The Government's $600 Billion Pot of Gold?

Why you should care

Because D.C. might be able to have its cake and eat it too, fiscally speaking.

FIRST
100
DAYS
Smart analysis of the Trump presidency.Join OZY for regular dispatches, forward-looking analysis and smart commentary on the first 100 days of the Trump presidency.

President Trump’s first budget request landed with a thud in Washington last week, causing hand-wringing over the future of the National Endowment for the Arts, Meals on Wheels, climate change research and foreign aid. One of the motivations behind all the proposed cuts? To solve a math problem: Add $54 billion to the Pentagon budget while subtracting the same amount from spending.

But what if that money were already there for the taking, and Big Bird and biomass breakthroughs could be spared? Perhaps it could be. According to a U.S. House analysis last year, the federal government issued nearly

$600 billion in improper payments over a five-year span.

Before you get too excited about these lost pots of gold, know that “improper payment” does not necessarily mean loss. It designates underpayments as well as overpayments and payments to the wrong recipient and even payments that are misused. Still, the analysis, which uses data provided by agencies and was led by Rep. Jason Chaffetz (R-Utah), suggests some serious problems: government glitches, vendor fraud, rubber-stamping. It pegs Department of Health and Human Services as the worst offender, with $363 billion of improper payments from 2011 to 2015 — stemming mostly from Medicare and Medicaid. The Department of Veterans Affairs reported stunning error rates above 50 percent for two of its health care programs.

And there will be pennies from heaven.

Elvis Oxley, consultant

Any hope of recouping those taxpayer funds? Definitely, according to consultant Elvis Oxley, who represents a group of companies called Recovery Audit Contractors. Working on a 15 to 20 percent commission, RAC unleashes proprietary software on an agency’s payment system to identify possible mispayments: identical amounts to the same vendor for work performed on the same day, an invoice number used twice, a fictitious ZIP code. After humans review the machine-flagged payments, the recipient gets a letter requesting more verification — or a check made out to Uncle Sam. The government can twist arms further as necessary.

RAC companies have clawed back Medicare payments on a limited basis for a few years. Now Oxley is trying to convince the White House’s Office of Management and Budget to bring the contractors in to audit each agency. “And there will be pennies from heaven,” he says. (OMB did not respond to a request for comment.)

If agencies can wring billions of savings over multiple years to satisfy the Trump administration’s cutting requests, they can spare the programs they care about. But most of the potential savings come from programs that, like Medicare, aren’t on the chopping block. The Department of Transportation identified a 0.81 percent payment error rate in 2015. Trump wants to cut the agency’s budget by 13 percent.

And the numbers can be misleading by adding in when the government didn’t pay enough. School lunches and breakfasts have high error rates, but nearly one-third of their errors in a 2012–13 analysis were underpayments. “It is important to keep in mind that not all improper payments are fraudulent or represent a loss to the government,” Obama administration OMB controller David Mader told Congress last year. He pointed out that paperwork errors are factored in, even if the payment is later found to be on the up-and-up. Overall, the government’s estimated error rate is under 5 percent.

And yet, the House report’s $600 billion figure might even be low: Several agencies are slacking on reporting their flubs to Congress, and the Department of Defense’s inspector general found the Pentagon’s error estimates “unreliable.” There can be internal inertia against a painful process. “Nobody really likes to be told they were wrong or inefficient or, in the worst-case scenario, culpable in fraud,” Oxley says. Congress isn’t going to approve Trump’s budget request outright, but it sent a clear message to agencies to pinch their pennies. Here’s a start.

*An earlier version of this story has updated to reflect Oxley’s correct working title as a consultant.

Recommended Stories

Sponsored By sap

Recommended Stories

Sponsored By sap

OZYAcumen

Numbers and factoids --- fodder for your next cocktail party.