Today, the Office of Management and Budget is releasing annual Government-wide data on improper payments.
Before digging into the numbers, it’s important to note that most improper payments are not fraudulent and not all represent a monetary loss to taxpayers. There are many scenarios that can lead to an improper payment, including overpayments, underpayments, or even payments made to the right recipient in the right amount but not in strict adherence to policies and procedures. If an agency can’t confirm whether a particular payment was made properly at the time that it is performing its improper payment review, the entire payment is determined to be unknown and counts toward the improper payment rate—even if only a fraction of the payment is ultimately found to have been made improperly. And even in cases where improper payments are subsequently recovered, they are still counted as improper.
The new data we are releasing today shows that the improper payment rate, including unknown payments, in FY 2022 meaningfully declined—from 7.2% to 5.1%—even as a number of new programs, including pandemic relief programs, reported for the first time. This decrease is an important step in the right direction and reflects ongoing work OMB has been leading with Federal agencies to improve payment integrity, including to implement the Payment Integrity Information Act of 2019. But our work isn’t finished—and the data makes clear that Federal agencies have more to do to drive down improper payments in both newer and long-standing programs.
Consider one example: Federal-State Unemployment Insurance (UI), one of the largest programs contributing to the Government-wide rate. Even though UI saw a $59 billion decrease in improper payments, it also experienced a small increase in the improper payment rate. That increase is a direct result of the continuing and compounding effects the pandemic has had on state UI administration. States’ UI departments have had to work through large pandemic-driven backlogs, while simultaneously reimposing work search requirements that were waived at the beginning of the pandemic and addressing slower responses from employers for important eligibility information. At the same time state UI administrators are dealing with these issues, an outdated funding formula has led to inadequate administrative funding for state workforce agencies, which exacerbates their staffing and talent challenges over time. The President’s Budget has called for updating this funding formula to better support adequate administration of State programs by strengthening their ability to carry out their critical functions and consistently meet evolving workload demands.
The pandemic also brought to the surface another underlying issue that has been plaguing state UI administration for a long time – a continued underinvestment in IT systems. Many states’ outdated IT systems simply were not capable of handling the influx of new claims that surged to 20 times the normal volume or of quickly implementing new program requirements – thus making state UI programs more susceptible to improper payments. The Administration has taken decisive steps to address these problems. The Department of Labor (DOL) is working closely with state UI agencies on reforms and providing funding aimed at driving down the improper payment rate while reinforcing that payment integrity must be a priority for the UI program. A great example of this is the National Association of State Workforce Agencies’ (NASWA) Integrity Data Hub (IDH). At the onset of the pandemic only three states were using the IDH’s Multi-State Cross-Match (MSCM) functionality. Today, 43 states are using the MSCM. In addition, DOL is using American Rescue Plan (ARP) funds to invest in fraud prevention measures through grants to states that help them employ new identity verification strategies, as well as develop new tools and resources to more quickly identify improper payments and fraud. DOL is also putting Tiger Teams on the ground in 30 states to help them address fraud, work through backlogs, and improve access for legitimate claimants to ensure they get the benefits they are eligible for. DOL will continue to invest additional resources to further empower states to better detect fraud and cut down on improper payments.
OMB continues to play two key roles in this work: partnering with agencies to drive down improper payments while fulfilling its government-wide oversight responsibilities, and supporting and liaising with the oversight community—including Inspectors General and the Government Accountability Office. To that end, OMB has issued implementation guidance directing agencies to be effective stewards of taxpayer resources when implementing the ARP, the Infrastructure and Investments Jobs Act (IIJA), and the Inflation Reduction Act. In 2022, OMB continued to provide guidance and technical assistance to agencies and re-instituted high priority program reviews to work with agencies to better understand root causes and corrective actions. OMB also took a number of steps to include additional accountability and review measures to improve the accuracy of the improper payment data reported including requiring agencies to provide additional information about improper payments in their Annual Financial Statements, and continuing to work with agencies on fine-tuning their data collection and estimation methodologies to reduce the number of unknown payments. Additionally, OMB is continuing to identify lessons learned from IIJA and ARP implementation and is laser focused on ensuring the right financial controls are in place; providing clear Government-wide guidance and training to agencies; and working with the oversight community to identify cross-cutting issues.
We are seeing progress in addressing improper payments, but more work remains. As the President has said, “We have to prove democracy still works, that our Government works and can deliver for our people”—and that means continuing to make sure that we safeguard taxpayer dollars in a manner deserving of public trust.