The Real Cost of Fraud in Federal Government Programs

The Real Cost of Fraud in Federal Government Programs

Fraud hurts the integrity of federal programs and erodes the public’s trust in government. Fraud schemes are wide-ranging and occur when something of value is obtained through willful misrepresentation—for example, receiving a benefit or assistance from the federal government by lying to meet eligibility requirements.
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During the pandemic, federal assistance, much of it financial, was used broadly to help individuals, state and local governments, businesses and more to overcome the health and economic challenges posed by COVID-19. A major source of this assistance was Unemployment Insurance—an important safety net for workers who lose their jobs at no fault of their own. In response to the increased use of federal assistance and concerns about fraud, Congress asked GAO to investigate the prevalence of fraud in federal programs, specifically with the Unemployment Insurance program. Their findings were inconclusive because of the near-total absence of compliance and regulatory auditing. The deceptive nature of fraud makes it hard to detect without an ongoing internal audit program.
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The Council of Inspectors General on Integrity and Efficiency (CIGIE) provides an annual report on fraud to the President and Congress. In FY 2021, CIGIE estimated that its investigations recovered as much as $12.1 billion. Similarly, the Office of Management and Budget (OMB) has also reported annual estimates of fraud. In FY 2021, it reported $4.5 billion in confirmed fraud. However, this number may not include all confirmed fraud. For example, it didn’t include the estimated $1.1 billion in fraud reported by the Department of Defense (DOD) because the DOD Office of the Inspector General (OIG) only reported $0 in confirmed fraud to OMB.
Unemployment Insurance (UI) is a federal program that has proven to be especially susceptible to fraud. The UI system faces long-standing challenges with effectively serving the public and preventing fraud. But these issues worsened during the pandemic after four new UI programs were created to support workers legitimately impacted by COVID-19. About $878 billion was paid across all UI programs between April 2020 and September 2022. The unprecedented demand for benefits and the need to implement these new programs quickly increased the risk of fraud.
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Measuring levels of fraud within the UI system faces some obstacles similar to those previously mentioned when estimating fraud across the federal government. When looking at known fraudulent activity, the Department of Labor (DOL) reported at least $4.3 billion based on formal determinations of fraud by states. Another $45 billion in UI applications was flagged by the DOL’s OIG as potential fraud.
The DOL has also taken steps to estimate fraud across the UI system. It has reported fraud estimates of about $8.5 billion for regular UI payments (not including expanded COVID UI payments) for 2021. This was based on the DOL’s review of samples of regular UI claims. If the fraud rate found for regular UI applied across all UI programs during the pandemic, it would suggest at least $60 billion in fraudulent UI payments. However, the amount of uncertainty associated with this figure is very high.
Although current measures and estimates do not reflect the full extent of fraud, they do provide important insights on fraud risks in the UI system and could be used to help address them. And while fraud risks increased as a result of the pandemic, some will remain long after if not addressed.

How Oak Line can save federal agencies billions of dollars in waste, fraud and abuse.

Being Certified Compliant with ISO 31000 Enterprise Risk Management Standards, Oak Line can support federal organizations develop a fraud risk management program. To do this, Oak Line first identifies, assesses the impact of, and prioritizes fraud risks facing the UI system. With this understanding, we can help our government clients develop and implement an antifraud strategy that is consistent with leading practices for preventing fraud based upon a globally-accepted Fraud Risk Framework. Without these efforts, the federal government will hemorrhage billions of dollars, and even worse, lose credibility and the faith of the American people.

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