Government errors could mean big problems for contractors


Contractors could face suspension, debarment or financial penalties if they fail to return and report an improper payment made by the government…even if the improper payment is the government’s fault.

That’s what an executive order meant to curb the government’s rate of erroneous payments will say, Peter Orszag, Office of Management and Budget director, told reporters during a Nov. 17 briefing on the value of improper payments made by the government in 2009.

Currently, contractors face no penalties when the government discovers an improper payment was made. All contractors have to do is pay back the sum without interest or penalty. The executive order, which will be issued in the coming week, will change that by allowing agencies to suspend, debar and fine contractors that fail to report these payments. That will create strong incentive for contractors to be vigilant in monitoring their government payments, said Danny Werfel, the controller of OMB’s Office of Federal Financial Management.

Werfel said:

The way it works today is if we give a contractor money that they have not earned and they never report it to us, but we just so happen to find it through an audit, all they have to do is make us whole. There are no additional damages on top of that. And that’s what the executive order would pursue as a way of incentivizing contractors to immediately tell us where we made an error, so they’re part of the solution and not part of the problem.”

In sum, agencies misapplied $98 billion in federal funding in 2009, up from $72 billion in 2008. The payments were made on a variety of programs, such as Medicare, Social Security, veterans benefits, school nutrition programs, education grants, homeland security grants, unemployment insurance and other social programs.

The 36 percent, $26 billion jump is due to improved detection, stricter reporting rules and the increase in federal payments made in response to the economic downturn, Orszag said. All told, that’s an error rate of 5 percent on the nearly $2 trillion worth of programs measured in fiscal 2009. Not all of the improper payments resulted from fraud, however. In addition to government errors, other causes may be as innocent as a doctor’s illegible signature on a Medicare form, Orszag said.

In addition to penalizing contractors that fail to return improper payments, the pending executive order will curb improper payments by demanding agencies:

  • Establish a Web site to disclose and track the total amount of improper payments on a program. The Web site will include error rates by agency and program, and an email address for the public to report suspected waste, fraud and abuse.
  • Report on errors more than once a year (the current practice).
  • Designate a Senate-confirmed official to be accountable for meeting improper payment reduction targets. If the agency misses targets two years in a row, the agency’s head, chief financial officer and inspector general must give OMB a plan describing why the agency failed to meet its goals and what it will do to meet targets going forward.
  • Employ new management techniques, such as forensic auditing, to detect and prevent improper payments.
  • Share data with other agencies about entities or individuals that received improper payments because they weren’t eligible for the benefits. This will prevent that entity or person from receiving improper payments from other programs.
  • Establish plans to reduce program errors that do not interfere with payments to legitimate beneficiaries.
  • Create incentives for states, agencies, and recipients to report payment errors.

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