"Improper payments" refers to all instances where the government makes payments to the wrong person, in the wrong amount, or for the wrong reason.
It not a measure of fraud. It's better understood as a measurement of spending with incorrect paperwork attached. If you are interested in improving government services, it's a useful indicator of blind spots and mechanical issues that could use some constructive attention.
In the United States, three federal regulations compel agencies to produce disclosures about payments that they term improper.
Those are:
- The Improper Payments Information Act (IPIA) of 2002.
- The Improper Payments Elimination and Recovery Act (IPERA) of 2010.
- The Improper Payments Elimination and Recovery Act of 2012
These payments are a meaningful proportion of total government spending every year.
Improper Payments by the United States Government<script async src="//s.imgur.com/min/embed.js" charset="utf-8"></script>
The disclosures issued by various branches of the federal government are usefully aggregated to allow for exploration.
Reported improper payment rates vary significantly by agency. Part of this variance is because of differences in the how these agencies approach reporting.
In 2016, the United States Government Accountability Office noted "For several years, GAO has reported that the federal government is unable to determine the full extent to which improper payments occur and reasonably ensure that actions are taken to reduce them," in part because 15 of the 24 agencies shown above are not in full compliance with IPERA criteria.
155 federal government programs are broken out in publicly available data. These releases show at least $144 billion in improper payments were made in the 2016 fiscal year. The 20 programs with the largest improper payments in that year account for $142 billion, 99% of the total. The top 10 account for $134 billion, or 93%.
Each of the top ten programs are critical components of the American social safety net. Examining the programs and the reasons they offer for issuing improper payments is a useful window into the federal government, and illuminates pathways for future progress.
Medicare FFS reported improper payments of $41 Billion in FY 2016, 11% of their $374 Billion in outlays. The program is sometimes called Original Medicare, and covered 38.2 million Americans in September 2017 according to the Medicare Enrollment Dashboard.
The Department of Health and Human Services wrote In their 2016 Improper Payments Report:
"the most common cause of improper payments (accounting for 64.1 percent of total improper payments) was lack of documentation to support the services or supplies billed to Medicare. In other words, the CERT contractor reviewers could not conclude that the billed services were actually provided, were provided at the level billed, and/or were medically necessary."
Medicaid reported improper payments of $36 Billion in FY 2016, 10.5% of their $345 billion in outlays. The program provides health coverage to low-income people and is one of the largest payers for health care in the United States, with 68 million people covered as of August 2017.
Their 2016 Improper Payment Report notes that a "Provider Information/Enrollment Error" was responsble for 95.8% of payments termed improper in a sample that they reviewed. This error was asserted to stem from states that are not in compliance with federal regulations.
The Earned Income Tax Credit program reported $16.8 billion in improper payments in 2016, 24% of their $69.8 billion in total outlays. This is likely a result of the innate complexity of the program's administration. Restructuring the EITC was suggested by the IRS Taxpayer Advocate in 2016.
The Council on Budget and Policy Priorities noted that "The EITC is one of the most complex elements of the tax code that individual taxpayers face. The IRS instructions for the credit are nearly twice as long as the 13 pages of instructions for the Alternative Minimum Tax, which is widely viewed as difficult"