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OMB Letterhead

November 20, 2007
Contact: OMB Communications, 202-395-7254

Federal Agencies Continue to Improve Financial Reporting Results
and Eliminate Payment Errors

Washington, DC — For the third year in a row, all major Federal agencies successfully met the 45-day financial audit deadline as required by the rigorous reporting guidelines set by the Office of Management and Budget (OMB).  Since 2001, agencies are required to complete the financial report 45-days after the end of the Fiscal Year, compared to the previous five month (150 days) window for completion.  The accelerated deadline results in more immediate availability of financial information to agency decision-makers and requires agencies to employ rigorous disciplines throughout the year to ensure readiness for year-end reporting.

In addition to timely reporting, the results from Fiscal Year 2007 show that the Federal government is improving the validity of its financial information.

  • Of the 24 major Federal agencies, 19 received clean opinions, one more than the 18 clean opinions reported last year at this time.

  • The total number of material weaknesses government-wide declined from 41 to 39.  This is the fourth year in a row that material weaknesses have declined, with a more than 35% decrease in weaknesses since 2001.

  • Five additional agencies received a clean opinion with no material weaknesses, including the Departments of Justice, the Interior, Energy, the Small Business Administration and the U.S. Agency for International Development.  This brings the total number of agencies realizing this important accomplishment to 13, up from just seven in 2001.

The decrease in weaknesses this year is more notable in light of recent changes to government audit guidelines that lower materiality thresholds and have the effect of characterizing more audit findings as “material weaknesses.”  In other words, while auditing standards are getting tougher, Federal agencies are more than keeping pace by continuing to decrease the number of material findings.

Fiscal Year 2007 was also an important year for the initiative to report on, and eliminate, improper payments (i.e., the right amount, to the right recipient, and on time).  Full transparency of annual improper payment totals allows the public to understand the extent of payment errors and assess the government’s efforts to eliminate them.  With this year’s financial reports, Federal agencies are now reporting improper payment measurements for nearly 86% of all high-risk outlays (up from 81% in Fiscal Year 2006), with error rates reported on 13 new programs, including the Medicaid Fee-for-Service and School Lunch programs.

The results from the past three years of reporting on improper payments demonstrate that once an agency has measured and reported program errors, it is able to implement corrective actions to reduce those errors in subsequent years.  The error rate for the first programs measured for errors, in Fiscal Year 2004, was 3.9% (or $45.1 billion in improper payments).  For these programs, the error rate has declined to 3.1% (or a $7.9 billion reduction in improper payments).  Similar to the progress achieved in programs that first reported in Fiscal Year 2004, programs that first reported in Fiscal Years 2005 and 2006 have seen improper payments cut in half, representing a $2.3 billion reduction.

Currently, with 13 additional programs reporting in Fiscal Year 2007, the preliminary government-wide error rate increased to 3.5% or $54.9 billion.  The cause of the majority of the errors in the 13 new programs is insufficient documentation, meaning that all of the supporting documentation necessary to verify the accuracy of the claim was not provided.  If all the supporting documentation had been received, the agencies could have better determined whether the payment was appropriate or made in error.  As has been the case in other programs, it is anticipated that the errors in these 13 programs will decrease significantly after correcting the root cause of the insufficient documentation errors.

Specific accomplishments in Fiscal Year 2007 include:

  • The error rate for Medicare declined from 4.4% to 3.9% this year.  This is the fourth consecutive year of error rate reductions.  In Fiscal Year 2004, the Medicare Fee-for-Service program reported a 10.1% error rate.

  • The error rate for the Old Age, Survivors & Disability Insurance program fell from .6% to .5%, a $776 million reduction in improper payments.

  • The error rate for the Head Start program fell from 3.1% to 1.3%, a $122 million reduction in improper payments.

  • The error rate for the Marketing Assistance Loan Program fell from 20.2% to 7.5%, a reduction of more than $1 billion in improper payments.  Five additional Farm Service Agency programs reduced documentation errors, thereby reducing overall errors by nearly $1.2 billion or 92%.

  • The error rate for the Foster Care program fell from 7.7% to 3.3%, an $82 million reduction in improper payments.

“Once again, we raised the bar and the agencies rose to the challenge.  I congratulate these agencies for meeting the tough 45-day deadline and obtaining clean audit opinions,” said Clay Johnson, Deputy Director for Management, OMB.  “I’m also encouraged by the tremendous progress being made in improper payments.  The Federal government has established an impressive track record of making improper payment measurements transparent to the public and then taking quick and effective action to eliminate them.”

Included with this press release are attachments with the Federal improper payments for Fiscal Years 2004-2007 and the Fiscal Year 2007 audit results for the major Federal agencies (3 pages, 41 kb) PDF.