Federal Improper Payments: Confronting an Escalating ProblemJanuary 2018
Topics: Payment Integrity, Improper Payments, Fraud, Data Analytics, Economics, Government Agency Operations
In FY2016, the U.S. government estimates it paid out $144 billion in improper payments in that year alone, a figure that has risen 35 percent in the last three years. Since 2002, more than $1.2 trillion of taxpayer money has been paid out in the wrong amount or to the wrong payee. Trends suggest these figures will continue to rise.
The impact of improper payments is felt not only in wasted resources and missed opportunities to redirect those resources. It also undermines public confidence in the effectiveness of government's stewardship of taxpayer dollars. Waning public trust may even decrease the motivation of claimants requesting federal payments to be accurate, avoid errors, and refrain from fraud.
Exploring Options to Strengthen Payment Integrity
A cross-MITRE team has been addressing the complex issues involved in improper payments. Gordon Milbourn, MITRE’s payment integrity portfolio leader, is a key member of the team.
"Payment integrity is a significant, government-wide problem," Milbourn says. "It impacts virtually every agency and all Americans. When we look at payment integrity, we're looking at the people, processes, and technology that are supposed to ensure payments are being made to the correct people and in the right amounts."
Improper payments primarily come from errors by program applicants, processing errors by agencies, and fraud—particularly identity and eligibility misrepresentation. The healthcare sector, especially Medicare and Medicaid, is the hardest hit. But other government sectors also experience the financial drain of improper payments. Vulnerable areas include refundable tax credits, disability payments, and veterans' benefits.
During FY15-16, the MITRE team conducted extensive interviews with federal agencies, oversight and accountability organizations, commercial, professional and non-profit organizations, two leading universities, and a foreign government. The team also researched published reports from government agencies, including the Congressional Budget Office, the Congressional Research Service, and the Government Accountability Office.
The team applied a government-wide systems approach to identify challenges with how the government approaches payment integrity. They evaluated methods for using preventive/proactive approaches versus making payments and then "chasing" the improper ones. They also assessed risk management, identity and eligibility risks, and data analytics, as well as obstacles to payment integrity created by legislation, culture, and technology.
The study recommended 15 government-wide actions (listed below) to help address these key issues.
Strengthening Collaboration and Data Analytics to Bring Change
Ultimately, the Office of Management of Budget (OMB) is central to implementing government-wide steps to curb these erroneous payments.
"MITRE's research efforts into systemic causes and potential solutions have helped build a strong relationship with OMB officials who see the value of our recommendations," Milbourn says. "According to [now former] Acting Controller Mark Reger, OMB is actively leveraging MITRE’s research as they make changes to improve payment integrity." The recommendations have also been socialized with the staff of several Congressional committees.
The study highlights opportunities for collaboration among agencies and between agencies and private sector organizations that share many of the same challenges. The study also describes MITRE’s concept for a Payment Integrity Research and Analysis Capability to augment and complement agencies’ data analytics. By working together and sharing data and analytics, Milbourn believes that agencies have a much higher probability of solving fraud, waste, and abuse challenges than if they try to solve them on their own.
"It's a big, thorny issue that's not going to go away by itself. And from our experience, the best chance to solve a complex issue like this is by bringing entities together, both public and private, to create better situational awareness, share practices, and implement common payment integrity solutions."
We have begun to work with government sponsors to implement some of our recommendations in the areas of risk management, collaboration, and data analytics, while we continue to examine key aspects of the overall problem. For example, the team recently published a follow-up study. The report examines the motivational factors involved with federal agencies optimizing their payment integrity efforts and with claimants being accurate, avoiding errors, and not committing fraud.
Worldwide Discussions on Healthcare Fraud
Milbourn is taking an active role in sharing MITRE’s expertise on payment integrity. As a member of the Association of Certified Fraud Examiners (ACFE), the world's largest anti-fraud organization, he collaborates with MITRE fraud-prevention expert Alanna Lavelle to respond to questions about healthcare fraud from ACFE members around the globe.
Since a high percentage of fraud occurs within the healthcare sector, the ACFE set up a discussion board strictly for healthcare fraud. "This is a valuable forum for the exchange of information among public and private sector members, both domestically and internationally. MITRE is pleased to participate in this discussion board, to share both the insights we have gained in healthcare fraud as well as the insights of others we work with," Milbourn says.
Keeping the Focus on Payment Integrity
Milbourn encourages all MITRE staff working on their sponsors’ system and process issues to ask: "Is there some aspect of the project I'm working on that entails my sponsor paying out money—to beneficiaries, contractors, or grantees?"
Take the example of a MITRE team helping to modernize a government IT system. If the system delivers benefits or contract invoice payments, Milbourn urges his colleagues to ensure the sponsor considers payment integrity risks during the process.
It's important to make thinking about the issues of payment integrity an ingrained habit up front, cautions Milbourn. "Experience has shown that it costs 10 times more money to program in controls and edit payments after the system has already been developed," he says.
Solving the issues of payment integrity will have a vast positive impact on MITRE's sponsors, all of government, and ultimately the American people, who entrust their hard-earned tax dollars into the hands of government stewards.
—by Lisa Pacitto