Federal Government Loses Up to $521 Billion a Year Due to Fraud: GAO
The Government Accountability Office (GAO) just made its first-ever estimate of how much money the federal government loses each year due to fraud.
And it’s an eye-popping number: $233 billion a year on the low end to $521 billion a year on the high end. That amounts to anywhere from three to seven percent of annual federal spending 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 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,” said Shea.
Recommendations
GAO made two recommendations to OMB.
The fist is in collaboration with the Council of the Inspectors General on Integrity and Efficiency (CIGIE). OMB and CIGIE are urged to “develop guidance on the collection of Office of Inspector General (OIG) data to support fraud estimation.”
The second is that OMB should “develop guidance on the collection of executive agency data to support fraud estimation.”
GAO also recommends that the Department of the Treasury expands government-wide fraud estimation, in consultation with OMB.
OMB Response
OMB was quick to take issue with the broader fraud report.
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 says the data will “create confusion and promote misleading generalizations that have no factual connection” to federal spending.
