Title: Our First-Of-A-Kind Estimate of Fraud in the Federal Government

Description: Our new report estimates, for the first time, the direct
financial losses from fraud across federal programs and operations. GAO
looked at a recent 5-year period and is estimating annual losses from
fraud to be between $233 and $521 billion dollars. We learn more about
these estimates from GAO's Rebecca Shea and Jared Smith.

Related Work: GAO-24-105833, Fraud Risk Management: 2018-2022 Data Show 
Federal Government Loses an Estimated $233 Billion to $521 Billion 
Annually to Fraud, Based on Various Risk Environments

Release Date: April 2024

{Music}

[Rebecca Shea:] Fraud may be the sixth largest agency that we are
funding annually, and that's a lot of money that could be going to
better use.

[Holly Hobbs:] Welcome to GAO's Watchdog Report--your source for
fact-based, nonpartisan news and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs. 
In recent years, the federal government has spent trillions of dollars
on programs and operations. While fraud may be inevitable with such
large spending--and with individuals and groups seeking personal gain--,
knowing more about how much fraud there is can help prevent it. Here at
GAO, we're issuing a new report that, for the first time, estimates the
direct financial losses from fraud across federal programs and
operations. We looked at a recent 5-year period and are estimating
annual losses from fraud to be between $233 and $521 billion dollars.
Joining us to tell us more about this estimate is GAO's Rebecca Shea, an
expert on fraud risks in government, and Jared Smith, our chief
statistician. They led this work on our new report. Thanks for joining
us.

[Rebecca Shea:] It's a pleasure to be here, Holly.

[Jared Smith:] Yeah, it's great to be here.

[Holly Hobbs:] So, Jared, we've made an estimate about fraud that kind
of has a broad range, right? It's between $233 billion and then more
than twice that amount. Why is it so broad?

[Jared Smith:] Yeah, it has to do with the uncertainty associated with
fraud, right? Most of fraud goes undetected. And so it's hard to know
exactly the amount of fraud that's available. But as the GAO, we want to
make a statement with confidence. And so we're making a range; we're
able to account for that uncertainty and still have confidence in what
we're saying.

[Holly Hobbs:] And, since you mentioned it, how confident are we with
our estimates?

[Jared Smith:] So we did a lot to build in the confidence estimate. This
is a hard job. And so what we did is first is get a lot of experts in to
help refine our approach. We got in experts in fraud, which is Rebecca's
team. In addition, a lot of technical experts--including a statistician
and actuary, data analysts, economists--who all look at the problem and
figure out, 'hey, given the data that's available, how can we get a
meaningful estimate?' And the estimation process itself involved
gathering the best data that we could that's available--different types
of data, all the way from things about investigations to convictions
involving fraud, and then building a model that could take that data and
leverage it to make a range that we could have some confidence as the
GAO and say, 'hey, this is where we think the fraud falls.' So it's not
that we're certain the fraud falls in that range, but we have confidence
that this is a number that reflects the severity of the problem.

[Holly Hobbs:] Rebecca, when we're talking about trillions of dollars in
spending and our estimate is in billions--is that a lot of fraud?

[Rebecca Shea:] Right? That context is really important. I think it's
important to note that the large majority of government spending is not
fraudulent. And that the amount of fraud that's going to happen it'll
vary across agencies and programs. That said, collectively, the taxpayer
is losing a significant amount to fraud every year annually. And for a
little bit of perspective on this relative to agency funding--the top of
our range is greater than the budget for all but the top five agencies.
And the bottom of our range, it's larger than the ninth largest federal
agency. So, the context for that, what we're seeing with this estimate,
is that fraud may be the sixth largest agency that we are funding
annually, and that's a lot of money that could be going to better use.

[Holly Hobbs:] So given we looked at a 5-year period, do we know if
fraud is getting worse?

[Jared Smith:] Yeah, so the 2018-2022 period was the focus of our
review. And from that we've generated our fraud estimate. But we didn't
do sort of a prediction into the future or a longer-term trend analysis.
But we do hope that this initial estimate can serve as a baseline for
future work. We might be able to answer that question.

[Rebecca Shea:] Yeah, and one thing that I'll add to that is that there
are known fraud risks associated with increased spending and quick
disbursements. And with the natural disasters that we've had, and the
financial crisis, and then most recently the pandemic program spending--
you know, this emergency spending concept, it appears to be a little bit
more of an enduring feature of federal budget. And agencies that do
better at managing fraud risk in normal operations, they're going to do
better and be better prepared when the emergency operations occur where
you have that heightened risk environment.

[Holly Hobbs:] Jared, were there areas, or agencies, or programs that
had more fraud?

