May 6, 2016

Latest Improper Payments Figures Show a Continuing Problem

Summary

While people of good conscience on both sides of the political aisle can debate the merits of whether or not government should be involved in certain activities, policymakers should agree not to tolerate the high levels of improper payments currently associated with government spending on social welfare programs.

According to the federal government’s latest estimates, government programs for fiscal year 2015 paid out $137 billion “improperly”—meaning that these payments violated guidelines or rules in some way. Fraud is not the only reason, as the federal government reports. Rather, an improper payment can also result from simple clerical error or failure to confirm that a recipient was eligible to receive the amount of money that was disbursed. Whether due to fraud, the complexity of program rules, or bureaucracy, $137 billion is a significant amount of taxpayer funds. Federal spending has grown too massive for the government to provide adequate oversight.

The following chart presents improper payments made by the 16 programs that the Office of Management and Budget has labeled “high-error.” The chart ranks transfer programs that allocate at least $750 million in payments from those with the lowest improper payment amounts to those with the highest improper payment amounts. The chart also displays the total improper payment rates as a percentage of total program outlays for each program.

Some programs, like the Earned Income Tax Credit (EITC), have not only a high improper payment amount but also a relatively high improper payment rate. The $15.6 billion in improper EITC payments represents a substantial portion, 24 percent, of total EITC spending—suggesting that the EITC is particularly prone to waste, fraud, and abuse. As the chart shows, the National School Lunch and School Breakfast programs, Medicare Fee-for-Service, Medicare Advantage (Medicare Part C), and Unemployment Insurance face problems similar to the EITC.

Other programs, like the Social Security Retirement, Survivors, and Disability Insurance (RSDI) program, have improper payment amounts that are relatively high when compared to their improper payment rates. While $5 billion was improperly spent on Social Security benefit payments in 2015, the large overall amount of benefit payments made by the agency ($863 billion in 2015) means that the improper payment rate is only 0.6 percent. However, just because a program has a low reported rate doesn’t mean that taxpayers should be pleased. Programs that have seen expanded eligibility over the years (e.g., Social Security disability and food stamps) might have relatively low improper payment rates, but they are also distributing money to people under questionable—and in some cases, objectionable—circumstances.

It is worth noting that the federal government’s figures are only estimates, and there is reason to believe the government intentionally underestimates the amount of taxpayer dollars lost to fraud and bureaucratic ineffectiveness. For example, three of the largest programs in terms of improper spending amounts are all related to health care. Medicare Fee-for-Service, Medicare Advantage (Medicare Part C), and Medicaid combined for $86.5 billion in improper payments in fiscal year 2015. However, Malcolm Sparrow of Harvard University, a recognized expert in health care fraud, argues that federal auditors underestimate the volume of improper payments resulting from fraud. He believes fraud could account for as much as 20 percent of federal health spending, which would considerably increase the improper payment figure reported by the government.

Waste, fraud, and abuse squander public resources. Policymakers on both sides of the aisle recognize that the American people have little tolerance for waste, fraud, and abuse. Indeed, it is hard, if not impossible, to find a policymaker who doesn’t promise to constituents to eliminate government waste. While people of good conscience on both sides of the political aisle can debate the merits of whether or not government should be involved in certain activities, policymakers should agree not to tolerate the high levels of improper payments currently associated with government spending on social welfare programs.