Factors such as the amount of emergency spending, the effectiveness of federal fraud risk management, and the nature of new fraud threats could substantially impact the scale of future fraud. Image: evan_huang/Shutterstock.com
By: FEDweek StaffThe GAO has estimated that fraud in federal programs causes losses in the range of $233 billion to $521 billion annually—about 3 to 7 percent of spending—in what it called the first such estimate of its kind.
The figure is the result of modeling using investigative data, such as the number of cases sent for prosecution and the dollar value of closed cases; figures in agency IG reports; and confirmed fraud data reported to OMB. GAO suggested that the estimate could be low since the data used “does not include fraud loss associated with federal revenue or fraud against federal programs that occurs at the state, local, or tribal level unless federal authorities investigated and reported it.”
The GAO however added several caveats to its findings, for example that the overall average figure “should not be applied at the agency or program level”; that the risk of fraud varies with “controls, growth or shrinkage of budget, and the emergence of new fraud schemes”; and that the studied period of 2019-2022 includes years of special pandemic-related spending, which has been found to be especially susceptible to fraud.
The GAO also cautioned that the estimate should not be compared with estimates on improper payments, which “are based on a subset of federal programs, using a methodology not designed to identify fraud” and which have limitations of their own.
Even given those limits, it said, “with a better understanding of the costs, agencies will be better positioned to manage the risk,” it said—for example, such estimates “can demonstrate the scope of the problem, improve oversight prioritization, and help determine the return on investment from fraud risk management activities.”
It added: “Factors such as the amount of emergency spending, the effectiveness of federal fraud risk management, and the nature of new fraud threats could substantially impact the scale of future fraud.”
In response, OMB said that while it “agrees with GAO that federal agencies must do a better job assessing and fraud risk,” it questioned the methodology used and stressed the importance of the pandemic spending portion of the period studied.
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