is trending upward, downward, or remaining
static.
Step 2: Program component annual estimate. The agency should develop an annual
improper payment rate for a component of the program. The component can be defined
based on population, program area, or known problem area. To the extent possible, the
component chosen for analysis should be based on risk so that the agency is targeting an
area of the program in which a significant amount of improper payments is expected to
occur. This approach could mean choosing an area because of overall financial exposure,
or in the case of State-administered programs, possibly selecting larger states to cover
more of the risk. This program component should be statistically sampled annually to
obtain an improper payment rate consistent with the statistical rigor requirements of this
guidance. The goal for the component study is not to extrapolate an improper payment
rate for the program as a whole. Rather, the goal is only to estimate an improper payment
amount for the relevant program component being studied. Component-specific baseline
and target rates, as well as corrective action plans, should be developed to assess agency
progress in reducing improper payments in the program component.
Please note, that both Steps 1 and 2 in Scenario 1 are required if this alternative is chosen by the
agency and approved by OMB.
Scenario 2. No baseline comprehensive improper payment rate is established and no
statistically valid methodology is yet developed to obtain one.
Step 1: Plan for comprehensive baseline improper payment rate. A methodology to
obtain a comprehensive baseline improper payment rate must be developed with a
time line that would allow for the first estimate to occur within three years of when the
plan was approved by OMB. Statistical rigor must meet, at a minimum, the requirements
previously stated in this guidance.
Step 2: Program component annual improper payment rate. While the agency is working
toward a comprehensive baseline rate, the agency should annually identify a component
to assess, and begin to report an improper payment rate for that component within one
year of the plan's approval by OMB (see Step 2 in Scenario 1 above).
19
Step 3: Determine rate. Once the baseline rate is established, and if the rate cannot be re
estimated annually, the agency should perform both Steps 1 and 2 of Scenario 1 above to
ensure that adequate information on improper payments is obtained on an annual basis.
If an agency decides to utilize one of the scenarios listed above, it must complete all of
the steps for the scenario selected. It is important to note that agencies are not restricted
to using only these two approaches; different strategies may be necessary because of pre
existing legislative requirements and/or prohibitions, or because a different method may
be more appropriate in providing results for a particular program. Agencies may also
consider non-probabilistic sampling approaches, such as purposive sampling or cut-off
samples, when legislative requirements make probabilistic samples untenable.
Scenario 3. The risk of improper payments in a program may be part of a larger
inefficiency that the agency is attempting to address. For instance, the improper
payments in the program may be a subset of a larger initiative, and the agency may only
focus on one portion of the improper payments within the program that is under its
control rather than the entire inefficiency.
Step 1: Identify program component. The agency should identify the component of the
program that it wants to estimate and report on. This selection should be a component of
the program that is within its control, is a driver of improper payments within the
program, and whose estimation would produce benefits that outweigh their costs. Once
this selection is identified, the agency should implement an estimation plan that meets the
statistical rigors stated in this guidance.
Step 2: Continue broader program estimate. During and after the development of the
program component improper payment rate, the agency should continue to report the
overall program improper payment estimate. Eventually, OMB may notify the agency
that it may stop conducting the overall program estimate and instead use the program
component estimate in its place, but the agency should continue to report both the
component and program improper payment rate until OMB notifies the agency that it
may stop doing so.
As detailed above, whether an agency decides to use one of these three scenarios, or proposes a
different process, all deviations from section I.A.9, step 2, shall be submitted to OMB no later
than June 30 in the fiscal year for which the estimate is being produced and documented in the
AFR or PAR. In addition, programs should consider updating their alternative methodology if
the program undergoes any significant changes such as legislative, funding, structural, etc.
15) Should data used for estimating improper payments coincide with the fiscal year being
reported in the AFR or PAR?
To the extent possible, data used for estimating improper payments in a given program should
coincide with the fiscal year being reported (for example, the estimate reported in the FY 2014
AFR or PAR should be based on data from FY 20 14). However, agencies may utilize a different
12-month reporting period with approval from OMB. This request for approval shall be
submitted to OMB no later than June 30 in the fiscal year for which the estimate is being
20
reported and shall be documented in the AFR or PAR. For example, the estimate reported in the
FY 2014 AFR or PAR could be based on data from FY 2013, if approved by OMB. As another
example, the estimate reported in the FY 2014 AFR or PAR could be based on data from the last
two quarters ofFY 2013 and the first two quarters ofFY 2014, if approved by OMB. For
consistency purposes, the agency shall continue using the same time period for subsequent
reporting years, unless a different time period is proposed by the agency and approved by OMB.
Therefore, agencies do not need to re-submit a request for approval every year, only when they
are planning to change their reporting time period.
16) What are Federally-funded, State-administered programs, and may agencies consider
other approaches for these types of programs?
Federally-funded, State-administered programs (e.g. , Medicaid, Unemployment Insurance,
TANF, Title I Grants to States, Child and Adult Care Food Program) receive at least part of their
funding from the Federal Government, but are administered, managed, and operated at the State
or local level. Where programs are administered at the State level, statistically valid estimates of
improper payments may be provided at the State level either for all States or for all sampled
States annually. If the improper payment estimates are provided at the State level, these State
level estimates should then be used to generate a national improper payment dollar estimate and
rate. However, agencies may submit a plan to OMB for approval to provide national level
estimates for State-administered programs based on a systematic selection of such states each
year. This request for approval must be submitted in writing to OMB no later than June 30 of the
fiscal year for which the approach is being developed (in other words, an approach to be used for
the FY 2014 reporting cycle would be submitted by June 30, 2014).
One example of this type of approach can be seen in the Title JV.:.E Foster Care Program,
wherein current regulations require that programs be reviewed every three years for compliance.
With prior OMB approval, this program has taken the review cycle already in place and
leveraged it for estimating improper payments, providing a rolling three-year average improper
payment rate.
Alternate methodologies, such as those described above, must be approved by OMB in advance
of implementation. The justification to use this type of approach must include a description of
the States to be selected each year, the methodology for generating annual national estimates,
and a justification for using the proposed plan rather than an estimate based on a random
statistical sample.
17) Are programs that are identified as susceptible to significant improper payments, and
that annually report improper payment estimates, permanently subject to improper
payments reporting requirements?
No. If an agency' s program is currently estimating and reporting improper payments, but has
documented a minimum of two consecutive years of improper payments that are below the
statutory thresholds described in section I.A.9, the agency may request relief from the annual
reporting requirements for this program or activity. This request must be submitted in writing to
OMB, and must include an assertion from the agency' s Office oflnspector General that it
21
concurs with the agency's request for relief. The request for approval must be submitted to
OMB no later than June 30 in the fiscal year for which the agency is requesting to halt reporting
(e.g., a request to halt reporting for a program beginning with the FY 2014 reporting cycle must
be submitted by June 30, 2014).
OMB will not grant automatic approval. Rather, OMB will review the request and will also take
into account the following criteria:
a. Burden-does measuring and reporting improper payments lead to a heavy burden (e.g.,
in terms of funding, program staffhours, etc.)?
b. Legislative considerations-are there any legislative requirements or recent changes that
affect the program's ability or inability to estimate and report improper payments?
c. Audit findings-are there any audit findings (i.e., by the Inspector General or GAO) that
point to reasons why the program might want to continue measuring and reporting
improper payments?
d. Ongoing risk mitigation strategies-are there any appropriate controls, policies, or
corrective actions that have been put in place to mitigate the risk of fraud and error in the
program?
e. Other considerations-are there any other key factors that should be considered in
deciding whether or not to grant relief from measuring and reporting improper payments?
In order to expedite OMB's review, agencies should consider the five criteria above and discuss
them, if appropriate, in the written request. If OMB approves the request, the agency shall
incorporate that program or activity into its risk assessment cycle. However, if significant
legislative changes occur, if program funding is significantly increased, or if any change results
in substantial program impact, agencies must perform a risk assessment of this program as part
of its next reporting cycle, even if it has been less than three years since the last risk assessment.
If the risk assessment indicates that the program is again susceptible to significant improper
payments, the agency will return to the full estimation and reporting process as required by IPIA.
Agencies must continue to report improper payment rates, amounts, and remediation efforts as
long as annual improper payments for a program exceed the reporting thresholds.
18) Are programs and activities that have been deemed susceptible to significant improper
payments as a result of the Disaster Relief Appropriations Act, 2013, permanently
subject to improper payments reporting requirements?
No. Improper payment measuring and reporting for funds received under the Disaster Relief
Appropriations Act, 2013, for Hurricane Sandy-related activities must only be performed until
those funds are expended. According to the Disaster Relief Appropriations Act, 20 13, all
Federal programs or activities receiving funds under that Act are automatically considered
susceptible to significant improper payments, regardless of any previous improper payment risk
assessment results, and are required to calculate and report an improper payment estimate. For
further guidance on Hurricane Sandy-related improper payment requirements, please refer to
OMB Memorandum M-13-07, Accountability for Funds Provided by the Disaster Relief
Appropriations Act, issued on March 12, 2013.
