Agencies are required to periodically review all programs and activities and identify those that may be susceptible to significant improper payments, take multiple actions when programs and activities are identified as susceptible to significant improper payments, and annually report information on their improper payments monitoring and minimization efforts. The Department has not itself identified any programs or activities susceptible to significant improper payments.
The Department recognizes the importance of maintaining adequate internal controls to ensure proper payments, and the Department’s commitment to continuous improvement in the overall disbursement management process remains high. Each of the Department’s payment offices have implemented policies and procedures to detect and prevent improper payments. For FY 2021 and beyond, the Department will continue its efforts to ensure the integrity of its disbursements.
PAYMENT INTEGRITY INFORMATION ACT (PIIA) OF 2019 AND RELATED OMB GUIDANCE
PIIA was signed into law on March 2, 2020 with one intention being to serve as a more comprehensive Public Law for payment integrity legislation. As a result, three previous Public Laws for payment integrity were repealed (the Improper Payments Information Act of 2002, the Improper Payments Elimination and Recovery Act of 2010, and the Improper Payments Elimination and Recovery Improvement Act of 2012).
The Office of Management and Budget (OMB) is in the process of updating OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control (July 15, 2016), Appendix C, Requirements for Payment Integrity Improvement (June 26, 2018) for guidance to federal agencies related to PIIA, and has advised agencies to continue to follow the current version of OMB Circular A-123, Appendix C until the updated version is issued.
DEPARTMENT OF COMMERCE PAYMENT INTEGRITY ANNUAL REPORTING
Detailed information on the Department’s payment integrity monitoring, minimization, and recapture efforts is included in the Department’s FY 2020 Agency Financial Report, Other Information (Unaudited) section, Payment Integrity, at the following web link: https://www.commerce.gov/ofm/publications/agency-financial-reports.
DEPARTMENT OF COMMERCE KEY PAYMENT INTEGRITY EFFORTS
Improper Payments Risk Assessment Process: The Department annually assesses the effectiveness of internal control over financial reporting, in compliance with OMB Circular A-123, Appendix C. Furthermore, as scheduled, the assessment includes a review of internal controls over disbursement processes, including Department-wide sample testing of disbursements for improper payments and for appropriate internal control attributes. The most recent review performed indicated that internal controls over disbursement processes were sound.
Each of the Department’s bureaus/reporting entities periodically completes or updates, over a one to three-year period (depending on the size of the entity), improper payments risk assessments covering all of its programs/activities as required by OMB Circular A-123, Appendix C. These improper payments risk assessments of the entity’s programs/activities also incorporate improper payments risk assessments every three years of the control, procurement, and grants management environments.
Improper Payments and Recaptures of Improper Payments
The Department has extensive payment integrity monitoring, minimization, recapturing, and corrective actions efforts in place, including the identification of improper payments through bureau post-payment reviews, the Department’s Office of Inspector General (OIG) audits or reviews, Single Audit Act audits of grants/cooperative agreements, other grants/cooperative agreements audits, contract closeout reviews, grants/cooperative agreements closeout reviews, other audits or reviews, sample reviews of Department-wide sustained disallowed costs, and Department-wide sample testing of disbursements under internal controls testing.
The Department’s bureaus report improper payments and related recaptures information (recaptures information for improper payments of $10 thousand or more) to the Department’s Office of Financial Management (OFM) on a quarterly basis. OFM then tracks the improper payments of $10 thousand or more that have not been fully recaptured, and periodically throughout the fiscal year requests updates from the responsible bureaus on tracked, unrecaptured improper payments.
OMB Circular A-123, Appendix C provides guidance for agencies to determine if cost-effective payment recapture audits can be performed. The Department had been performing from 2005 through June 2017, primarily with contractor assistance, annual payment recapture audits of contracts/obligations for many of the Department’s bureaus/ reporting entities on a rotational basis. Annual payment recapture auditing was additionally performed by a contractor, effective 2011, for Department-wide grants and other cooperative agreements (i.e., financial assistance). In March 2018, the Department completed a cost/benefit analysis for contracts/obligations and for grants and other cooperative agreements and determined that it was not able to conduct a cost-effective payment recapture audit program (one in which the benefits, including recaptured amounts, exceed the costs) for the above noted categories. The Department continues to periodically evaluate if there are any categories of disbursements for which payment recapture auditing could be or could become cost-effective.
