Improper Payments to Federal Contractors Rise Sharply. What Will it Mean for Vendors?

Improper payments by federal agencies has increased 36% in the past year according to an article in Government Executive.  Improper payments increased to $98 billion in FY 2009  up from $72 billion in FY 2008.   Office of Management and Budget (OMB) Director, Peter Orszag said the increase was caused by better measurement of improper payments, and increased federal expenditures due to the stimulus.

A large portion of the increase came from programs such as Medicare and Medicaid.  However other departments also contributed to this growth including the Department of Homeland Security.

It is expected that President Obama will issue an executive order sometime next week to include three components for addressing these improper payments:  “increased transparency and public participation, accountability at the agency level and incentives for compliance.”  Agencies will be expected to reduce improper payments on a year-over-year basis (currently they are only required to track these numbers).


Currently, vendors receiving accidental overpayments (and discovered by the government) are only required to pay back the government without interest or penalties.  The new executive order is expected to subject contractors to suspensions, fines and other penalties if contractors do not disclose overpayments.  



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