22
B. IMPROVING THE DETERMINATION OF IMPROPER PAYMENTS
1) How will OMB determine the "high-priority" programs as required under IPERIA?
High-priority programs will be determined by OMB based on improper payment reporting in
agencies' AFRs or PARs.
OMB may classify a program as high-priority if the program meets the following conditions:
a. It is susceptible to significant improper payments as defined by statute and OMB
implementing guidance and either:
1. Estimated and reported improper payments above the threshold determined by
OMB or contributed to the majority of government-wide improper payments in the
most recent reporting year; or
ii. Did not report an improper payment estimate in the most recent reporting year, but
had reported improper payments before and did not receive relief from OMB from
measuring and reporting; or
111. Has not yet reported an overall program improper payment estimate amount, but the
aggregate of the program's component improper payments are above the threshold.
b. For those programs with improper payment amounts above the threshold, but with
improper payment rates below 1.5 percent of program outlays, agencies may work with
OMB to determine if the program can be exempted from fulfilling certain OMB
requirements for high-priority programs.
The threshold for high-priority program determinations for FY 2014 reporting, and for
subsequent years, is $750 million in estimated improper payments as reported in the AFR or
PAR (regardless ofthe improper payment rate estimate). OMB may revise this threshold in
future years and, if so, will notify agencies of the new threshold and if any programs shall be
added or removed (based on reporting errors above or below the new threshold) from the high
priority list. If a program is identified as high-priority (e.g., because it did not report an improper
payment estimate, or reported an improper payment estimate above $750 million), but in
subsequent years reports an improper payment estimate below $750 million, it will no longer be
considered a high-priority program.
2) What are the requirements under IPERIA for establishing semi-annual or quarterly
actions for reducing improper payments?
IPERIA requires OMB, in coordination with agencies responsible for administering high-priority
programs, to establish semi-annual or quarterly actions for reducing improper payments
associated with each high-priority program. IPERIA codified parts of Executive Order 13520,
including this particular requirement, which stems from the Executive Order supplemental
measures and targets. For more details, please see section III.B of this guidance.
23
3) Do high-priority programs have any specific requirements regarding corrective
actions?
High-priority programs are already required to develop corrective actions, as discussed in section
LA. However, IPERIA requires agencies to tailor their corrective actions for high-priority
programs. Therefore, any agency that has any programs identified as high-priority shall explain
in its AFR or PAR how it has specifically tailored its corrective actions for high-priority
programs to better reflect the unique processes, procedures, and risks involved in each specific
program.
4) Are there any additional reporting requirements for agencies that have high-priority
programs?
Yes. IPERIA requires each agency that has any programs identified as high-priority to report to
their Inspector General, and make available to the public (including availability through the
internet): (1) any action the agency has taken-or plans to take-to recover improper payments;
and (2) any action the agency intends to take to prevent future improper payments. In order to
avoid duplication and reduce the number of agency reports related to improper payments,
agencies shall fulfill this requirement by including this information in their AFRs or PARs
starting with FY 2014 reporting. Please note that this reporting requirement will also fulfill the
"accountable official" report required under Section 3(b) of Executive Order 13520.
Inspectors General shall review this information (i.e., the information discussed in this question,
in the paragraph above) when they conduct their annual compliance reviews (see Part II of this
guidance). OMB will make the improper payments portions of AFRs and PARs publicly
available on PaymentAccuracy.gov starting with the FY 2014 reporting cycle. As required by
IPERIA, the agency shall not include any referrals the agency made or anticipates making to the
Department of Justice, or any information provided in connection with such referrals. In
addition, this requirement shall not prohibit any referral or information being made available to
an Inspector General as otherwise provided by law.
C. CATEGORIES FOR REPORTING IMPROPER PAYMENTS
1) What categories should agencies use when reporting improper payment estimates?
Prior to FY 2015 reporting, agencies were required to categorize their improper payment
estimates based on three categories of improper payments: documentation and administrative
errors; authentication and medical necessity errors; and verification errors. However, those
categories proved to be limited and not necessarily applicable to most programs. Therefore,
OMB-in consultation with agencies-developed new improper payment categories. Reporting
information based on these categories shall be required for FY 2015 reporting and beyond. To
the extent possible, for FY 2014 reporting OMB encourages agencies with programs that are
susceptible to significant improper payments to report information in their AFR or PAR based on
the categories described below.
24
These new categories will: (1) prove more pertinent to the vast array of programs across the
Federal landscape; (2) help agencies better present the different categories of improper payments
in their programs and the percentage of the total improper payment estimate that each category
represents; and (3) provide more granularity on improper payment estimates-thus leading to
more effective corrective actions at the program level and more focused strategies for reducing
improper payments at the government-wide level.
The matrix below provides a cross-tabulation framework for the way in which each program
shall categorize and report its improper payment estimate.
Table 1: Matrix of Improper Payment Categories ($ in millions)
Reason for Improper Payment
Program Design or Structural Issue
~
Inability to Authenticate Eligibility
2
Death Data
3
Financial Data
4
Failure to Verify: Excluded Party Data
Administrative
or Process
Error Made by:
1
5
Prisoner Data
6
Other Eligibility Data (explain)
7
Federal Agency
8
State or Local Agency
9
Other Party (e.g., participating
lender, health care provider, or
any other organization
administering Federal dollars)
10
Medical Necessity
11
><
Insufficient Documentation to Determine
Other Reason (explain)
A
12
13
8
In the matrix, columns A and B include two categories based on the type of improper payment,
and rows 1 through 13 include thirteen categories based on the reason why the improper payment
was made (each category is explained in more detail below). The matrix has a total of 25 cells
(i.e., coordinates AI through B13, where B12 is not to be used, as indicated by the ' X' in cell
25
B12 in the matrix). Each program shall distribute its total improper payment estimate (which is
based on dollars, as opposed to number of occurrences) across the 25 cells in the matrix-with
the understanding, of course, that not every cell will apply to every program.
For example, suppose a program reported $100 million in estimated improper payments. Here is
an example of how the table might be filled out:
• If $70 million were overpayments caused by the inability to authenticate eligibility, then
that amount would go in cell A2.
• If $10 million were underpayments caused by process errors at State agencies
administering the program, then that amount would go in cell B9.
• If $20 million were cases where there was insufficient documentation to determine if
payments were proper or improper, in which case it is assumed those are overpayments,
then that amount would go in cell A12.
Ultimately, the amounts placed across the different cells in the matrix need to add up to the total
reported estimated improper payment amount for that given program. Please note that, taken by
themselves, the amounts placed in each cell do not need to meet the statistical requirements
described above in section I.A.9, step 2. Also note that, although there are 25 cells in the matrix
below, agencies should only fill in relevant cells, and may leave cells blank if they are not
relevant to the program's estimated improper payments. Finally, it is important to note that in
cases where the agency believes more than one cell might be suitable to any given improper
payment category, the agency should determine which cell it believes to be the most appropriate.
All categories found in the matrix are described as follows:
a. Overpayments (column A) and Underpayments (column B): An overpayment is a
payment that is evidently higher than it should have been (including a duplicate
payment), and an underpayment is a payment that is evidently lower than it should have
been.
b. Program Design or Structural Issue (row 1): A situation in which improper payments are
the result of the design of the program or a structural issue. For example, a scenario in
which a program has a statutory (or regulatory) requirement to pay benefits when due,
regardless of whether or not all the information has been received to confirm payment
accuracy.
c. Inability to Authenticate Eligibility (row 2): A situation in which an improper payment is
made because the agency is unable to authenticate eligibility criteria. Though other
scenarios are also possible, here we discuss three likely ways in which this can happen.
First, the inability to authenticate eligibility can happen because no databases or other
resources exist to help the agency make a determination of eligibility (for example, the
inability to establish that a child lived with a family for a certain amount of time-for the
purpose of determining that a family is eligible for a tax credit-because no database
exists to do so). Second, a beneficiary has failed to report information to an agency that
is needed for determining eligibility (for example, a beneficiary failing to provide an
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agency with information on earnings, and the agency does not have access to databases
containing the earnings information). Finally, statutory constraints prevent a program
from being able to access information that would help prevent improper payments (for
example, not confirming a recipient's earnings or work status through existing databases
due to statutory constraints).
d. Failure to Verify Data (rows 3-7): A situation where the agency (Federal, State, or local),
or another party administering Federal dollars, fails to verify appropriate data to
determine whether or not a recipient should be receiving a payment, even though such
data exist in government or third-party databases. For reporting purposes, the kind of
data in question would include, but are not limited to, the following:
1.
Death Data (row 3)-failure to verify that an individual is deceased, and the
agency pays that individual.
ii.
Financial Data (row 4)-failure to verify that an individual's or household's
financial resources (for example, current income or assets) do not meet the
threshold to qualify him or her for a benefit, and the agency makes a benefit
payment to that individual or household.
iii.
Excluded Party Data (row 5)-failure to verify that an individual or entity has
been excluded from receiving Federal payments, and the agency pays that
individual or entity.
iv.
