Letter to Joshua Bolten Director Office of Management and Budget

January 9, 2004

The Honorable Joshua B. Bolten
Director
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503

Dear Mr. Bolten,

We are writing to express our concern about guidance issued by the Office of Management and Budget to assist agencies in implementing the Improper Payments Act of 2002 (Act) P.L. 107-300. OMB's guidance appears to ease agency reporting of improper payments by eliminating the need for risk assessments if an agency concludes that improper payments do not exceed 2.5 percent and $10 million of program spending.
The statute itself required agency risk assessments and corrective action plans to be completed on all programs and activities where improper payments are estimated to exceed $10 million. OMB also issued supplemental guidance to the Social Security Administration (SSA) to address the reporting of improper payments that are considered to be "unavoidable." Specifically, OMB decided that payments determined to be "unavoidable" would no longer need to be reported as improper payments.

This guidance appears to change the parameters of what is and is not reported. Moreover, it appears that OMB guidance will artificially reduce improper/erroneous payment figures. In other words, the improper payment figures that will eventually be reported to the public will look better, and feel better, than they really are, and the public and the Congress will have a less accurate understanding of the integrity of our federal programs.

Federal agencies are responsible for managing tens of thousands of programs and activities and expending hundreds of billions of dollars annually to address the needs of the American public. As implementers of these programs and activities, agencies have a stewardship responsibility and, as such, must take all reasonable actions to design, implement and manage them in a manner which ensures that program objectives are met and that controls exist to safeguard federal funds from improper or erroneous payments.
In the past several years the General Accounting Office (GAO) and OMB reported partial estimates of erroneous payments amounting to tens of billions of dollars annually; these reports have also noted that government-wide estimates of improper payments do not exist.

The Improper Payments Information Act of 2002 (Act) was enacted on November 26, 2002, to address this problem. It requires all federal agencies to estimate improper payments in their programs and activities and to report these amounts to the Congress annually. The Act gave OMB a significant role in its implementation, by requiring OMB to issue agency guidance on how to implement its provisions. OMB issued this guidance in May 2003 and has been working with agencies to clarify the Act's requirements and respond to agency questions on implementation and reporting issues.

Because of the magnitude and implications of improper payments government-wide, and the implications of OMB's guidance, it is critical that agencies take their responsibilities under the Act seriously. Agency reports must be the epitome of honest and complete disclosure on the amounts of improper payments occurring, their causes, barriers to eliminating these causes, planned actions to reduce or eliminate these payments, and the results of those actions.

We consider the reports required by the Act to provide critical information that will assist in the Committee's oversight and monitoring of federal programs and activities, as well as the Congress' evaluation of agency management and control over federal funds. The information on improper payments is critical to Congress' understanding of existing problems and its ability to legislate to reduce improper payment levels. Only with careful analysis of this information can we ensure the most effective, efficient and economical operation of federal programs.

In light of the importance of the improper payment issue, and the concerns that we have expressed regarding the implementation of the guidance recently issued by OMB, we would appreciate receiving responses to the attached questions.

Thank you in advance for your attention to this matter. We would appreciate receiving OMB's responses by January 28, 2004.

Sincerely,

Charles E. Grassley Max Baucus
Chairman Ranking Member