Policy Documents

Improper Payments Information Act of 2002: Background, Implementation, and Assessment

Garrett Hatch and Virginia A. McMurtry –
October 4, 2010

On November 26, 2002, the Improper Payments Information Act (IPIA) was signed into law as P.L. 107-300 (116 Stat. 2350). The law requires agencies to identify each year programs and activities vulnerable to significant improper payments, to estimate the amount of overpayments or underpayments, and to report to Congress on steps being taken to reduce such payments. OMB’s guidance for IPIA implementation, while consistent with some provisions of the act, has been criticized on several counts. Whereas the statute required agencies to report to Congress on all programs with more than $10 million in estimated improper payments, OMB added an additional threshold, such that agencies must only report on programs with improper payments that exceed both $10 million and 2.5% of total program payments. Critics have identified a number of examples of programs with improper payments over $10 million that are not reported to Congress because they do not also meet the 2.5% threshold. 

OMB’s guidance has also been criticized for permitting agencies to exempt some programs from the IPIA’s annual requirement for risk assessment. Under the act, every program and activity is to be reviewed each year. OMB’s guidance, however, now allows agencies to review a program once every three years if it has been deemed low-risk. Critics say this leaves open the possibility that improper payments might go undetected during the exemption period. 
For FY2009, OMB reported a government-wide error rate of 5.0% and total improper payments of $98 billion. This figure does not cover all at-risk outlays which lack improper payment estimates and are not yet reflected in the error rate or improper payment amounts. Until valid estimates become available for all risk-susceptible programs, the full extent of the improper payments problem will remain unknown. 

On November 20, 2009, President Obama issued E.O. 13520, “Reducing Improper Payments and Eliminating Waste in Federal Programs.” A White House memorandum regarding “Finding and Recapturing Improper Payments” followed on March 10, 2010. On March 22, 2010, OMB issued government-wide guidance on the implementation of E.O. 13520.  

In the 111th Congress, Senator Carper introduced S. 1508, the Improper Payments Elimination and Recovery Act (IPERA) of 2009 in July 2009. The Senate passed S. 1508 in June 2010, and the House approved the bill in July 2010 by a vote of 414-0. President Obama signed the measure into law on July 22, 2010 (P.L. 111-204). 

IPERA codifies portions of OMB’s guidance—a not uncommon practice—and establishes new improper payments requirements for agencies. Provisions in the new law revise requirements for estimating improper payments and direct agency heads to produce statistically valid estimates; set forth risk factors for conducting improper payment reviews; expand agency reporting requirements on actions to reduce improper payments; require the Director of OMB to report annually to Congress and GAO on actions agencies have taken to report on and recover improper payments; stipulate specific procedures for conducting recovery audits and for agency heads to follow in disposition of amounts recovered; require a study of the implementation and cost effectiveness of recovery audits; and require the inspectors general to assess each fiscal year whether their agencies are in compliance with the IPERA and to report to Congress and to GAO on same. This report will be updated as needed.