MEMORANDUM FOR CHIEF FINANCIAL OFFICERS AND BUDGET OFFICERS OF EXECUTIVE DEPARTMENTS AND AGENCIES
|SUBJECT:||Minimizing Erroneous Payments and Supplemental Guidance on Erroneous Payment Information to be Included in Fiscal Year 2003 Budget Submissions|
Federal agencies should recognize the following fundamental principles relating to managing Federal benefit program payments:
It is often very difficult or impossible to recover overpayments or correct underpayments after they occur. Effective procedures to ensure the integrity of payments before they are made is the most efficient and effective method for keeping erroneous payments to a minimum.
Senior leadership shall place appropriate resources and emphasis on the need to minimize the level of erroneous payments. Agency managers shall work together to assure that there is an adequate level of control to minimize erroneous payments. Inspectors General may assist agency leadership in identifying opportunities to strengthen controls and in assessing the agency's progress in improving payment integrity.
In any program, some level of erroneous payments is unavoidable; the goal is to keep them to the lowest practical level, given the circumstances of the program. Zero erroneous payments would be the ultimate goal; however, there are other considerations that make such a goal unrealistic. For Federal programs, erroneous payments are similar to shoplifting and obsolescence in the retail industry, and spoilage in the agriculture and food industries. In these industries, such occurrences are a recognized cost of doing business, and efficient management strives to keep these costs within tolerable levels.
The goal of minimizing erroneous payments shall be balanced against the need to achieve the objectives of the program and the objectives of other national priorities. Often, Federal program goals emphasize providing benefits timely to all eligible beneficiaries and protecting individual privacy. Meeting these goals may require accepting a higher level of payments to ineligible recipients and fewer controls. Federal agencies should consider consulting and working with program stakeholders, including those involved in program and agency oversight, program administration, and program creation, when designing internal controls to minimize the level of erroneous payments.
The cost of procedures to minimize or collect erroneous payments should not exceed the benefit to be gained. Consideration shall be given to the administrative burden not only at the Federal level, but also on program beneficiaries, grantees (e.g., States and local governments administering Federal programs), and other third parties administering a program.
Periodically and consistently estimating the rate of erroneous payments enables agencies to measure progress over time and determine whether further action is needed to minimize future improper payments. This is true even if, as is frequently the case in error estimates, erroneous payments projected from a sample may not be recoverable. Public reporting of progress enhances accountability. Agency performance can be reported in a variety of places, includingreporting under the Government Performance and Results Act, annual financial reports, or regularly-issued stand-alone program reports.
When practical and permitted by law, agencies shall verify key information supporting benefit payments with information maintained internally and by others. Conversely, agencies shall share data that can be used to prevent or identify improper payments. Data sharing and use of data shall be consistent with relevant laws and with OMB Memorandum M-01-05, Guidance on Inter-Agency Sharing of Personal Data - Protecting Personal Privacy (available on the OMB website at /OMB/memoranda/m01-05.html).
Periodic assessments may identify statutory and other impediments to improving payment integrity. Agencies should determine if such impediments can and should be removed by the agency and, if so, promptly take action to remove them. Agencies should consult with stakeholders about these impediments as well as impediments that cannot be removed by agency action alone.