Office of Federal Financial Management Office of Management and Budget Improper Payments JFMIP May 8, 2017 Office of Federal Financial Management Office of Management and Budget

Root Cause Categories - Definitions OMB expanded the “Root Cause Categories” from 3 to 13 to help better identify the cause of improper payments at agencies. A situation in which an improper payment is made because the agency is unable to authenticate eligibility criteria. A situation in which a medical provider delivers a service or item that does not meet coverage requirements for medical necessity. When improper payments are the result of the design of the program or a structural issue. Where there is a lack of supporting documentation necessary to verify the accuracy of a payment identified in the improper payment testing sample. When an agency (Federal, State, or local), or another party administering Federal dollars, fails to verify appropriate data to determine whether or not a recipient should be receiving a payment. Errors caused by incorrect data entry, classifying, or processing of applications or payments. A situation that does not fit in any other category 13. Other 12. Inability to Authenticate Eligibility 11. Medical Necessity 10. Program Design or Structural Issue 9. Insufficient Documentation to Determine Administrative Process Errors 6. Made by Federal 7. Made by State 8. Made by Other Failure to Verify Data: 1. Death Data 2. Financial Data 3. Excluded Party Data 4. Prisoner Data 5. Other Data

FY 2016 Improper Payment Root Causes Government-Wide ($ in Millions)

Reasons for Improper Payment Type of Improper Payment Root Cause Categories – FY16 Results Reasons for Improper Payment Type of Improper Payment Overpayments ($ in Millions) Underpayments Total Program Design or Structural Issue $5,263.10 $14.23 $5,277.33 Inability to Authenticate Eligibility $33,294.50 $1,100.25 $34,394,75 Failure to Verify: Death Data $307.90 $14.54 $322.44 Financial Data $541.68 $52.46 $594.14 Excluded Party Data $22.24 $0 Prisoner Data $247.99 Other Eligibility Data $2,353.45 $72.70 $2,426.15 Administrative or Process Error Made by: Federal Agency $2,269.82 $842.32 $3,112.14 State or Local Agency $23,572.78 $268.87 $23,841.65 Other Party (e.g., health care provider, participating lender) $13,706.89 $8147.82 $21,854.71 Medical Necessity $8,148.45 $5.17 $8,153.62 Insufficient Documentation to Determine $43,600.83 Other Reason $563.34 $33.22 $596.56 $133,892.97 $10,551.58 $144,444.55

Root Causes and Corrective Actions Root Cause Category Corrective Action Examples Program Design or Structural Issue Legislative Proposal to alter the design or structure of the program. Inability to Authenticate Eligibility Earlier intervention to ensure compliance with rules and regulations in an attempt to lessen the need for verification. Failure to Verify Data Clarify/streamline guidance used to improve payment processing. Administrative or Process Errors System patches to allow for the ability to import data that needs to be verified before making a payment in one standard format. Medical Necessity Clarifying rules and amending regulations to allow for all medical record entries to be considered as supporting documentation. Insufficient Documentation to Determine Amending a regulation, clarifying requirements, reevaluating whether a documentation requirement is necessary, and possibly simplifying the requirement.

Elements of a Strong Corrective Action Responsive—Logically addresses the identified root causes behind the improper payments Proportional—Demonstrates an appropriate level of effort and resources allocated to mitigating the identified root causes, prioritizing those that pose the greatest risk Measurable—Annually meets established indicators of progress towards its stated goal

Examining Corrective Actions: Which one would you choose? EXAMPLE B Root Cause: Administrative Process Errors Dollar Associated (millions): $762 Corrective Action: Develop and implement software patches to existing e-payout distribution system that targets the most common processing error: CFAC verification (See AFR section X for more). Timetable: Ongoing; FY 18 develop the software patches; FY 19 introduce patches; FY 20 complete evaluation to measuring the IP reductions and determine additional steps to take. EXAMPLE A Root Cause: Administrative Process Errors Dollar Associated (millions): $762 Corrective Action: Ensuring compliance through annual OMB Circular A-123 internal control review processes as well as regular sample programmatic testing and convening necessary stakeholder meetings. Addressing any issues that may result from the internal control review process as needed. There is a possible legislative change we are exploring that could make significant progress in reducing the improper payment rate. Timetable: Ongoing/as needed.

Office of Federal Financial Management Office of Management and Budget Questions? Heather Pajak Hpajak@omb.eop.gov Office of Federal Financial Management Office of Management and Budget