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Watchdog: Follow the Money

EXography: Ending improper federal payments could eliminate billions in waste and fraud

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Source: Mercatus Center, OMB Opinion,Watchdog,Columnists,Veronique de Rugy,Waste and Fraud,EXography,Follow the Money,Budgets and Deficits,MinusRelatedPhoto

Those worried that the federal government has gotten too big to manage likely weren't reassured in September when House Minority Leader Nancy Pelosi claimed there is nothing left to cut from the almost $3.8 trillion-a-year budget for fiscal 2014.

“The cupboard is bare. There are no more cuts to make. It's really important that people understand that,” Pelosi said during an interview on CNN's "State of the Union" news program.

In fact, President Obama's Office of Management and Budget reported in 2012 that the federal government misspent more than $100 billion in taxpayer funds that year.

That means 2.9 percent of what the government spent in 2012 was lost to overpayments to beneficiaries and money given to people who didn’t qualify for the support. And that’s just the improper spending that they caught!

To illustrate the scale of the problem, my colleague Jason Fichtner and I produced the accompanying chart.

Using data from the OMB's listing of high-error programs, the chart shows the amount and rates of improper payments from federal transfer programs.

It’s shocking enough to see how many tax dollars are wasted every year, but it’s even more shocking when you look more closely at the details.

First, this $100 billion spending in improper payments isn’t an isolated event.

Each year, OMB and Government Accountability Office reports have been pointed out billions of dollars wasted in improper payments. The annual numbers have not been getting much better.

From 2004 to 2012, the annual improper payments totaled between nearly $40 billion and just over $120 billion, with a $42 billion average between 2004 and 2007, and a $105.4 billion average from 2008 to 2012.

Second, health care programs top the charts in improper payment amounts. Medicare fee-for-service, Medicare Advantage and Medicaid wasted a combined $61.9 billion in 2012.

These high error rates in government-run health care programs come as the federal government is expanding its reach into the health-care market with the Affordable Care Act.

Amazingly, federal officials, including some congressmen, are resisting efforts to end wasteful spending in government and by Medicare providers, as Citizens Against Government Waste's Leslie Paige documented in detail.

“Medicare providers, particularly hospitals, which have for years received billions in improper overpayments, now fully appreciate that new auditing and recovery techniques dramatically inhibit the flow of those overpayments,” Paige said.

Third, though Medicare fee-for-service is the biggest drain in absolute terms — wasting nearly $30 billion in 2012 — it is far from the worst offender on a dollar-for-dollar basis.

The IRS-administered Earned Income Tax Credit gobbles up the biggest portion of its own budget on improper payments, wasting $12.6 billion, or almost a quarter of what the program spent, in 2012.

A 2013 Treasury Inspector General for Tax Administration report provided data on the scale of the problem. Between 2003 and 2012, the EITC accounted for between $110.8 billion and $132.6 billion improperly.

This report noted that a combination of factors, including taxpayer fraud and unscrupulous tax preparers, plus the increasing complexity of the tax code, are the primary drivers of improper EITC payments.

The IRS does not consider reducing improper EITC payments to be a priority, preferring instead to erect new education and licensing requirements for individual tax preparers.

But the new rules and licensing requirements were squashed when the U.S. Circuit Court of Appeals for the District of Columbia ruled that the IRS had no legal authority to impose a nationwide licensing scheme on tax-return preparers. Whether the IRS will take responsibility for its own poor stewardship of taxpayer dollars remains to be seen.

Finally, the Supplemental Security Income, which is administered by the Social Security Administration, has far fewer improper payments than might be expected, with only $4.7 billion misspent in 2012.

Also, Pell Grants have the lowest rate of improper payments as a share of program spending, at just 2.5 percent, but the program still manages to waste $800 million a year.

So, there is plenty of spending to be cut from the federal budget. When politicians in both major political parties are ready to kick their fiscal obesity, a good place to start is the government's improper payments.

VERONIQUE DE RUGY, a Washington Examiner columnist, is a senior research fellow of the Mercatus Center at George Mason University.
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Veronique de Rugy

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The Washington Examiner