Prisoner Data (row 6)-failure to verify that an individual is incarcerated and
ineligible for receiving a payment, and the agency pays that individual.
v.
Other Eligibility Data (row 7)-any other type of data not already listed above,
causing the agency to make an improper payment as a result.
e. Administrative or Process Errors (Rows 8-10): Errors caused by incorrect data entry,
classifying, or processing of applications or payments. For example, an eligible
beneficiary receives a payment that is too high or too low due to a data entry mistake, or
an agency enters an incorrect invoice amount into its financial system. These types of
errors can be made by:
i.
Federal Agency (row 8)
11.
State or Local Agency (row 9)
111.
Other Party (row 1 0)-for example, a participating lender, or any other type of
organization administering Federal dollars that is not a Federal or State agency.
f. Medical Necessity (row 11): A situation in which a medical provider delivers a service or
item that does not meet coverage requirements for medical necessity (for example,
providing a power wheelchair to a patient whose medical record does not support
meeting coverage requirements for a power wheelchair).
g. Insufficient Documentation to Determine (row 12): A situation where there is a lack of
supporting documentation necessary to verify the accuracy of a payment identified in the
improper payment testing sample. For example, a program does not have documentation
to support a beneficiary's eligibility for a benefit (in this case, the beneficiary may have
been eligible, but the documentation is not present to confirm it during the review
period).
27
h. Other Reason (row 13): If none of the above categories apply, include any other reasons
for the improper payment under this category-and please explain the reasons in more
detail either in footnotes or in the narrative below the table. In instances where agencies
are able to identify improper payments resulting from fraud, they should report those
dollar amounts in this row-unless they already report fraud through a mechanism
outside of the annual improper payment process (e.g., an annual report to Congress).
Additional considerations for fraudulent activities are discussed below.
2) How should agencies focus on fraudulent activities?
When agencies are reviewing the root causes of improper payments, or analyzing areas for
supplemental measures and targets, agencies should be mindful of maintaining a focus on
fraudulent activity within the program. For instance, fraudulent actions (e.g. , using fraudulent
documents to receive a benefit or contract payment) may have an impact on agency outlays, and
may also be something that agencies can reduce through improved pre-payment reviews and
additional safeguards. Agencies should refer matters involving possible fraudulent activities to
the appropriate parties as determined by specific agency policy. Such parties may include, but
are not limited to, the Office of Inspector.General or the Department of Justice.
D. PAYMENT RECAPTURE AUDITS
This section of the guidance implements the requirements of IPERA Section 2(h), which requires
agencies to' conduct payment recapture audits (also known as recovery audits) for each program
and activity that expends $1 million or more annually if conducting such audits would be cost
effective. Before IPERA, payment recapture audits were only required for agencies that entered
into contracts with a total value in excess of $500 million in a fiscal year, and for certain other
programs.
A more recent law, IPERIA, requires OMB to determine current and historical rates and amounts
of improper payment recoveries (or, in cases in which improper payments are identified solely
on the basis of a sample, recovery rates and amounts estimated on the basis of the applicable
sample), including a list of agency recovery audit contract programs and specific information of
amounts and payments recovered by recovery audit contractors.
1) What are the definitions used for payment recapture auditing in this guidance?
For purposes of this guidance the following terms and definitions are used:
a. Post-Award Audit refers to a post-award examination of the accounting and financial
records of a payment recipient that is performed by an agency official, or an authorized
representative of the agency official, pursuant to the audit and records clauses
incorporated in the contract or award. A post-award audit is normally performed by an
internal or external auditor that serves in an advisory capacity to the agency official. A
post-award audit, as distinguished from a payment recapture audit, is normally performed
28
for the purpose of determining if amounts claimed by the recipient are in compliance with
the terms of the award or contract, and with applicable laws and regulations. Such
reviews involve the recipient's accounting records, including the internal control systems.
A post-award audit may also include a review of other pertinent records (e.g. , reviews to
determine if a proposal was complete, accurate, and current); and reviews of recipients'
systems established for identifying and returning any improper payments received under
its Federal awards.
b. Payment Recapture Audit is a review and analysis of an agency's or program' s
accounting and financial records, supporting documentation, and other pertinent
information supporting its payments, that is specifically designed to identify
overpayments. It is not an audit in the traditional sense covered by Government Auditing
Standards. Rather, it is a detective and corrective control activity designed to identify
and recapture overpayments, and, as such, is a management function and responsibility.
c. Payment Recapture Audit Program is an agency's overall plan for risk analysis and the
performance of payment recapture audits and recovery activities. The agency head will
determine the manner and/or combination of payment recapture activities to use that are
expected to yield the most cost-effective results (see definition below).
d. Cost-Effective Payment Recapture Audit Program is one in which the benefits (i.e.,
recaptured amounts) exceed the costs (e.g., stafftime and resources, or payments for the
payment recapture audit contractor) associated with implementing and overseeing the
program.
e. Payment Recapture Audit Contingency Contract is a contract for payment recapture audit
services in which the contractor is paid for its services as a percentage of overpayments
actually collected. The contractor must provide clear evidence of overpayments to the
appropriate agency official. More information on contingency contracts can be found in
the remaining questions of section I.D.
f. Recapture Activity is any activity by an agency to attempt to identify and recover
overpayments identified by a payment recapture audit or a post-award audit.
g. Financial Management Improvement Program is an agency-wide program to address the
deficiencies in an agency's internal controls over payments identified during the course of
implementing a payment recapture audit program, or other agency activities and reviews.
The first priority of such a program is to address problems that contribute directly to
agency improper payments and other instances of waste, fraud, and abuse.
2) What are the general agency requirements for implementing a payment recapture audit
program?
Agencies shall have a cost-effective program of internal control to prevent, detect, and recover
overpayments. A program of internal control may include policies .and activities such as
prepayment reviews, a requirement that all relevant documents be made available before making
29
payment, and performance of post-award audits. Effective internal controls could include
payment recapture auditing techniques such as data matching with Federal, State, and local
databases; and data mining and predictive modeling to identify improper payments. However,
for agencies that have programs and activities that expend more than $1 million in a fiscal year, a
payment recapture audit program is a required element of their internal controls over payments if
conducting such audits is cost-effective. These payment recapture audits should be implemented
in a manner designed to ensure the greatest financial benefit to the Federal government.
3) Should agencies establish targets for their payment recapture audit programs?
Yes, all agencies are required to establish annual targets for their payment recapture audit
programs that will drive their annual performance. Agencies shall develop their own payment
recapture targets for review and approval by OMB (this approval process will take place during
the OMB review and approval process of draft AFRs and PARs). Agencies are expected to set
targets that show an increase in recoveries over time, and OMB reserves the right to notify
specific agencies that they need to establish stricter targets. An agency may set different
payment recapture targets for the different types of payments it makes (for example, a given
agency might set a target that encompasses all contract payments lumped together, and another
target that encompasses all grant payments lumped together), or for each program. Lastly,
agencies may also identify and implement additional metrics beyond these targets to evaluate
their payment recapture audit programs, but these metrics shall not be used as a substitute for
establishing annual recovery targets.
4) What is the scope for payment recapture audit programs?
a. All programs and activities that expend $1 million or more annually-including grant,
benefit, loan and contract programs-shall be considered for payment recapture audits.
b. Agencies shall review their different types of programs and activities and prioritize
conducting payment recapture audits on those categories that have a higher potential for
overpayments and recoveries. Agencies should utilize known sources of improper
payment information and give priority to recent payments and to payments made in
programs identified as susceptible to significant improper payments. Possible sources of
improper payment information include: statistical samples and risk assessments, agency
post-payment reviews, prior payment recapture audits, agency Inspector General reviews,
Government Accountability Office reports, self-reported errors, reports from the public,
audit reports, and the results of the agency audit resolution and follow-up process.
c. Agencies shall conduct a payment recapture audit program in a manner that will ensure
the greatest financial benefit for the government.
d. Agencies may exclude payments from certain programs and activities from payment
recapture audit activities if the agency determines that payment recapture audits are not a
cost-effective method for identifying and recapturing improper payments.
30
e. The payment recapture audit contractor may, with the consent of the employing agency,
notify entities (including individuals) of potential overpayments made to such entities,
respond to questions concerning potential overpayments, and take other administrative
actions with respect to overpayment claims made or to be made by the agency. However,
the payment recapture audit contractor will not have the authority to make determinations
relating to whether any overpayment occurred and whether to compromise, settle, or
terminate overpayment claims.
f. To the extent possible, any underpayments identified through the payment recapture audit
process should also be corrected by the agencies. Agencies may include provisions that
authorize payments to payment recapture auditors for underpayments identified.
g. Payment recapture auditing activities should not duplicate other audits of the same
(recipient or agency) records that specifically employ payment recapture audit techniques
to identify and recapture overpayments. At a minimum, agencies should coordinate with
their Inspectors General and other organizations with audit jurisdiction over agency
programs and activities.
h. Instances of potential fraud discovered through payment recapture audit and recapture
activities shall be reported immediately to the appropriate parties as determined by
specific agency policy. Such parties may include, but are not limited to, the Office of
Inspector General or the Department of Justice.
