By: John S. Morlu II, CPA
Improper payments, encompassing overpayments, underpayments, and payments made without proper authorization, highlight a profound and persistent challenge within the operations of the U.S. federal government. These misallocations represent financial losses that ripple across government programs, undermining public trust and straining taxpayer resources. In fiscal year 2023, these errors reached an estimated $236 billion across various federal programs. Such a staggering figure underscores the depth of systemic inefficiencies and vulnerabilities within program administration, as well as the urgent need for reform.
Beyond the immediate financial impact, improper payments reveal broader issues of accountability and operational rigor. Overpayments, for instance, may point to lapses in verifying beneficiary eligibility or missteps in processing claims. Underpayments, though less frequent, are equally troubling as they deprive rightful recipients of their entitlements. Payments made without proper authorization often reflect breakdowns in internal controls, leaving programs susceptible to misuse and fraud. Together, these errors paint a picture of a system struggling to maintain its integrity amidst complexity and scale.
This article, informed by insights from the Government Accountability Office (GAO), delves into the underlying causes of improper payments, identifies the federal programs most affected, and examines strategies to mitigate these costly errors. By understanding the root causes and implementing effective solutions, federal agencies can improve operational efficiency, safeguard public resources, and restore confidence in government stewardship.
The Scope of the Problem in FY 2023
In fiscal year 2023, improper payments spanned 71 programs across 14 federal agencies. Notably:
- Overpayments: $175 billion (74%) resulted from excess payments, including cases where individuals were ineligible, such as payments to deceased individuals.
- Underpayments: $11.5 billion arose from errors that resulted in recipients receiving less than they were entitled.
- Unknown Payments: $44.6 billion was labeled as indeterminate, where it could not be verified whether the payments were appropriate.
- Noncompliant Payments: $4.6 billion involved payments made without adhering to statutes or regulations.
While these figures represent an $11 billion reduction compared to the previous fiscal year, improper payments remain significantly elevated compared to pre-pandemic levels.
Programs Most Affected by Improper Payments
A disproportionate share of the errors—approximately $186 billion, or 79%—was concentrated in five key programs:
1. Medicare: A longstanding issue, improper payments in Medicare highlight the challenges of managing a vast and complex healthcare program.
2. Medicaid: Another persistent offender, Medicaid saw improvements in FY 2023, with a $30 billion reduction in payment errors due to enhanced oversight strategies.
3. Pandemic Unemployment Assistance: Errors increased by $44 billion, reflecting the difficulty of administering emergency funds during the pandemic.
4. Earned Income Tax Credit (EITC): High improper payments in this program point to difficulties in verifying income and eligibility.
5. Paycheck Protection Program (PPP) Loan Forgiveness: The expedited rollout of pandemic relief measures introduced vulnerabilities that led to errors and potential fraud.
What Drives Improper Payments?
Improper payments can arise from multiple causes, including:
- Ineligible Beneficiaries: Payments made to individuals or entities who fail to meet eligibility requirements.
- Insufficient Documentation: Agencies often lack the necessary documentation to confirm payment accuracy.
- Fraudulent Activity: Malicious attempts to exploit vulnerabilities within federal programs.
- Complex Program Rules: Programs with intricate eligibility and reporting requirements can lead to administrative mistakes.
The Role of Oversight and Mitigation
Certain programs have successfully reduced improper payments by implementing targeted mitigation strategies. For example:
- Medicaid Improvements: Enhanced provider oversight and stringent eligibility verification processes led to a substantial decline in errors.
- Communication Enhancements in Medicare: Medicare has improved communication about its prior authorization requirements, which helps prevent unnecessary expenditures on items like medical equipment.
- Income Verification in the EITC Program: The IRS has been advised to increase its review of W-2s before issuing tax refunds, a move that could significantly reduce fraudulent claims.
Broader Recommendations for Reducing Errors
The Government Accountability Office (GAO) has provided a roadmap for reducing improper payments across federal agencies. Key recommendations include:
1. Risk Identification and Monitoring: Agencies should enhance their ability to identify programs susceptible to improper payments and employ real-time monitoring systems to detect anomalies.
2. Improved Data Sharing: Collaboration across agencies can prevent duplicate payments and detect fraud more effectively.
3. Strengthened Internal Controls: Enhanced procedures for verifying eligibility, documenting transactions, and conducting audits can reduce errors.
4. Legislative Support: Congress can assist by allocating resources for robust oversight mechanisms and mandating the implementation of GAO recommendations.
The Road Ahead: Challenges and Opportunities
Despite progress, the fight against improper payments faces ongoing challenges. For instance:
- High-Volume Programs: Medicare and Medicaid collectively account for over a third of federal spending, making error prevention a complex task.
- Pandemic Aftershocks: Emergency measures introduced during the pandemic have lingering effects, as programs like Pandemic Unemployment Assistance attempt to recover from initial administrative lapses.
- Technological Gaps: Legacy systems and outdated technologies hinder efficient data collection and analysis.
However, opportunities also abound. For example, advanced technologies like artificial intelligence and machine learning can revolutionize the way improper payments are detected and prevented. Pilot programs that integrate these technologies are already showing promise in identifying fraudulent activities and streamlining eligibility verification processes.
Conclusion
Improper payments represent a persistent challenge for the federal government, underscoring the need for vigilance, innovation, and cross-agency collaboration. By implementing robust oversight mechanisms, leveraging technology, and fostering accountability, the government can significantly reduce the financial burden of payment errors.
As stewards of taxpayer funds, it is imperative that agencies and policymakers prioritize these efforts, ensuring that public resources are managed with integrity and efficiency. The $236 billion in improper payments recorded in FY 2023 serves as both a cautionary tale and a call to action—one that demands collective responsibility and strategic foresight.
Author: John S. Morlu II, CPA is the CEO and Chief Strategist of JS Morlu, leads a globally recognized public accounting and management consultancy firm. Under his visionary leadership, JS Morlu has become a pioneer in developing cutting-edge technologies across B2B, B2C, P2P, and B2G verticals. Under his leadership, the firm has become a leader in innovation, introducing transformative technologies such as ReckSoft.com, an AI-powered reconciliation tool, FinovatePro.com, a cutting-edge cloud accounting solution, and Fixaars.com, an AI-driven platform revolutionizing opportunities for handymen worldwide. Through his visionary approach, John continues to redefine industry standards, driving efficiency, precision, and global economic empowerment.
