Incompetence, Gross Mismanagement & Fraud: 2. Improper Payments

Revenue and Expenditures

An Improper Payment is a payment by the federal government to someone outside the government who shouldn’t receive the payment or who uses the money on something not intended.

According to the Government Accountability Office (“GAO”), the US Government made an estimated $144 billion of Improper Payments in fiscal year 2016. This estimate excludes the Department of Defense Commercial Payments Program, which failed to provide an estimate (remember that the Department of Defense cannot obtain a clean audit).

Since 2003, the GAO estimates that a total of $1.2 trillion of Improper Payments have been made by the federal government. This would fund the government of the State of Vermont for over 200 years.

Where are all these Improper Payments being made and why do they happen?

Fourteen federal programs had Improper Payment estimates exceeding $1 billion and eleven departments had payment error rates exceeding 10%. 4.67% of total government payments made in 2016 were Improper. The departments with the largest Improper Payments, ranked in order, are as follows:

  1. Medicare Fee for Service
  2. Medicaid
  3. Earned Income Tax Credit
  4. Medicare Advantage
  5. Social Security Supplemental Security Income
  6. Department of Education Direct Loans
  7. Department of Labor Unemployment Insurance
  8. Old Age Survivors and Disability Insurance
  9. Veterans Administration Community Care
  10. Medicare Prescription Drug
  11. Department of Education Pell Grants
  12. Department of Agriculture School Lunch Program
  13. HUD Rental Housing Assistance
  14. Veterans Administration Purchased Long Term Services and Support

The GAO points out that there are a further 18 government programs considered high risk for Improper Payments that reported no Improper Payments or simply failed to report in 2016. Included in this group are the Department of Defense, Food Stamps and Temporary Assistance for Needy Families. Given these omissions, it is likely that the actual level of Improper Payments is well in excess of the $144 billion noted above.

As to why the level of Improper Payments is so high, the GAO estimates the following:

Cause of Improper Payments

Cause of Improper Payment % Total Improper Payments
Insufficient Documentation 30.2%
Inability to Authenticate Eligibility 23.8%
State & Local Process Errors 16.5%
External Party Process Errors 15.1%
Federal Government Process Errors 2.1%
Medical Necessity 5.6%
All Other 6.7%

Source: GAO Fiscal Health Report

That’s all a bit of government-speak. Included in most of the above categories is a large amount of fraud. Health care providers overstating or inventing bills for Medicare and Medicaid to pay is probably the biggest single problem. Another big problem are all the individuals in the country that lie about their incomes, disabilities, residencies and number of children to maximize that amount of benefits they receive under a wide variety of federal assistance programs.

Given the size of the problem, one can’t help but suspect there are some dishonest government officials enriching themselves as well.

This level of Improper Payments is clearly unacceptable, but nothing much seems to get done about it in Washington. There is absolutely no reason the federal government couldn’t install the same level of internal controls that are widely employed in the private sector. Preventing the waste of taxpayer money and the fraud that underpins much of it seems not to be a priority of our elected representatives and government officials.

Improper Payments are a big problem. Failing to collect taxes is a much bigger problem. In the next article, The Informed Vermonter will discuss the US government’s “Tax Gap”.



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