Department of Justice Process for Identifying, Preventing, and Recovering Improper and Erroneous Payments

Audit Report 05-19
April 2005
Office of the Inspector General

Appendix 2

Audit Criteria

Federal Legislation

Improper payments and recovery audits are described in Public Law No. 107-300, the Improper Payments Information Act of 2002 (IPIA), and in Public Law No. 107-107, the National Defense Authorization Act for FY 2002 (NDAA), Subchapter VI Recovery Audits. The IPIA called for the heads of federal agencies to identify programs and activities susceptible to improper payments, estimate the annual amount of improper payments and report that estimate to Congress, and when improper payments exceed $10 million, report the actions taken to reduce improper payments.

The NDAA primarily addressed recovery audits. Recovery audits are programs to identify errors and recover amounts improperly or erroneously paid. An agency is required to carry out a recovery audit program when its annual value of total contracts exceeds $500 million. Each agency is also encouraged to consider all resources available when establishing its recovery audit program.

Office of Management and Budget Policy Memoranda

The first OMB policy memorandum to address improper payments was Memorandum M-03-07, dated January 2003. This memorandum required agencies to establish a recovery audit program and report the progress made in reducing improper payments when the annual total value of its contracts exceeds $500 million. Agencies are required to provide information about recovery audit programs and progress in reducing improper payments, including:

  • steps taken to carry out a recovery audit program;

  • total costs of the recovery audit program, separately reporting the costs of the agency's recovery audit program activities and contracted recovery audit services;

  • the total amount of payment errors identified, total amount deemed not recoverable, total amount recoverable, total amount outstanding pending final collection;

  • a description and evaluation of any management improvement program carried out; and

  • a description of classes of contracts excluded.

Four months after M-03-07, OMB issued Memorandum M-03-13, defining significant improper payments to be total improper payments in a program exceeding both 2.5 percent of the program payments and $10 million. This memorandum made it mandatory for agencies to review and identify programs susceptible to significant improper payments, estimate the annual amount of significant improper payments, implement a plan to reduce those improper payments, and report this information in the annual PAR.

In July 2004, Memorandum M-04-20 was issued, which established the format for agencies to report IPIA activities and plans to reduce improper payments in the annual PAR. The report format required:

  • a risk assessment,

  • a description of statistical sampling used to estimate improper payments,

  • any corrective action plans,

  • an improper payment reduction outlook,

  • a description of the recovery audit effort,

  • a description of actions to ensure agency managers are held accountable for reducing improper payments,

  • a description of the adequacy of the information system and infrastructure, and

  • a description of any legal or regulatory barriers which could limit corrective actions in reducing improper payments.

Justice Management Division Policies and Guidance

Policies and guidance issued by JMD served as an additional source of audit criteria for our audit. These policies were generally in the form of memoranda and pertained to providing guidance to Department components in connection with the implementation of the federal legislation and OMB policies, referenced in the previous two pages. The policies followed those contained in OMB memoranda pertaining to IPIA reporting and recovery audits.

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