5) What criteria should an agency consider in determining whether a payment recapture
audit is cost-effective?
An agency may consider the following criteria in determining whether a payment recapture audit
is cost-effective:
a. The likelihood that identified overpayments will be recaptured. For example:
1.
Whether laws or regulations allow recovery;
11.
Whether the recipient of the overpayment is likely to have resources to repay
overpayments from non-Federal funds;
111.
Whether the evidence of overpayment is clear and convincing (e.g., the same
exact invoice was paid twice) as opposed to whether the recipient of an apparent
overpayment has grounds to contest, and the agency's assessment of the strength
of the recipient's counterargument; and
IV.
Whether the overpayment is truly an improper payment that can be recovered
rather than a failure to properly document compliance.
b. The likelihood that the expected recoveries will be greater than the costs incurred to
identify and recover the overpayments. For example:
1.
Can efficient techniques such as sophisticated software and matches be used to
identify significant overpayments at a low cost per overpayment or will labor
intensive manual reviews of paper documentation be required?
31
n.
111.
Are tools available to efficiently perform the payment recapture audit and
minimize payment recapture audit costs? Payment recapture audits are generally
most efficient and effective where there is a central electronic database (e.g., a
database that contains information on transactions and eligibility information)
where sophisticated software can be used to perform matches and analysis to
identify recoverable overpayments (e.g., duplicate payments).
How expensive will attempts to recover some or all of the overpayments be,
particularly in complex financial situations, and when recipients may contest the
assertion of an overpayment, especially when litigation is anticipated (in which
situations, the agency should consult with its counsel and, as appropriate, with the
Department of Justice)?
Agencies are encouraged to use limited scope pilot payment recapture audits in areas deemed of
highest risk (e.g., based on IPIA risk assessments or estimation process) to assess the likelihood
of cost-effective payment recapture audits on a larger scale.
6) What should an agency do if it determines that a payment recapture audit program
would not be cost-effective?
If an agency determines that it would be unable to conduct a cost-effective payment recapture
audit program for certain programs and activities that expend more than $1 million, then it must
notify OMB and the agency's Inspector General of this decision and include any analysis used
by the agency to reach this decision. OMB may review these materials and determine that the
agency should conduct a payment recapture audit to review these programs and activities. In
addition, the agency shall report in its annual AFR or PAR: 1) a list of programs and activities
where it has determined conducting a payment recapture audit program would not be cost
effective; and 2) a description of the justifications and analysis that it used to determine that
conducting a payment recapture audit program for these programs and activities was not cost
effective.
7) Should the agency follow any particular procedures when conducting payment
recapture audits of grants payments?
Agencies with grant programs shall consider payment recapture auditing contracts at the grant
recipient level. Federal agencies should work with State and local governments to ensure that
they have enough resources to conduct payment recapture audits (for example, through direct
funding, allowable administrative expenses, or contingency contracts). Whenever applicable,
agencies should leverage work already being carried out outside of payment recapture audits.
For example, agencies are encouraged to rely on and use the audit work already being carried out
under the Single Audit Act and the Uniform Guidance for federal assistance (2 CFR 200 Subpart
F). Generally, Federal agencies should not look to pass-through entities for repayment of
improper payments identified by payment recapture audits for funds they pass-through until
repayment has been made by the sub-recipient or the final payee. Federal agencies should also
coordinate among themselves to reach partnerships with grant recipients to ensure a coordinated,
cost-effective approach to implement these payment recapture audit requirements. The
32
cognizant agency assignment model used in the Single Audit or cost allocation processes can
help in streamlining the coordination between the Federal agencies and grant recipients.
8) Can Federal agencies provide money to States and Local governments for Financial
Management Improvement efforts?
Yes. Many programs are Federally-funded but State-administered, and Federal agencies should
support State efforts to reduce improper payments in these programs. As authorized in IPERA
and this guidance, agencies may use up to 25 percent of funds recovered under a payment
recapture audit program to support Financial Management Improvement Programs (as described
in more detail in section I.D.14 below), including making a portion of this funding available to
State and local governments to support their Financial Management Improvement Programs.
9) Who may perform payment recapture audits?
Payment recapture audits may be performed by employees of the agency, by any other
department or agency of the Federal government acting on behalf of the agency, by non-Federal
entities (as defined in the Uniform Guidance, 2 CFR Subpart A, section 200.69) expending
Federal awards, by contractors performing payment recapture audit services under contracts
awarded by the executive agency, or any combination of these options.
10) May contractors perform payment recapture audit services?
Yes. With respect to contracts with private sector contractors performing payment recapture
audits, agencies may utilize a number of options, including a contingency contract with a private
sector contractor, to conduct payment recapture audit services. With the passage ofiPERA,
agencies are allowed and encouraged to utilize contingency contracts for private sector
contractors to implement the ~uthorities under the new law to review all types of payments and
activities.
However, certain types of payments recovered may not be available to pay the payment
recapture audit costs (for instance, amounts recovered due to interim improper payments made
under ongoing contracts if these amounts are still needed to make subsequent payments under the
contract, recoveries from an appropriation other than a discretionary appropriation, or recovered
overpayments from an appropriation that has not expired-please refer to section I.D.14 below
for more details). Therefore, agencies would need to establish other funding arrangements (such
as through appropriations) when making payments to private sector payment recapture audit
contractors in such cases where recoveries cannot be used to pay contingency fee contracts.
11) Are there any specific requirements when using a contracted payment recapture
auditing firm?
Agencies should require contractors to become familiar with the agency' s specific policies and
procedures, and take steps to safeguard the confidentiality of sensitive financial information that
has not been released for use by the general public and any information that could be used to
identify a person.
33
At a minimum, each contract for payment recapture audit services shall require the contractor to:
a. Provide periodic reports to the agency on conditions giving rise to overpayments (e.g. ,
root causes of overpayments) identified by the auditor and any recommendations on how
to mitigate such conditions. If requested, the agency should provide the results of such
analyses and related recommendations to its Office of Inspector General;
b. Notify the agency of any overpayment identified by the contractor pertaining to the
agency or to any other agency or agencies that are beyond the scope of the contracts; and
c. Report to the agency and the agency's Office of Inspector General credible evidence of
fraud or vulnerabilities to fraud, and conduct appropriate training of contractor personnel
on identification of fraud.
Agencies may allow payment recapture auditors to establish a presence on, or visit, the property,
premises, or offices of any subject of payment recapture audits. Such physical presence is not
prohibited, and may in fact allow the payment recapture auditor to do a more thorough review of
the subject's payments, and related documentation and payment files.
12) Are there any prohibitions when using a payment recapture audit contractor?
In addition to provisions that describe the scope of payment recapture audits (and any other
provisions required by law, regulation, or agency policy), any contract with a private sector firm
for payment recapture audit services shall include provisions that prohibit the payment recapture
audit contractor from:
a. Requiring production of any records or information by the agency's contractors. Only
duly authorized employees of the agency can compel the production of information or
records from the agency's contractors, in accordance with applicable contract terms and
agency regulations;
b. Using or sharing sensitive financial information with any individual or organization,
whether associated with the Federal government or not, that has not been officially
released for use by the general public, except for an authorized purpose of fulfilling the
payment recapture audit contract; and
c. Disclosing any information that identifies an individual, or reasonably can be used to
identify an individual, for any purpose other than as authorized for fulfilling its
responsibilities under the payment recapture audit contract.
13) Who performs recovery activities once the improper payments are discovered and
verified?
The actual collection activity may be carried out by Federal agencies or non-Federal entities
expending Federal awards, as appropriate. However, agencies or non-Federal entities may use
34
another private sector entity, such as a private collection agency, to perform this function, if this
practice is permitted by statute. As noted above, the payment recapture audit contractor may not
perform the collection activity, unless it meets the definition of a private collection agency, and
the agency involved has statutory authority to utilize private collection agencies. Agencies shall
ensure that applicable laws and regulations governing collection of amounts owed to the Federal
government are followed.
14) What is the proper disposition of recovered amounts?
Funds collected under a payment recapture audit program can be used for the following
purposes:
a. Recaptured overpayments from expired discretionary fund accounts that were
appropriated after enactment ofiPERA (i.e. , July 22, 2010) shall be available to the
agency to reimburse the actual expenses incurred by the agency for the following
purposes:
1. To reimburse the actual expenses incurred by the agency for the administration of
the program (including payments made to other agencies that carry out payment
recapture audit services on behalf of the agency); and
11. To pay contractors for payment recapture audit services.
b. Recaptured overpayments from expired discretionary fund accounts that were
appropriated after enactment ofiPERA (i.e. , July 22, 2010) that are not used to
reimburse expenses of the agency or pay payment recapture audit contractors-as
described above in section I.D.l4.a-shall be used for: a financial management
improvement program, the original purpose of the funds, Inspector General activities, or
returned to the Treasury as miscellaneous receipts or returned to trust or special fund
accounts. Each agency shall determine the actual percentage of recovered overpayments
used for the purposes outlined here (up to the maximum amount allowed in the law and
this guidance). Specifically:
1. Up to 25 percent of the recaptured funds may be used for the financial
management improvement program described below in section I.D.l5. This
funding shall be credited, if applicable, for that purpose identified by the agency
head to any agency appropriations and funds that are available for obligation at
the time of collection. These funds shall be used to supplement and not supplant
any other amounts available for that purpose, and shall remain available until
expended. As discussed in section I.D.8, such funds can go to non-Federal
entities such as State and local governments if the agency determines that is the
best disposition of the funds to support its financial management improvement
program.