[Jared Smith:] Yes. So for this effort, we looked (at a) government-wide
estimate and didn't target specific agencies or programs. GAO has done
other work that has identified higher amounts of fraud in particular
time periods or programs, as Rebecca alluded to, for example, the
pandemic. Also, we've done some specific estimation, for example, in the
UI program where we found, over $100 billion in fraud in that program.
In terms of a more granular estimate, we do think that would be useful,
and that's one of the reasons we have our recommendation to the Treasury
that as part of their operations, to take more steps that will help us
develop these sort of granular estimates in the future.

[Holly Hobbs:] So Rebecca GAO decided to do this work under our
Comptroller General Authority. Why are we estimating fraud? Why aren't
the agencies themselves doing it or their Inspectors General?

[Rebecca Shea:] Well, as you can imagine, this is a question that comes
up a lot. How much fraud is there in federal programs and operations?
And I think it's important to note this is not just an academic question
about how much fraud there is. Since 2016, agencies have been required
to implement certain specific policies and practices for better
preventing fraud, for managing fraud risk. But as our audits have
identified over the years, and as the Comptroller General has testified,
agencies have not made sufficient progress in that regard. And so, this
is true in normal operations, but it became really apparent with the
significant fraud that we saw in some of the pandemic programs. And we
have seen how other countries, like the United Kingdom, they've used
estimation to help drive improvements in fraud prevention. And we
believe that the same approach can be useful here. 

[Jared Smith:] Yes. And speaking also, why the other agencies aren't
involved in estimating fraud? One of the biggest pieces--they only have
a window into the fraud in their own areas. And so they're not equipped
to do the sort of government-wide estimation that GAO is with its
broader perspective. Also worth noting that some agencies do, do fraud
estimates in their area. For example, CMS has done some work identifying
areas higher risk for fraud using some predictive analytics. But that's
not common. And again, no one has the sort of scope to do the
government-wide estimate in the same manner, at least their OIG's don't. 

[Holly Hobbs:] Rebecca, we've also done quite a lot of work on federal
efforts to prevent fraud. How does estimating fraud fit into that
effort?

[Rebecca Shea:] With an estimate, it can help you in three key ways.
First, it provides you information about the scope of the problem.
Second, it can help you target resources like oversight and
investigations. And third, it can provide you a benchmark for measuring
return on investment. Once you know the scope, you can measure all of
the savings from the actions and investments that you've made in fraud
prevention against that benchmark. And that last issue, that is why this
estimate is not an end of the road for GAO and our work in this area.
Starting with that benchmark, we're now undertaking work to identify
what the return on investment can be and how can we measure that. We're
also looking at other incentives that can help drive more robust fraud
prevention efforts.

{MUSIC}

[Holly Hobbs:] So Rebecca and Jared just told us that fraud is a real
problem in federal spending, and that the government-wide estimates that
we created could be used to help better understand fraud and prevent it.
So, Jared, what more do we think the federal government or specific
agencies should be doing to improve their efforts to estimate fraud?

[Jared Smith:] We've recommended to Treasury that they explore other
options for calculating government-wide estimates. Also, one of the
reasons that we could only calculate a government-wide estimate and not
granular agency estimates is because we didn't have the data available,
right, to allow for those. And so that would be a big benefit to the
government--if it did have the data available to calculate those
granular estimates. And we talked to agencies, that's one of the things
we heard is, 'hey, a government-wide estimate might be useful. What we
really want to know is about the fraud in our area.' But right now the
data isn't available to do that. So one of our recommendations is to OMB
to work with the Inspectors General to gather ways to get that sort of
data right so that in a future effort you could do those more granular
estimates.

[Holly Hobbs:] And last question, what's the bottom line of this report?
Rebecca, maybe you could start.

[Rebecca Shea:] Well, maybe not exactly the bottom line of the report,
but the bottom line of the effort is that this is more of a midpoint for
us than an ending for GAO on trying to move the needle on the
government's ability to prevent fraud. Preventing fraud upfront, rather
than trying to chase it down and recover funds that have already gone
out--it's so much more cost effective to do that upfront approach 

[Jared Smith:] To add on to that, you know, measuring fraud is
difficult, but we think it's important. And we think our recommendations
will help allow for more accurate fraud measurement in the future in a
way that can help agencies sort of assess the problem. Fraud, with the
amount that we're estimating here, is not a reasonable cost of doing
business. We really can do better.

[Holly Hobbs:] That was GAO's Rebecca Shea and Jared Smith talking about
our new report on fraud estimates. Thanks for your time.

[Jared Smith:] Thank you.

[Rebecca Shea:] Thank you.

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To
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