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

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

Statement on Compliance with Laws and Regulations

As required by Government Auditing Standards, we reviewed records and other documents pertaining to improper and erroneous payments to obtain reasonable assurance about each componentís compliance with applicable laws and regulations, that, if not complied with, could have a material effect on the Departmentís overall compliance with those laws and regulations. Compliance with laws and regulations applicable to improper and erroneous payments is the responsibility of each componentís management. An audit includes examining, on a test basis, evidence about compliance with laws and regulations. The legislation pertinent to this audit and the applicable regulations it contains are as follows:

Improper Payments Information Act of 2002 (Public Law 107-300)

This law requires agency heads to:

  • identify programs and activities susceptible to significant improper payments;

  • estimate the annual amount of improper payments and report that estimate to Congress; and

  • report the actions taken to reduce improper payments, including possible causes, whether the information system and infrastructure are adequate, a description of the resources requested if the information system and infrastructure were deemed inadequate, and a description of the steps in place to ensure agency heads are held accountable for reducing improper payments.

National Defense Authorization Act for FY 2002, Subchapter VI (Public Law 107-107)

This law contains requirements for recovery audits. Specifically, it:

  • requires all agencies with total contracts in excess of $500 million to carry out a recovery audit program for identifying errors and recovering amounts erroneously paid;

  • limits the availability of collected funds to reimburse actual expenses incurred by the executive agency in administering the program and to pay contractors for services provided under the program;

  • permits unused funds to be credited to appropriations, or if no appropriation is available, to be deposited in the Treasury as miscellaneous receipts;

  • requires agencies to consider all available resources when deciding on a recovery audit program, including the executive agency, other departments and agencies, and private sector sources; and

  • allows management to carry out improvement programs addressing problems that contribute to errors in paying contractors and in order to improve the recovery of overpayments.

Office of Management and Budget Memorandum M-03-07

This memorandum provided guidance on the implementation of Public Law 107-107. Specifically, it:

  • required agencies to implement a recovery audit program when the annual value in total contracts exceeds $500 million;

  • established reporting requirements for recovery audit efforts, which must include a description of the program including steps to carry out the program, total costs of the program, 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 programs carried out, and a description of classes of contracts excluded;

  • mandated that agency heads ensure that recovery audits do not result in a duplicative audit of contractor records;

  • requested agencies to question why errors are occurring and try to prevent them;

  • stated that ďagency Inspectors General and other external agency auditors are encouraged to assess the effectiveness of agenciesí recovery audit programs;Ē and

  • specified the disposition of recovered amounts.

Office of Management and Budget Memorandum M-03-13

This memorandum provided guidance on the implementation of Public Law 107-300. Specifically, Memorandum M-03-13 explained that it supersedes Section 57 of OMB Circular A-11 and that all improper payment reporting beginning in FY 2004 should follow this guidance. Also, this memorandum requires agencies to:

  • review all programs and activities and identify those susceptible to significant improper payment (significant improper payments are those in a program annually exceeding both 2.5 percent of program payments and $10 million);

  • estimate the annual amount of significant improper payments in all programs and activities, which is a gross total of both over and under payments;

  • implement a plan to reduce significant improper payments; and

  • report estimates of annual improper payments and the progress in reducing them in the Management Discussion and Analysis section of its PAR.

Office of Management and Budget Memorandum M-04-20

This memorandum provided guidance on IPIA and recovery audit reporting. Specifically, it:

  • required agencies to provide a summary including progress and plans to reduce improper payments in the Management Discussion and Analysis section of the PAR in order to comply with M 03 13;

  • provided details of the report format, which included a risk assessment; a description of statistical sampling used to estimate improper payments; corrective action plans; an improper payment reduction outlook; a discussion of the recovery audit effort; 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.

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Our tests revealed that the DOJ components we reviewed did not fully comply with the above laws and regulations, as detailed in the body of this report.

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