11. Up to 25 percent of the recaptured funds may be used for the original purpose.
This funding shall be credited to the appropriation or fund, if any, available for
obligation at the time of collection for the same general purposes as the
appropriation or fund from which the overpayment was made, and shall remain
available for the same period of availability and purposes as the appropriation or
fund to which credited. If the appropriation from which the overpayment was
35
made has expired, the funds shall be newly available for the same time period as
the funds were originally available for obligation. However, any funds that are
recovered more than five fiscal years after the last fiscal year in which the funds
were available for obligation shall be deposited in the Treasury as miscellaneous
receipts.
iii. Up to 5 percent of the recaptured funds shall be available to the agency Inspector
General. The agency Inspector General may use this funding to carry out the
law's requirements, and perform other activities relating to investigating improper
payments or auditing internal controls associated with payments. However, the
funding shall remain available for the same period of availability and purposes as
the appropriation or fund to which it is credited.
iv. The remainder of the recaptured, expired discretionary funds that were
appropriated after enactment ofiPERA (i.e., July 22, 2010)-including
recaptured overpayment amounts from trust and special fund accounts-that
are not applied in accordance with the preceding 14.a.i, 14.a.ii, 14.b.i, 14.b.ii, and
14.b.iii shall be credited to the expired account from which the overpayment was
made.
c. Recaptured overpayments from unexpired discretionary fund accounts that were
appropriated after enactment ofiPERA (i.e. , July 22, 2010) shall be credited to the
account from which the overpayments were made without using it for any purposes
outlined above in 14.a and 14.b.
d. Recaptured overpayments from mandatory fund accounts shall be credited to the
account from which the overpayments were made without using it for any purposes
outlined above in 14.a and 14.b.
e. In the case of recaptured overpayments from expired or unexpired discretionary fund
accounts that were appropriated before enactment ofiPERA (i.e., July 22, 2010),
agencies have the same authorities as before IPERA was enacted. Therefore, in this case
recaptured overpayments may be applied in accordance with the preceding 14.a, but shall
not be applied in accordance with the preceding 14.b. The remainder shall be credited to
the expired account from which the overpayment was made.
f. In the case of closed accounts, the budgetary resources are cancelled, and all recaptured
overpayments shall be deposited in the Treasury as miscellaneous receipts.
g. Contingency fee contracts shall preclude any payment to the payment recapture audit
contractor until the recoveries are actually collected by the agency.
h. All funds collected and all direct expenses incurred as part of the payment recapture audit
program shall be accounted for specifically. The identity of all funds recovered shall be
maintained as necessary to facilitate the crediting of recovered funds to the correct .
appropriations and to identify applicable time limitations associated with the appropriated
funds recovered.
36
1.
Overpayments that are identified by the payment recapture auditor, but that are
subsequently determined not to be collectable or not to be improper, shall not be
considered "collected" for the disposition purposes outlined above.
J. Some programs and payments have separate statutory authority or requirements to
conduct payment recapture audits, and thus are not required to follow the disposition of
recovered funds outlined above for funds recovered from these programs and payments.
For instance, under Section 302 of Division B of the Tax Relief and Health Care Act
(Section 1893 ofthe Social Security Act; 42 U.S.C. 1395ddd) and Section 6411 ofthe
Patient Protection and Affordable Care Act (Pub. L. No. 111-148), the Department of
Health and Human Services is required to conduct reviews of certain Medicare program
payments to identify and recover improper payments, and States are required to conduct
similar reviews under Medicaid. In a similar example, under the authority of 31 U.S.C.
3726, the General Services Administration audits agency transportation payments for
improper payments. Agencies with oversight of such programs and payments may
choose to follow the disposition uses outlined in this guidance-provided that is
consistent with any other applicable statutory requirements-but are not required to do
so. Disposition of payments associated with loans and loan guarantees must conform to
the requirements of the Federal Credit Reform Act of 1990, as amended (2 U.S.C. 661a
et. seq.)
15) Are agencies authorized to implement Financial Management Improvement Programs?
Yes. IPERA authorizes agencies to implement "financial management improvement programs."
Such programs shall take the information obtained from the payment recapture audit program (as
well as other audits, reviews, or information that identify weaknesses in an agency's internal
controls), and ensure that actions are taken to improve the agency's internal controls to address
problems that directly contribute to agency improper payments. In conducting its fmancial
management improvement programs, agency heads may also seek to reduce errors and waste in
programs and activities other than where funds are recaptured.
16) What are the reporting requirements for payment recapture audits?
Agencies shall annually report information on their payment recapture audit program in their
AFRs or PARs, as outlined in OMB Circular A-136.
In addition, by November 1, agencies are required to complete a separate, annual report to OMB
as well as the Senate Committee on Homeland Security and Governmental Affairs and the House
Committee on Oversight and Government Reform. This report shall describe any
recommendations identified by the payment recapture auditor on how to mitigate conditions
giving rise to overpayments, and any corrective actions the agency took during the preceding
fiscal year to address the auditor recommendations. This report shall describe agency efforts
during the previous fiscal year (for example, for the November 1, 2014 report, the agency would
describe recommendations and actions between October 1, 2013, and September 30, 2014;
subsequent reports would describe efforts for subsequent fiscal years). This report is required
only for Federal agencies utilizing external contractors to conduct their payment recapture audits
37
and only in instances where these contractors have provided any recommendations, as described
above. This report is not required for state agencies utilizing contractors to conduct their
payment recapture audits.
17) How are improper payment estimates different from payment recapture audit efforts?
Improper payment estimates evaluate a small number of payments in a program or activity to
determine if the payments were improper or proper. The results of these reviews are then
extrapolated to the universe of payments in a program or activity to determine the program or
activity's annual improper payment amount and rate. Payment recapture audits are not statistical
samples, and instead are targeted examinations of high-risk payments which most likely can be
cost-effectively recaptured (e.g., cash collected from the final payee exceeding collection costs).
38
PART II- COMPLIANCE WITH THE IMPROPER PAYMENT REQUIREMENTS
Part II provides guidance to assist Inspectors General and agency management in implementing
improper payment requirements.
A. RESPONSIBILITIES OF AGENCY INSPECTORS GENERAL
1) When should each agency Inspector General begin reviewing improper payment
performance to determine whether the agency is in compliance under IPERA?
Each agency Inspector General should annually review agency improper payment reporting in
the agency's annual AFR or PAR, and accompanying materials, to determine if the agency is in
compliance under IPERA.
2) When should the agency Inspector General complete its review of agency compliance
under IPERA?
An agency Inspector General should review the agency's annual AFR or PAR, and
accompanying materials, and complete its review and determination within 180 days of their
publication.
3) What should each agency Inspector General review to determine if an agency is in
compliance under IPERA?
To determine compliance under IPERA, the agency Inspector General should review the
agency's AFR or PAR (and any accompanying information) for the most recent fiscal year.
Compliance under IPERA means that the agency has:
a. Published an AFR or PAR for the most recent fiscal year and posted that report and any
accompanying materials required by OMB on the agency website;
b. Conducted a program specific risk assessment for each program or activity that conforms
with Section 3321 note of Title 31 U.S.C. (if required);
c. Published improper payment estimates for all programs and activities identified as
susceptible to significant improper payments under its risk assessment (if required);
d. Published programmatic corrective action plans in the AFR or PAR (if required);
e. Published, and is meeting 13 , annual reduction targets for each program assessed to be at
risk and estimated for improper payments (if required and applicable); and
f. Reported a gross improper payment rate of less than 10 percent for each program and
activity for which an improper payment estimate was obtained and published in the AFR
or PAR.
If an agency does not meet one or more of these requirements, then it is not compliant under
IPERA.
13
A program will have met a reduction target if the improper payment rate for that program in the current year falls
within plus or minus 0.1 percentage points of the reduction target set in the previous year's AFR or PAR.
39
4) What else should the agency Inspector General include in its compliance review and
report?
The report must contain a high-level summary toward the beginning of the report that (a) clearly
states the agency's compliance status (i.e., compliant or non-compliant) and (b) indicates which
of the six requirements the agency complied with and which requirements the agency did not
comply with.
