BUDGET DIGEST: Improper Payments

Unfortunately, the federal government continues to waste significant amounts of taxpayer funds through mismanagement. Improper payments are defined by the Government Accountability Office (GAO) as any reported payment that should not have been made or was made in an incorrect amount, including both overpayments and underpayments.[1] Examples include payments that are duplicative, payments made to ineligible recipients or services, payments made for a service that is not received, or payments made at the wrong rate.

How Much Does the Federal Government Spend on Improper Payments? The extent of government-wide payment errors is higher than most think. According to GAO, improper payments span the entire federal government – 90 government programs across 21 agencies. These payments totaled a stunning $151 billion in fiscal year (FY) 2018, up from $141 billion in FY 2017.[2] To put that in perspective, this is equivalent to more than double what the federal government spent on the Department of Education the same year.[3]

Improper payments have steadily increased over time and have more than quadrupled since FY 2003 ($35 billion), when agencies first began estimating them. In FY 2018, GAO found 16 programs and activities that had improper payments of more than $1 billion per year and 20 programs and activities with improper payment rates of 10 percent or greater of their total budgets. Out of all federal improper payments, approximately 75 percent fall within three programs: Medicare, Medicaid, and the Earned Income Tax Credit (EITC).[4] GAO found that insufficient documentation comprised a majority of Medicare (64 percent) and Medicaid (57 percent) fee-for-service improper payments.[5]

How Has the Federal Government Addressed Improper Payments? Since 2002, Congress has passed several measures to address improper payments, but tangible progress remains elusive. For example, the Improper Payments Elimination and Recovery Act of 2010 required improvements to agency improper payment estimation procedures and established recovery audit programs for the purpose of recapturing overpayments. Other attempts have been made to reverse the “pay and chase” model utilized by agencies across the federal government. This model prioritizes getting checks out the door quickly and determining after the fact whether payments were made in error. The result is a laborious and often costly process to attempt to recoup these already-spent payments, often with little success.

Solutions to Reduce Improper Payments. While there is not an easy, one-size-fits-all solution to reducing improper payments, GAO has concluded that the best way to address them is to establish best practices and procedures at the programmatic level to prevent them from occurring in the first place. To date, GAO has made numerous agency-specific recommendations to reduce improper payments, many of which have not been implemented. To decrease such irresponsible spending, it is critical that congressional authorizing committees use their oversight authorities to hold their respective  departments and agencies accountable for chronic improper payments and create incentives for better management of government resources.


[1] https://www.gao.gov/key_issues/reducing_government-wide_improper_payments/issue_summary.

[2] https://www.gao.gov/duplication/action_tracker/Government-wide_Improper_Payments_%282011-46%29/action1.

[3] https://www.whitehouse.gov/omb/historical-tables/.

[4] https://www.gao.gov/key_issues/reducing_government-wide_improper_payments/issue_summary.

[5] https://www.gao.gov/assets/700/697981.pdf.