Risk Management and Reducing Improper Payments: A Case Study of the U.S. Department of Labor

This report continues the IBM Center’s long interest in risk management with a specific focus on employing risk management strategies to reduce improper payments in the U S Department of Labor’s (DOL) Unemployment Insurance (UI) program. There is a long tradition of public management scholarship that has provided empirical support for the hypothesis that management matters for government performance. One specific management activity that has been growing in prominence in federal agencies over the last several years is risk management. More commonly used in private sector firms, risk management has recently been recognized as a valuable tool by public organizations.

Professors Greer and Bullock detail DOL’s innovative approach to improve outcomes and performance related to improper payments, which is an area of operational risk that has been identified as a legislative priority Public managers faced with operational risks, and more specifically, improper payments, can use the information presented in this report to improve, create, or adopt risk management strategies. These strategies can provide a set of tools for other agencies dealing with improper payments.

DOL and the state workforce agencies that adopted its strategies provide managers with examples of how they can propose and implement tools that address a variety of complex root causes of improper payments. The report also highlights the administrative challenges in solving complex policy problems that require cooperation between federal and state agencies. Understanding the strategies and methods DOL employs to address rising improper payment rates will enable other managers to develop similar practices and improve organizational performance. The accomplishments of DOL and the state workforce agencies it has worked with demonstrate how managers can comply with improper payment legislation and the associated requirements of the U S Office of Management and Budget (OMB).

This report serves as an excellent companion piece to recent IBM Center reports which examined other aspects of risk management that can help government agencies. In his report Ten Recommendations for Managing Organizational Integrity Risks, Anthony Molina examines an often overlooked aspect of risk, which is managing “organizational integrity” and striving to create ethical organizations. In Managing Risk, Improving Results: Lessons for Improving Government Management from GAO’s High Risk List, Donald Kettl examines the types of risk identified by the Government Accountability Office and how agencies can more effectively guard against such risks. In their report, Improving Government Decision Making through Enterprise Risk Management, Douglas W. Webster and Thomas H. Stanton discuss how agencies can more effectively deploy and use an enterprise risk management approach.

We hope that this new report will assist government leaders in better understanding the strategies and methods DOL employs to address rising improper payment rates and enable other managers to develop similar practices and improve organizational performance.