As part of this review, the agency Inspector General may also evaluate the accuracy and
completeness of agency reporting, and evaluate agency performance in reducing and recapturing
improper payments. For example, when reviewing the program improper payment rates,
corrective action plans, and improper payment reduction targets, the Inspector General should
determine if the corrective action plans are robust and focused on the appropriate root causes of
improper payments, effectively implemented, and prioritized within the agency, to allow it to
meet its reduction targets. As part of its report, the agency Inspector General may include its
evaluation of agency efforts to prevent and reduce improper payments, and any
recommendations for actions to further improve: the agency' s or program's performance in
reducing improper payments; corrective actions; or internal controls (see section II.C below).
Finally, as part of the annual compliance review, for agencies that have high-priority programs,
the agency Inspector General shall: evaluate the agency' s assessment ofthe level of risk
associated with the high-priority programs and the quality of the improper payment estimates
and methodology; determine the extent of oversight warranted; and provide the agency head with
recommendations, if any, for modifying the agency's methodology, promoting continued
program access and participation, or maintaining adequate internal controls.
5) Who should the agency Inspector General notify when it has completed its
determination of whether an agency is in compliance under IPERA?
Each fiscal year, the agency Inspector General should determine whether the agency is in
compliance under IPERA. Once it has completed its assessment, the agency Inspector General
must submit its results to:
a. The agency head;
b. The Senate Committee on Homeland Security and Governmental Affairs;
c. The House Committee on Oversight and Government Reform;
d. The Comptroller General; and
e. The OMB Controller.
B. RESPONSIBILITIES FOR AGENCIES
1) What are the requirements for agencies not compliant under IPERA?
Agencies that are not compliant under IPERA must complete several actions, as described
below:
40
a. For agencies that are not compliant for one fiscal year, within 90 days of the
determination of non-compliance, the agency shall submit a plan to the Senate
Committee on Homeland Security and Governmental Mfairs, the House Committee on
Oversight and Government Reform, and the OMB, describing the actions that the agency
will take to become compliant. The plan shall include:
1.
Measurable milestones to be accomplished in order to achieve compliance for
each program or activity;
11.
The designation of a senior agency official who shall be accountable for the
progress of the agency in coming into compliance for each program or activity;
and
111.
The establishment of an accountability mechanism, such as a performance
agreement, with appropriate incentives and consequences tied to the success of
the senior agency official in leading agency efforts to achieve compliance for each
program and activity.
b. For agencies that are not compliant for two consecutive fiscal years for the same
program or activity, the Director of OMB will review the program and determine if
additional funding would help the agency come into compliance. This process will
unfold as part of the annual development of the President's Budget. If the Director of
OMB determines that additional funding would help the agency become compliant, the
agency shall obligate an amount of additional funding determined by the Director of
OMB to intensify compliance efforts. When providing additional funding for compliance
efforts, the agency shall:
1.
Exercise reprogramming or transfer authority to provide additional funding to
meet the level determined by the Director of OMB; and
11.
Submit a request to Congress for additional reprogramming or transfer authority if
additional funding is needed to meet the full level of funding determined by the
Director of OMB.
c. For agencies that are not compliant for three consecutive fiscal years for the same
program or activity, within 30 days of the determination of non-compliance, the agency
will submit to Congress the following, in order to bring the program or activity in
question into compliance:
1.
Reauthorization proposals for each (discretionary) program or activity that has not
been in compliance for three or more consecutive fiscal years; or
11. . Proposed statutory changes necessary to bring the program or activity into
compliance.
In addition, OMB may require agencies that are not compliant with the law (for one, two, or
three years in a row) to complete additional requirements beyond those requirements listed
above. For example, if a program is not compliant with the law, OMB may determine that the
agency must re-evaluate or re-prioritize its corrective actions, intensify and expand existing
corrective action plans, or implement or pilot new tools and methods to prevent improper
payments. OMB will notify agencies of additional required actions as needed. Lastly, agencies
should share.any plans or proposals required by this section with their respective Inspectors
General.
41
C. INTERNAL CONTROL OVER IMPROPER PAYMENTS
1) What are the criteria as to when an agency should initially be required to obtain an
opinion on internal control over improper payments?
As agencies implement the requirements described in Parts I, II, and III of this guidance, they
should approach improper payments with an internal control framework in mind. IPERA
introduced the concept of internal control over improper payments. Agencies should first be
given the opportunity to establish, maintain, and assess internal controls before a requirement to
obtain an audit opinion on internal control over improper payments. Beginning in FY 2015, each
agency reporting improper payments shall summarize the status of internal control over improper
payments within the agency's AFR or PAR using: (1) a narrative explaining efforts undertaken
to provide reasonable assurance that controls are in place and working; and (2) the table
illustrated below. The primary purpose of the summary is to provide a thoughtful analysis
linking agency efforts in establishing internal controls and reducing improper payment rates.
Agencies should leverage existing internal control plans and at a minimum should address the
internal control standards provided in question C.2 below. An illustrative example for the table
is provided below (see Table 2). The programs listed at the top of each column would be the
programs susceptible to significant improper payments currently reporting improper payments.
Table 2: Example ofthe Status of Internal Controls
Internal Control Standards
Program A
Program B
Program C
Program D
Program E
Control Environment
3
2
2
4
1
Risk Assessment
4
1
4
4
1
Control Activities
4
3
2
2
2
Information and Communication
3
1
3
1
2
Monitoring
2
1
4
3
1
Legend:
4 = Sufficient controls are in place to prevent improper payments
3 = Controls are in place to prevent improper payments but there is room for improvement
2 =Minimal controls are in place to prevent improper payments
1 = Controls are not in place to prevent improper payments
OMB will utilize the agency internal control summaries to monitor progress and ensure that
planned actions result in the outcome of reducing improper payment rates. In addition, OMB
will review the status of an agency's internal control over improper payments against the
following factors to determine when an agency should be required to obtain an internal control
over improper payments audit:
42
a. Current Condition of Internal Control over Improper Payments: The current
condition of internal control over improper payments can be assessed by a number of
factors, including recent audit findings (e.g. , financial statement, performance, or
compliance audit results) and the nature of material weaknesses or scope of
management' s control. In addition, management's overall assurance statement required
by Section 2 of the Federal Managers Financial Integrity Act should inform agency
internal control plans. However, no separate assurance statement for internal control
over improper payments is required.
b. Agency Demonstration of Progress: Ifthe agency is not demonstrating measurable
improvements in its internal control, OMB may encourage progress by requiring an audit
of internal controls over improper payments, as it may assist agencies to identify and
prioritize corrective actions to long-standing internal control weaknesses. In addition,
innovative and cost-effective audit resolution approaches such as the Cooperative Audit
Resolution and Oversight Initiative (CAROI) 14 will be encouraged to address internal
control weaknesses related to improper payments.
In deciding when to require an opinion on internal control over improper payments, the facts and
circumstances of individual agencies will be considered on a case-by-case basis. It is expected
that Inspectors General or firms contracted with to provide an audit opinion will work to
leverage resources deployed as part of financial statement or performance audits and an efficient
and cost-effective audit approach will be developed.
2) How do internal control standards apply to improper payments?
Robust internal control processes should lead to fewer improper payments. Establishing and
maintaining effective internal controls-including an internal control system that prevents
improper payments from being made and promptly detects and recovers any improper payments
that are made-should be a priority. It is important to note that the five standards and attributes
below should be applied to the specific facts and circumstances of the various agency operations
and programs. In addition, management has discretion in determining the breadth and depth of
the scope of assessing internal control over improper payments. These standards and attributes
can be implemented to fit the circumstances, conditions, and risks relevant to the situation of
each agency. For example, one agency' s program might lend itself to effective improper
payment detection controls at the point of agency disbursement, while another program might be
primarily administered by state or local entities where the appropriateness of a disbursement can
only be determined at the state or local level. In these cases, agencies should describe efforts to
provide oversight to state and local governments.
a. Control Environment. The agency has created a control environment that instills a
cultural framework of accountability over improper payments by:
1.
Fostering an atmosphere in which reducing improper payments are a top
management priority.
14
CAROl is described in detail at http://www.agacgfm.org/AGA/ToolsResources/documents/CAROI.pdf.
43
11.
m.
1v.
v.
Providing a cultural framework for managing risk by engaging key stakeholders
in the risk management process.
Increasing accountability and providing leadership in setting and maintaining the
agency's ethical code of conduct and laying out defined consequences for
violations.
Clearly defining key areas of authority and responsibility and establishing
appropriate lines of reporting within and external to the agency (e.g., program
offices or state governments).
Ensuring that personnel involved in developing, maintaining, and implementing
control activities have the requisite skills and knowledge, recognizing that staff
expertise needs to· be frequently updated in evolving areas such as information
technology and fraud investigation.
b. Risk Assessment. The agency has determined the nature and extent of improper
payments by:
1.
Establishing well defined goals and objectives for eliminating improper payments
and execution of corrective actions.
11.
Determining where risks exist, what those risks are, and the potential or actual
impact of those risks on program goals, objectives, and operations.
111.
Using risk-assessment results to target high-risk areas and focus resources where
the greatest exposure exists and return on investment can be maximized.
