The Obama administration improperly paid out $434 million to Obamacare customers to pay down the cost of insurance in 2014, the first year the law’s health insurance marketplaces went online, a federal watchdog reported Monday.

Health and Human Services' Office of the Inspector General released a report Monday that outlined the improper payments during Obamacare’s first year.

In a review of 140 health insurance policies sold in 2014, the inspector general found that Centers for Medicare & Medicaid Services improperly paid out financial assistance payments for 26 policies.

For the other five policies, CMS authorized possibly improper financial assistance to insurers that didn’t provide the right documentation.

CMS was using an interim process for approving financial assistance payments when the exchanges first went online, before moving to an automated system in 2016. The payments in question include income-based tax credits to customers to lower premiums and cost-sharing reductions paid to the insurer to lower out-of-pocket costs for low-income customers.

The interim process worked by having Obamacare insurers submit a monthly template that contained the amounts that the insurer submitted for reimbursement based on the numbers of enrollees who had paid at least the first month’s premium for their plan.

But CMS didn’t have an effective process to ensure that financial assistance payments made it to enrollees who paid their premiums.

“Instead, CMS relied on [insurers] to verify that their enrollees were confirmed and to attest that the financial assistance payment information they reported on their templates was accurate,” the inspector general report said.

The inspector general estimated, based on its sample, that CMS authorized improper payments totaling $434 million for 461,127 policies. It also authorized potentially improper assistance payments of $504 million related to 183,983 policies.

The watchdog said that CMS and the Treasury Department needed to collect the improper payments and work to resolve whether the other payments were improper.

But CMS told OIG that it will not require Obamacare insurers to return improper financial assistance payments for policies “on which issuers acted in good faith, nor will it resolve potentially improper financial assistance payments for issuers that are out of business,” the report said.

CMS said in respons to the report that OIG extrapolated from a small number of policies to get to the $434 million figure.

"We disagree with OIG’s methodology in estimating the amount of improper financial assistance payments, both because of the extrapolation method used, but also because OIG did not take into consideration guidance that was provided to issuers at that time," the agency said.