This report summarizes the need to improve federal oversight of state Medicaid financial activities. The federal government and the states share responsibility for the fiscal integrity and financial management of the jointly funded Medicaid program. In fiscal year 2000, the Medicaid program served about 33.4 million low-income families as well as certain elderly, blind, and disabled persons at a cost of $119 billion to the federal government and $88 billion to the states for program payments and administrative expenses. Developing baseline information on Medicaid issues at greatest risk for improper payments and measuring improvements in program management against that baseline is key to achieving effective financial oversight. Determining the level of state activities in place to monitor and control Medicaid finances is also critical to determining the extent and type of control techniques as well as the amount of resources CMS must apply at the federal level to oversee the program adequately. Establishing clear lines of authority and performance standards for CMS oversight would also provide for a more efficient, effective and accountable Medicaid program.