Improper Payments Statistical Sampling and Estimation Process
On February 9, 2018, the President signed into law the Bipartisan Budget Act of 2018, which included supplemental appropriations to many federal agencies for disaster relief purposes. The Economic Development Administration (EDA) was appropriated $600.0 million and the National Oceanic and Atmospheric Administration (NOAA) was appropriated $400.1 million.
For FY 2020, the Department was required to submit a statistical sampling and estimation plan to OMB and perform statistically valid sampling for FY 2019 disbursements of the above noted disaster funds received by NOAA, because the FY 2019 disbursements exceeded $10.0 million. The Department complied with all requirements through the services of a contractor. In FY 2021, the Department will perform the same process for FY 2020 disbursements of the above noted disaster funds received by NOAA. Furthermore, the Department will submit a statistical sampling and estimation plan to OMB and perform statistically valid sampling for FY 2020 disbursements of the above noted disaster funds received by EDA.
DEPARTMENTAL PAYMENT INTEGRITY INFORMATION INCLUDED ON PAYMENTACCURACY.GOV WEBSITE
The U.S. Department of the Treasury (Treasury), in coordination with the U.S. Department of Justice and OMB, established the PaymentAccuracy.gov website, located at https://paymentaccuracy.gov, to create a centralized location to publish information about U.S. government improper payments made to individuals, organizations, and contractors. This website also provides a centralized place where suspected incidents of fraud, waste, and abuse can be reported, and contains information about (1) current and historical rates and amounts of improper payments; (2) why improper payments occur; and (3) what agencies are doing to reduce and recapture improper payments.
Additionally, PaymentAccuracy.gov contains the Department’s data for overpayments identified in FY 2020 and overpayments verified as recaptured in FY 2020, through all sources. The website also contains information about the results of improper payment statistical sampling and estimation performed in FY 2020, and other Departmental payment integrity and fraud-related information, including payment integrity information that was included in the Department’s previous Agency Financial Reports (AFR) and that is no longer included in this fiscal year’s AFR payment integrity reporting for the Department.
WHAT IS AN IMPROPER PAYMENT?
Excerpt from OMB Circular A-123, Appendix C:
An improper payment is any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.
Incorrect amounts are overpayments or underpayments that are made to eligible recipients (including inappropriate denials of payment or service, any payment that does not account for credit for applicable discounts,1 payments that are for an incorrect amount, and duplicate payments). An improper payment also includes any payment that was made to an ineligible recipient or for an ineligible good or service, or payments for goods or services not received (except for such payments authorized by law).
In addition, when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment should also be considered an improper payment. When establishing documentation requirements for payments, agencies should ensure that all documentation requirements are necessary and should refrain from imposing additional burdensome documentation requirements.
Interest or other fees that may result from an underpayment by an agency are not considered an improper payment if the interest was paid correctly. These payments are generally separate transactions and may be necessary under certain statutory, contractual, administrative, or other legally applicable requirements.
A “questioned cost”2 should not be considered an improper payment until the transaction has been completely reviewed and is confirmed to be improper.
The term ‘payment’ in this guidance means any disbursement or transfer of Federal funds (including a commitment for future payment, such as cash, securities, loans, loan guarantees, and insurance subsidies) to any non-Federal person, non-Federal entity, or Federal employee, that is made by a Federal agency, a Federal contractor, a Federal grantee, or a governmental or other organization administering a Federal program or activity.
The term ‘payment’ includes disbursements made pursuant to prime contracts awarded under the Federal Acquisition Regulation and Federal awards subject to the 2 C.F.R. Part 200 – Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) that are expended by recipients.”
1 Applicable discounts are only those discounts where it is both advantageous and within the agency’s control to claim them.
2 The term ‘questioned cost’ is defined under the Uniform Guidance, 2 C.F.R. Part 200.84, as follows: “Questioned cost means a cost that is questioned by the auditor because of an audit finding: (a) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (b) Where the costs, at the time of the audit, are not supported by adequate documentation; or (c) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances.