Short answer: An improper payment is a payment that shouldn’t have been made or was made in the wrong amount. Under the Payment Integrity Information Act of 2019 (PIIA), agencies must review their programs, estimate improper payments in programs that are susceptible to them, report the results and take corrective action. Inspectors general review agency compliance each year.
What counts as an improper payment
Overpayments and underpayments both count, as do payments to the wrong recipient, duplicate payments, and payments for goods or services that weren’t received. When an agency can’t tell whether a payment was proper because the documentation isn’t there, it is reported separately as an “unknown” payment.
What PIIA requires
PIIA replaced earlier improper payment laws with one framework. OMB’s implementing guidance is memorandum M-21-19, issued as Appendix C to Circular A-123. In broad terms, agencies must:
- Assess risk. Review programs to identify those that may be susceptible to significant improper payments.
- Estimate. For susceptible programs, use a statistically valid method to estimate the amount of improper and unknown payments.
- Report. Publish the results, including the root causes.
- Act. Put corrective action plans in place and set reduction targets.
The law treats improper payments as significant when they exceed both 1.5 percent of program outlays and $10 million, or exceed $100 million regardless of the percentage.
The annual compliance review
Each agency’s inspector general reviews whether the agency complied with PIIA for the fiscal year and reports the result. Programs found non-compliant in consecutive years face escalating requirements, so these findings get attention at senior levels.
Where improper payments usually come from
- Missing or insufficient documentation to support eligibility or the amount paid.
- Eligibility that wasn’t verified against available data before payment.
- Administrative and process errors, such as duplicate invoices or data-entry mistakes.
- Weak controls over vendor setup and payment approval.
Practical steps that help
- Check eligibility and vendor data before money goes out, not after.
- Keep supporting documentation where testers can find it.
- Use recovery audits to find and recover overpayments already made.
- Track root causes over time so corrective actions target the real problem.
This article is a general overview for information only. It isn't legal, tax or accounting advice for your situation — talk to us about yours.