1v. Reassessing risks on a periodic basis to evaluate the impact of changing
conditions, both external and internal, on program operations.
v. Establishing an inventory of root causes of improper payments and internal
control deficiencies to develop corrective action plans for risk-susceptible
programs. The inventory should include an explanation of how root causes were
identified, prioritized, and analyzed to ensure corrective actions produce the
highest return on investment for resolving improper payment control deficiencies.
c. Control Activities. The agency has developed control activities to help management
achieve the objective of reducing improper payments by:
1.
Establishing internal control activities that are responsive to management's
directives to mitigate risks of improper payments (e.g. , policies and procedures
related to transaction authorization and approvals of program activities).
11.
Implementing pre-award and pre-payment reviews where detailed criteria are
evaluated before funds are expended.
111.
Utilizing data analytics tools, such as Treasury' s Do Not Pay Program, to
compare information from different sources to help ensure that payments are
appropriate.
1v. Performing cost-benefit analyses of potential control activities before
implementation to help ensure that the cost ofthose activities to the organization
is not greater than the potential benefit of the control.
d. Information and Communications. The agency has effectively used and shared
knowledge to manage improper payments by:
44
1.
Determining what information is needed by managers to meet and support
initiatives aimed at preventing, reducing, and recapturing improper payments.
11. Ensuring that needed information is provided to managers in an accurate and
timely manner.
111. Providing managers with timely feedback on applicable performance measures so
they can use the information to effectively manage their programs.
IV.
Developing educational programs to assist program participants in understanding
program requirements.
v. Ensuring that there are adequate means of communicating with, and obtaining
information from, external stakeholders that may have a significant impact on
improper payment initiatives.
v1. Developing working relationships with other organizations to share information
and pursue potential instances of waste, fraud and abuse.
VII.
Making the results of performance reviews widely available to permit
independent evaluations ofthe success of efforts to reduce improper payments.
e. Monitoring. The agency has assessed the success of improper payment initiatives by:
1. Adhering to existing laws and OMB guidance to institute a statistical
methodology to estimate the level of improper payments being made by the
agency' s programs.
11. Using an internal control assessment methodology that includes testing of control
design and operating effectiveness and the evaluation of the significance of
internal control deficiencies related to improper payments.
iii. Establishing program-specific targets for reducing improper payments in
programs that measure and report annual improper payment estimates.
IV. , Assessing the progress of implementation of corrective actions over time and
ensuring that the root causes of improper payment internal control deficiencies are
resolved.
v. Considering the possibility of contracting activities out to firms that specialize in
specific areas where in-house expertise is not available, such as payment
recapture audits and fraud detection analytics.
v1. Ensuring timely resolution of problems identified by audits and other reviews.
v11. Adjusting control activities, as necessary, based on the results of monitoring
activities. The agency should periodically test the controls to ensure they are
effective in identifying, preventing, and recapturing improper payments.
vm. Understanding any statutory or regulatory barriers that may limit the agency's
corrective actions in reducing improper payments and actions taken by the agency
to mitigate the barriers' effects.
45
PART III- REQUIREMENTS FOR IMPLEMENTING EXECUTIVE ORDER 13520
Part III discusses the requirements of Executive Order 13520-Reducing Improper Payments
issued November 20, 2009. IPERIA essentially codified a number of requirements from the
Executive Order. Therefore, in order to reduce duplication in this document, Part III makes
reference to Part I for all requirements that are found both in IPERIA and in the Executive Order.
A. GENERAL GUIDANCE
1) Which agencies are subject to the requirements of Executive Order 13520?
The agencies required to comply with Executive Order 13520 are defined broadly as "a[ny]
department, agency, or instrumentality in the executive branch of the United States" as defined in
Title 31, Section 102 of the United States Code .
2) How will OMB determine the "high-priority" programs as required under Section
2(a)(i) of the Executive Order?
This is also an IPERIA requirement. Please refer to section I.B of this guidance.
3) What are agencies required to submit for the improper payments website as required
under Section 2(b) of the Executive Order?
Agencies shall submit the following information, subject to Federal privacy policies and to the
extent permitted by law:
a. The names of the accountable officials;
b. Current and historical rates and amounts of estimated improper payments, including,
where known and appropriate, causes of the improper payments;
c. Current and historical rates and amounts of recovery of improper payments, where
appropriate (or, where improper payments are identified solely on the basis of a sample,
recovery rates and amounts estimated on the basis of the applicable sample);
d. Targets for reducing as well as recovering improper payments, where appropriate; and
e. The entities that have received the greatest amount of outstanding improper payments (or,
where improper payments are identified solely on the basis of a sample, the entities that
have received the greatest amount of outstanding improper payments in the applicable
sample).
4) Why is program access important?
The purpose of the Executive Order is to reduce improper payments while continuing to ensure
that Federal programs serve and provide access to their intended beneficiaries. Because the
Executive Order targets waste, fraud, and abuse, efforts to reduce improper payments must
protect access to Federal programs by their intended beneficiaries. Therefore, efforts to reduce
improper payments in high-priority programs should not deter eligible beneficiaries from seeking
and receiving benefits. Furthermore, eligible beneficiaries who are receiving benefits should not
46
be improperly denied or removed from program benefits as a result of agency efforts to reduce
improper payments.
5) Does this guidance create any special rights?
This guidance is not intended to, and does not create, any right or benefit, substantive or
procedural, enforceable at law or in equity by a party against ~he United States, its departments,
agencies, or entities, its officers, employees, or agents, or any other person. Further, this
guidance is not intended to impose, and does not impose, liability on the United States, its
departments, agencies, or entities, its officers, employees, or agents, or any other person for
action taken pursuant to the guidance.
B. SUPPLEMENTAL MEASURES
1) What are the requirements for establishing annual or semi-annual measurements in
high-priority programs, also known as supplemental measures?
Agencies with high-priority programs shall establish annual or semi-annual (or more frequent, if
possible) supplemental measures (or actions) for reducing improper payments. Supplemental
measures should focus on higher risk areas within the high-priority programs and report on root
causes of improper payments that agencies can resolve through corrective actions. In addition,
the measures should use available and accessible information (e.g. , claims, payments, files) for
the current year rather than previous years to the extent possible. Lastly, the supplemental
measures do not have to meet the statistical requirements of section I.A.9.
Possible measurement examples include:
a. A measurement that focuses on the main cause ofimproper payments in the program.
For example, if documentation is the leading cause of improper payments in a high
priority program, then the program could establish a measurement that focuses on that
specific issue;
b. A measurement that focuses on one ofthe main causes ofimproper payments in the
program. For example, if an agency is unable to identify the leading root cause of
improper payments, it could establish a measure to examine another major root cause of
improper payments; or
c. A measurement or set ofmeasurements ofcontributing factors or proxy indicators of
improper payments in the program. For example, if an agency can identify a timely
measured factor known to move in the same or inverse direction of improper payments,
while not a main cause, it could establish a measure or set of factor measures.
2) Which tools should agencies use to identify supplemental measures?
When identifying areas within the high-priority program that should be part of the supplemental
measurement requirement, agencies should focus on areas that will provide the greatest rate of
return on investment to the program. To identify such areas where agencies could achieve
47
optimal impact on improper payment prevention and reduction, the agencies should analyze their
programs and root causes of improper payments through two perspectives:
a. The degree to which an agency has control over reducing improper payments within a
program:
1.
More Control- Improper payments that could be addressed through
administrative or regulatory changes based on existing program requirements;
11.
Less Control- Improper payments that require statutory changes at the Federal or
State level
b. The impact on agency outlays:
1.
High-Impact Improper Payments- High-dollar improper payments that may be
intentional (e.g. , fraud), or unintentional (but still high dollar) and have a large
impact on Federal outlays;
11.
Low-Impact Improper Payments- Small-dollar improper payments (e.g.
infrequent data entry mistakes, errors due to lack of supporting documentation)
that likely have a minimal impact on Federal outlays.
Using these two identified areas, the matrix below shows four different quadrants that agencies
can consider when developing supplemental measures for high-priority programs (i.e., high
impact improper payments within agency control, low-impact improper payments within agency
control, high-impact improper payments not within agency control, and low-impact improper
payments not within agency control). OMB recommends that agencies focus on root causes of
improper payments within high-priority programs that would be within the program's ability (or
control) to reduce, or which would impact program outlays.
Table 3: Considerations for Developing Supplemental Measures
More Control
Less Control
High
Impact
• Fraud
• System errors
• Agency policies
• Statutory definitions and requirements
Low
Impact
• Infrequent data entry errors by Federal
agencies (with low-dollar impact)
• Infrequent instances of State agencies
lacking minor documentation (with
low-dollar impact)
3) Who is required to establish annual or semi-annual measurements under the Executive
Order?
