The American Institute for Economic Research recently published an article by Veronique de Rugy titled “How $137 Billion Strangely Disappears.” de Rugy described a new report on the government’s ‘improper payments’ problem, one factor underlying the GAO’s annual disclaimer of opinion on the financial statements in the Financial Report of the U.S. Government.
The report de Rugy covered has been produced since an executive order was issued by President Obama in 2009. Under this order, the U.S. Department of the Treasury (together with the Justice Department and the Office of Management and Budget, also in the executive branch) established a website called PaymentAccuracy.gov. The site lists 12 “high-priority” areas with improper payments estimates running $2 billion or more. Medicare and Medicaid lead the way, with their estimated improper payments totaling more than $80 billion a year.
In her article, de Rugy openly admits she would peg the number much higher, at least under her interpretation of the ‘proper’ role of government. But as a matter of law, determining what is or isn’t proper under the terms of government programs isn’t always an easy thing to estimate.
de Rugy takes note how the list provided in the PaymentAccuracy.gov website is dominated by social insurance / welfare programs, raising an interesting question or two that she didn’t discuss. Is the Defense Department deemed a High-Priority area? Not for the purposes of the high-priority list, at least the list provided by the Executive Branch. Their list includes 12 areas, but DOD isn’t in there (although two VA programs are there, counting for $10 billion of the $137 billion).
What is an ‘improper payment,’ anyway? And who decides?
In citing improper payments as a material weakness in federal government financial reporting, the GAO (the audit arm of Congress, not the executive branch) stated in its latest opinion letter (for 2017) that “the federal government is unable to determine the full extent to which improper payments occur …” In previous years, the Financial Report of the U.S. Government had provided a government-wide estimate of improper payments, based on estimates provided by departments that actually reported those estimates. But the annual report did not make a government-wide estimate for the first time in 2017, which may actually be a valuable admission that it could not determine the full extent to which improper payments occur.
Are there no improper payments in the Department of Defense?
In its 2017 opinion letter, the GAO took note that the DOD Inspector General stated that DOD “did not ensure that all improper payments were included in certain programs’ improper payment estimates, and as a result, the DOD published unreliable estimates of improper payments for fiscal year 2016” -- for 2016, not 2017.
In a recent report explaining the results of the comprehensive new audit undertaken in the last year, the DOD Inspector General listed “Financial Management Systems and Information and Technology” at the top of the of 20 identified material weaknesses leading to the disclaimer of opinion on DOD financial statements, noting specifically that “Ineffective IT system controls can also result in significant risk to DOD operations and assets. For example, payments and collections could be lost, stolen, or duplicated as a result of weak IT controls.”
Commenting on results of a review last year, Peter Tyler of the Project on Government Oversight put it more bluntly. “Along with the Pentagon needing to work harder to reduce improper payments, we see the IG report as being too polite. … The reported DOD improper payments numbers are highly suspect.”
That $137 billion could indeed be a lowball estimate, no matter how you feel about the appropriate scale and scope of government.