The great government waste machine
The federal government makes billions of dollars in payments each year to individuals, businesses and organizations. But as we all know, not all of those payments are legitimate. Fraud, waste, and old-fashioned incompetence mean that huge sums are paid out in error. How much? According to the Manhattan Institute, enough to put a nice dent in the yearly deficit:
This year the federal government is projected to spend almost $4.1 trillion, with over $600 billion in deficit spending. According to a January Government Accountability Office (GAO) report and the White House’s PaymentAccuracy.gov, $144 billion was spent on improper payments last year. GAO reported that improper payments increased by $7 billion from FY 2015, mostly due to growing Medicaid costs. PaymentAccuracy.gov estimated that the rate of error was 4.7 percent.
But the improper payments may actually be much larger than estimated:
It is impossible under current law to know precisely how much money is wasted on improper payments. First, the official error rate cited above is only accurate if the government includes the Pentagon’s Defense Finance and Accounting Service Commercial Pay program. GAO noted in its report that OMB’s method of analysis on DFAS may not be reliable. Without including this program, the error rate would jump from 4.7 percent to 5.1 percent, since the agency spends $249 billion but has an alleged error rate of about $111 million.
Davis further explained that many programs are not required to report improper payments.
“Current law defines significant improper payments as gross annual improper payments (i.e., the total amount of overpayments and underpayments) exceeding (1) both 1.5 percent of program outlays and $10 million of all program or activity payments made during the fiscal year reported or (2) $100 million (regardless of the improper payment percentage of total program outlays).”
This means that many programs that have lower or higher error rates are simply not being reported.
How much of the federal government does not record improper payments? My calculation shows that 19.5 percent of the budget is not included in the GAO and PaymentAccuracy.gov estimates. Instead, the $144 billion comes from just 80.5 percent of the budget.
As many conservatives have long argued, government doesn't have a revenue problem, it has a spending problem. And a considerable portion of the spending problem appears to be money that should never have been spent in the first place.
How can this be fixed?
Many opportunities for significant savings are available, such as the annual GAO reports on duplication. According to former Senator Tom Coburn, a Manhattan Institute fellow, duplication wastes at least $200 billion per year. Tens of billions in annual health care and military-specific savings have also been targeted by various policy experts and politicians. OMB did not respond to multiple requests for comment as to how the administration plans to better hold agencies accountable to taxpayers.
Greater transparency, such as that seen in Senator James Lankford’s (R-OK) bipartisan Taxpayer Right to Know Act, could help elected officials, bureaucrats, and the public collaboratively identify where dollars are misplaced.
We would hope that congressional budgeteers looking or ways to trim spending would put agency accountability at the top of the list.