Under the Executive Order, agencies with high-priority programs are required to establish annual
or semi-annual measurements or actions for reducing improper payment:
a. For high-priority programs that already report an annual estimate, agencies should
develop annual or semi-annual supplemental measurements within 180 days of a program
being deemed high-priority; or
b. For high-priority programs that are establishing or revising their estimation methodology,
agencies should work with OMB to establish a plan for meeting the Executive Order
48
supplemental measure requirements within 180 days of a program being deemed high
priority.
If a high-priority program is unable to conduct or report supplemental measurements (e.g., due to
. data restrictions, or resource constraints), it may work with OMB to meet this requirement in
another manner (e.g., to develop a supplemental measure using an alternative time frame or an
alternative type of information).
4) How should agencies establish annual or semi-annual targets for supplemental
measures?
Agencies with high-priority programs will work with OMB to establish-and/or update-annual
or semi-annual supplemental measures and targets required by the Executive Order. When
establishing supplemental measures, agencies should set aggressive targets (e.g., targets for
improved performance in the future) and develop supporting analytics (e.g., projected impact of
corrective actions or regulatory changes that might lead to lower rates) on how the agency chose
those targets. Targets for supplemental measures in high-priority programs will be set once an
initial supplemental measurement is reported. If the program shows significant progress in
reducing improper payments or meeting supplemental measure targets, the program may work
with OMB to develop different supplemental measures and targets to focus on another high
impact area.
5) Are the reduction targets described in section I.A.9 of this guidance the same as the
supplemental targets that agencies will set to comply with the Executive Order?
No, agencies will need to establish two sets of targets for high-priority programs:
a. Reduction targets for all programs susceptible to significant improper payments under
IPIA, as described in section I.A.9, step 3.b of this guidance and OMB Circular A-136;
and
b. Annual or semi-annual supplemental measures and related targets.
6) How will agencies report annual or semi-annual supplemental measures and targets?
Agencies shall post supplemental measures to PaymentAccuracy.gov annually or semi
annually-depending on the frequency of the measure and to the extent possible. In addition,
agencies shall ensure that their AFRs or PARs contain a basic summary discussing the
supplemental measures, the frequency of each supplemental measurement (i.e., how often will
the area be measured and reported on PaymentAccuracy.gov), the measurement baseline, a
discussion of how information from this measurement will help the program reduce improper
payments, and the actual (or planned) targets, including any reasons for meeting, exceeding, or
failing to meet the supplemental targets.
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C. ACCOUNTABLE OFFICIAL REQUIREMENTS
1) Which agencies are responsible for establishing accountable officials under Section 3(a)
of the Executive Order?
Agencies with high-priority programs, as determined under Section 2 of the Executive Order, are
required to designate an agency accountable official to oversee agency efforts to reduce improper
payments. Agencies with high-priority programs should also designate a component accountable
official-responsible for efforts within a component or bureau-if a single component or bureau
makes up a significant portion of the agency's improper payments. The component accountable
official should work within the component or bureau to coordinate the bureau's program
integrity efforts.
OMB encourages all agencies to appoint improper payment accountable officials and to
continually assess the effectiveness of its internal controls for preventing and detecting improper
payments. However, if an agency without a high-priority program elects to appoint an
accountable official, the agency is not expected to fulfill the specific requirements under the
Order related to high-priority programs.
2) Who may serve as an agency or component accountable official under Section 3(a) of
the Executive Order?
An agency's accountable official must hold an existing position that requires Senate
confirmation; in other words, agencies do not have to create a new position. The second
component accountable official does not have to hold a Senate-confirmed position. Agencies
must submit each accountable official's name and position to the Director of OMB (including
any acting accountable officials) for review and approval by the Director within 30 calendar days
of a vacancy (e.g., retirement or resignation).
In subsequent years, if an agency did not previously have a high-priority program but has a
newly designated high-priority program, the agency has 30 calendar days from the date of the
announcement of a new high-priority program to submit the name and position of proposed
agency and component accountable officials.
3) What are the accountable officials' roles and responsibilities?
Each accountable official is responsible for the agency's or component's efforts to implement the
Executive Order and its requirements. For instance, accountable officials are responsible for
meeting improper payment reduction targets in a manner that does not negatively impact
program access. Implementing the Executive Order should represent a significant responsibility
and be a major focus of the accountable official and the second component accountable official.
4) What are the agency requirements for providing a report to their IGs in response to
Section 3(b) of the Executive Order?
This is also an IPERIA requirement. Please refer to section I.B.4 of this guidance.
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5) What are the Inspector General's responsibilities with respect to the report under
Section 3(b) of the Executive Order?
This is also an IPERIA requirement. Please refer to section I.B.4 ofthis guidance.
D. AGENCY HEAD QUARTERLY HIGH-DOLLAR REPORT TO THE INSPECTOR GENERAL
1) What is a "high-dollar" overpayment?
A high-dollar overpayment can be made to an individual 15 or an entity 16 . A high-dollar
overpayment is any overpayment that is in excess of 50 percent of the correct amount ofthe
intended payment under the following circumstances:
a. Where the total payment to an individual exceeds $25,000 as a single payment or in
cumulative payments for the quarter; or
b. Where the total payment to an entity exceeds $100,000 as a single payment or in
cumulative payments for the quarter.
The Executive Order requires some agencies to report on their high-dollar overpayments on a
quarterly basis. The following are examples, for illustrative purposes only, of overpayments that
would need to be included in an agency's quarterly report on high-dollar overpayments:
Scenario 1: A single payment, or cumulative payments for the quarter, to the wrong
individual or entity that exceeds the respective $25,000 or $100,000 limit. In this case,
the full payment would be reported as a high-dollar overpayment.
Scenario 2: A single payment, or cumulative payments for the quarter, to the correct
individual of $26,000 (the payment exceeds $25,000) when the intended amount was
$16,000. In this case, an overpayment was made in the amount of $10,000 (which is
more than 50 percent higher than the intended amount). Therefore, this scenario meets
the criteria to qualify as a high-dollar improper payment to an individual. The amount
to be reported as a high-dollar overpayment is $10,000.
Scenario 3: A single payment, or cumulative payments for the quarter, to the correct
entity of$106,000 (the payment exceeds $100,000) when the intended amount was
$70,000. In this case, an overpayment was made in the amount of $36,000 (which is
more than 50 percent higher than the intended amount). Therefore, this scenario meets
the criteria to qualify as a high-dollar improper payment to an entity. The amount to be
reported as a high-dollar overpayment is $36,000.
Please note that if the agency has corrected the overpayment within the quarter in which the
payment was made, it does not need to be reported as a high-dollar overpayment.
15
For purposes of this guidance, an individual is someone acting in either a personal or commercial capacity (that is,
a sole proprietor).
16
For purposes of this guidance, an entity is a non-individual or a Federal, State, and local government agency.
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2) Which sources should agencies utilize to identify high-dollar overpayments?
High-dollar overpayments can be identified by examining one or more relevant sources of
information available to agencies. For instance, agencies could identify high-dollar
overpayments, where applicable and cost-effective, through:
a. Annual improper payment testing samples;
b. Payment recapture audits; or
c. Other sources identified by the agency.
3) What information should be included in agency reporting on high-dollar
overpayments?
This information is subject to Federal privacy laws, regulations, and policies, and should not
include information about improper payments or recipients that the agency has referred, or
anticipates referring, to the Department of Justice for enforcement, collection, or other legal
action. At a minimum, the report should describe:
a. The total amount of high-dollar overpayments made by the agency (the agency does not
need to list each individual high-dollar overpayment in the report);
b. Any actions the agency has taken or plans to take to recover high-dollar overpayments
(the report should address overall actions and strategies); and
c. Any actions the agency will make to prevent overpayments from occurring in the future
(the report should address overall actions and strategies).
4) Which agencies must report on high-dollar overpayments? Where shall agencies report
high-dollar overpayments to the public? What if an agency has no high-dollar
overpayments?
Agencies with programs susceptible to significant improper payments under the IPIA are
required to report quarterly on high-dollar overpayments that occurred within those specific
programs. Agencies may report this information to the public on their own website, or through
other mechanisms designed to allow the public to access agency information. For any given
quarter, if an agency with programs susceptible to significant improper payments has had no
high-dollar overpayments, then the agency should inform OMB and the agency's Inspector
General that the agency had no high-dollar overpayments in that quarter. Agencies without any
programs susceptible to significant improper payments do not need to report or notify either
OMB or the Inspector General.
5) Are there exceptions to the reporting requirements for the high-dollar report?
If an agency believes that the high-dollar report is duplicative of other reports compiled by the
agency, they may submit a written request to OMB for an alternative reporting structure.
Included in the request should be a listing ofthe other report(s) and a detailed description of how
those reports provide the same information as the high-dollar report. After reviewing any such
request, OMB may permit agencies to leverage existing reporting mechanisms in lieu of separate
quarterly high-dollar overpayment reports.
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| File Type | application/pdf |
| File Title | Memorandum M-15-02, Appendix C to Circular No. A-123 |
| Subject | Memorandum, M-15-02, Appendix C to Circular No. A-123, OMB |
| Author | OMB |
| File Modified | 2014-10-20 |
| File Created | 2014-10-20 |