More Focus on Improper Payments to Contractors Likely Means More Compliance and Reporting Requirements and Potential Cash Flow Impacts
Contractors and the government continue to struggle with the recent mandatory disclosure rules regarding over payments. A recent executive order likely will compound this struggle, increase contractor compliance and reporting of overpayments requirement, and potentially impact contractor cash flow.
On November 20, 2009, President Obama issued an executive order aimed at reducing improper government payments. This executive order follows a recent White House announcement that the federal government made $98 billion in improper payments in FY 2009, reflecting a 37.5 percent increase over the improper payments identified in 2008. Consistent with the Obama Administration’s efforts to increase transparency and promote accountability in government, the purpose of this order is “to reduce improper payments by intensifying efforts to eliminate payment error, waste, fraud, and abuse in the major programs administered by the Federal Government.”
This executive order requires that the Office of Management and Budget (“OMB”) and various federal agencies ensure that “the right recipient is receiving the right payment for the right reason at the right time.” Some of the most important aspects of the executive order are the following:
- The Director of OMB has 90 days from the date of this order to identify “high-priority programs”, those with the highest dollar value of improper payments, and to establish targets with the appropriate agencies for reducing these payments.
- Federal agencies operating a high-priority program must designate an official who holds an existing Senate-confirmed position to be accountable for meeting the targeted reduction in improper payments within 120 days of the date of this order.
- The designated officials from the agencies have 180 days from the date of this order to provide the agency’s Inspector General with a report containing the proposed methodology for identifying and measuring improper payments, as well as the plans for meeting the reduction targets.
- The Secretary of the Treasury, working with the Attorney General and the Director of OMB shall publish information about improper payments under high-priority programs, including the names of accountable officials, the amounts of improper payments, targets for reducing improper payments, and the entities that have received the greatest amount of outstanding improper payments within 180 days from the date of this order.
- Also within 180 days from the date of this order, the Federal Acquisition Regulatory Council, in coordination with the Director of OMB and other designated officials, must issue recommendations about how to enhance contractor accountability for improper payments. One possible recommendation would be to expand the contractor’s existing reporting obligations under the mandatory disclosure rule, located at FAR 52.203-13, to include improper payments. This could include imposing penalties on contractors that knowingly fail to disclose improper payments.
One likely result of this executive order is even more oversight over government contracts, as well as increased reporting requirements. In addition, agencies’ efforts to ensure the accuracy of payments may slow down the approval and the processing of payments.
Also, because each agency is tasked with establishing their own plans to limit improper payments, there may be significant differences between these plans from agency to agency. Contractors working with multiple agencies likely will need to remain informed about what requirements each plan imposes on contractors.
The executive order does not address what constitutes an improper payment, at what point should an improper payment be reported, and who makes the determination that a payment is improper. Also, it does not answer how the requirements of this order are to be reconciled with existing contractual provisions for reporting and addressing improper payments. Over the next several months, some of these questions may be answered and contractors should be vigilant in watching for more detailed directives from the agencies. In the meantime, contractors should be proactive and diligent in maintaining careful accounting and watching for payments that may be classified as improper.
For more information, please visit: http://www.whitehouse.gov/the-press-office/executive-order-reducing-improper-payments.
Print PDF