The Government Accountability Office (GAO) has for the first time estimated how much money the federal government loses to fraud each year.
This is an amazing number. The lower end is $233 billion per year, and the higher end is $521 billion per year. This equates to between 3 and 7 percent of the federal government's annual spending being lost to fraud.
“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,” said GAO Forensic Audits and Investigative Service Director Rebecca Shea on GAO’s Watchdog Report.
Fraud Calculations
GAO landed on the $233-$521 billion estimate by analyzing data from fiscal years 2018 through 2022, a period that straddled the Trump and Biden Administrations and included the beginning of the COVID-19 pandemic.
To get its estimate, GAO reviewed investigative data including cases that were sent to prosecutions, Office of Inspector General (OIG) semiannual report information, and confirmed fraud data reported to the Office of Management and Budget (OMB). When asked why the range is so broad, Jared Smith, chief statistician and director of the GAO’s Center for Statistics and Data Analysis, Applied Research and Methods, said that “it's hard to know exactly the amount of fraud that's available” as “most fraud goes undetected.”
However, Smith is confident. “We’re making a range; we’re able to account for that uncertainty and still have confidence in what we’re saying,” said Smith. GAO did not break out fraud numbers by agency and did not make any predictions about future trends. Still GAO says the estimates are useful and will help agencies realize the scope of the fraud problem and target resources appropriately, and provides a benchmark to measure return on investment. “Preventing fraud proactively, rather than chasing fraud and trying to recover funds that have already been drained. It's much more cost-effective to take that proactive approach,” Xia said. Stated.
Recommendations
GAO made two recommendations to OMB.
The first is our collaboration with the Council of Inspectors General on Integrity and Efficiency (CIGIE). OMB and CIGIE are being asked to “develop guidance regarding Office of Inspector General (OIG) data collection to support presumptions of wrongdoing.”
Second, OMB should “develop guidance regarding agency data collection to assist with inferring fraud.”
GAO also recommends that the Treasury Department, in consultation with OMB, expand the presumption of government-wide fraud.
OMB response
OMB quickly disputed reports of widespread fraud.
OMB Deputy Director for Management Jason Miller fired off a letter to GAO before the report’s formal release stating that the fraud estimate is a government-wide figure derived from a “simulation model” and not based on any estimated losses by individual federal programs. Miller said the data would “cause confusion” about federal spending and promote misleading generalizations that are unrelated to the facts.
