GAO Estimates U.S. Government Loses Upwards of $500 Billion Each Year to Fraud

How much does the U.S. government lose to fraud each year? According to a first-of-its-kind estimate from the U.S. Government Accountability Office (GAO), direct financial losses likely range between $233 billion and $521 billion annually.

The new figure is incomplete and imprecise, though—fraud data is notoriously underreported and unreliable, and fraud schemes are increasingly sophisticated and difficult to detect and investigate, the GAO warned. The estimate does not include fraud loss associated with federal revenue or fraud against federal programs that occurred at the state, local, or tribal levels, unless federal authorities reported it.

The GAO’s model to measure governmentwide federal fraud uses data from fiscal years 2018 through 2022, so it includes some pandemic-related spending, as well as high- and low-fraud programs. The GAO computed that fraud in those years may have reached as high as 7 percent of federal spending, with the highest spikes likely connected to COVID-19 relief fund abuse, The Washington Post reported.

The government watchdog agency also warns that the estimate is not based on a predictive model.

“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,” the report noted.

Even though the model is not meant to predict future fraud, the estimates can help improve fraud risk management by:

• Demonstrating the scope of the problem. “Fraud estimates provide information on the extent of fraud that is needed to effectively detect and prevent wrongdoing,” the GAO said. “By not understanding the scope of the problem, some may assume that a problem does not exist and, thus, not direct resources to stop fraud from occurring.”
  
  
• Improving oversight prioritization. “Fraud estimates could help prioritize oversight resources,” according to the report. “Reliably determining the extent of fraud—both frequency and impacts—in all federal programs could help Congress and agency officials prioritize fraud prevention and detection resources.”
  
  
• Demonstrating return on investment. “Fraud estimates can help demonstrate the return on investment of fraud risk management activities and, thus, help obtain additional funding for oversight of programs with the most need,” the GAO said.

The GAO made three recommendations for executive action in response to its findings, including two to the Office of Management and Budget (OMB) to develop guidance on the collection of more consistent data to support fraud estimation. It also made one recommendation to the U.S. Department of the Treasury to establish an effort to evaluate and identify methods to expand governmentwide fraud estimatio, further supporting fraud risk management.

The GAO's model drew sharp criticism even before its release yesterday, including from the OMB, which stressed that the estimate is based on a simulation model rather than “analysis of estimated losses by individual federal programs,” the Post reported. The GAO report is also likely to rile up lawmakers in Congress, where elected officials in both Republican and Democratic parties have lamented the state of the national debt—which reached more than $34.5 trillion this year.

U.S. Senate Democrats unveiled new legislation last week to crack down on fraud targeting federal programs, including investing around $675 million in new resources toward fighting identity theft.

“Identity theft long has dogged the government, but it emerged as one of the most costly, devastating scourges during the coronavirus pandemic,” the Post noted. “Criminals repeatedly relied on real Americans’ stolen information to bilk government programs that were supposed to help Americans who were out of a job or businesses at risk of closing their doors.”

Read more about identity theft trends and crimes in “Beyond Bankman-Fried: Analyzing the Occupational Fraud Problem,” “Frankenstein Fraud: How Synthetic Identities Became the Fastest-Growing Fraud Trend,” and “Haste Makes Waste: COVID-19 Fraud Capitalizes on Lack of Oversight, Controls,” all from Security Management.