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The Five Initatives


The Scorecard, Financial Management Systems, and Erroneous Payments

The Improved Financial Performance Initiative is about improving the quality of financial information so that agencies and Congress can use it to make decisions about Federal programs. That's why we're accelerating the due dates for financial statements, tracking material weaknesses, and monitoring the implementation of agency financial management systems.

Executive Branch Management Scorecard
We've just updated the Executive Branch Management Scorecard and it reflects some of the progress we're making on the financial performance initiative. Two agencies - EPA and Labor - have improved in status from red to yellow. Two others - NASA and SBA - have dropped in status from yellow to red. On the progress side, 16 agencies are green. EPA has eliminated all four of its Federal Managers Financial Improvement Act (FMFIA) material weaknesses, has no audit material weaknesses, and expects to be able to provide an assurance statement in its 2002 Annual report. NASA, which was downgraded mid-year from yellow to red in status, is nonetheless rated a green for progress because it resolved outstanding issues resulting from the audit of its FY 2001 financial statements. SBA, on the other hand, has recently had to deal with severe financial management problems, including unexpected volume in new claims as well as the agency's inability to accurately record loan defaults or account for asset sales.

Financial Management Systems
One of the areas where we have concerns is in the implementation of financial management systems. At our last Chief Financial Officers Council Meeting, OMB's Mark Forman spoke of the fact that many agencies' financial system implementations are beset by lengthy or delayed deployment schedules and cost overruns. For example:
  • Delays of three years or more are common in many agencies;
  • Implementation costs generally exceed original budgets by 50 to 300 percent; and
  • Systems often duplicate others already in place in the government or, even worse, within their own agency.

Under current budget constraints, it is important to assess all of our ongoing investments, including our investments in financial systems. We are reviewing all such investments to find opportunities to streamline and, where appropriate, consolidate agency financial systems. Agency missions can not be compromised by this effort, but it is important that we implement financial systems in the most efficient and effective way possible.

Erroneous Payments
As part of the Improved Financial Performance Initiative, we are trying to establish a baseline of erroneous payments and work with agencies to establish policies and practices to reduce them. Following is a chart that lists the programs that have provided an estimate of erroneous payments. This chart shows that these programs make erroneous payments of more than $33 billion annually. And as more programs report the estimates we are requiring, the number will grow. Clearly, $33 billion is unacceptable.
Programs Erroneous Payments
Amount (in millions) Percent
Medicare - Fee-for Service $12,100.0 6.30%
Earned Income Tax Credit 9,200.0 29.35%
Housing Subsidy Programs 3,281.0 17.38%
Unemployment Insurance 2,251.3 9.21%
SSI 1,590.0 5.73%
Food Stamps 1,340.0 8.66%
OASI 1,339.0 .36%
Disability Insurance 1,313.0 2.22%
Medicare - Cost Reports 493.0 2.7%
Student Assistance Pell Grants 336.0 .71%
FEHBP 241.0 1.14%
Federal Retirement 167.0 .35%
Student Aid – External 65.0 .14%
Military Retirement Fund 18.6 .05%
Student Aid – Internal 13.3 .03%
Commodity Loans 7.6 .09%
Federal Transit Administration 5.5 .09%
(7a) Business Loan Program .3 1.9%
Airport Improvement Program .3 .01%
FEGLI .2 .01%

Fortunately, some agencies are taking seriously the President's pledge to reduce erroneous payments. The Department of Agriculture is aggressively pursuing states with high error rates in the Food Stamps program. California and Michigan, with error rates of 17.37 % and 13.9 % respectively, are being made to pay cash sanctions for their mismanagement of the Food Stamps program. Other agencies, like the Departments of Labor, Housing and Urban Development, and Education, are seeking statutory authority to verify the eligibility of applicants for benefits by checking data that the government maintains. These and other efforts promise to reduce waste by billions of dollars every year.

Some programs have an extremely tough time coming up with estimates of erroneous payments. Take the Temporary Assistance for Needy Families (TANF) program, for instance. Congress made it a block grant program. And each state can have different eligibility criteria, offering different support services and varying benefit levels. Some states even choose to let their counties develop their own TANF program with diverse criteria. All of this complexity makes it extremely difficult to come up with a methodology to determine an error rate.

To its credit, HHS has committed to meet the President's challenge to track and reduce erroneous payments, even in programs as complex as TANF. Clearly, we can't reduce erroneous payments if we don't know that we're making them. Congress is set to pass legislation that will expand on the President's requirement by making every program report annually an estimate of erroneous payments.

Yours truly,

Mark Everson

The Five Initatives:
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