Introduction to GAO’s Fraud Loss Estimates
In the first-of-its-kind effort to estimate government-wide losses to fraud, the U.S. Government Accountability Office (GAO) issued a report that attempted to quantify the scope of the problem as an important step in effectively detect and prevent fraud. The report’s rough estimate – $233 to $521 billion lost to fraud each year – is based on data from fiscal years 2018 through 2022. The report illustrates the value of the whistleblower provisions of the False Claims Act, which are specifically designed to address a number of the challenges the report identifies.
Challenges in Fraud Detection
Despite the fact the federal government obligated almost $40 trillion during fiscal years 2018 to 2022, there are no reliable estimates of fraud losses to the federal government that existed before this analysis. Stressing the need for the project, GAO explained that “Reliably determining the extent of fraud in federal programs could help Congress, oversight entities, and agency officials better prioritize prevention, detection, and response resources.” GAO cautioned that the figure is likely incomplete and imprecise because of a lack of reliable data and the difficulty in discovering sophisticated schemes to defraud the federal government.
Methodology of the Fraud Estimate
GAO’s estimate was based on data collected from three different sources –the number of cases sent for prosecution and the value of closed cases; Office of Inspector General (OIG) semiannual report information; and fraud data reported to the Office of Management and Budget (OMB) by federal agencies. The data was organized based on three fraud categories –adjudicated fraud, detected potential fraud, and undetected potential fraud.
Limitations of the Study
The report cautioned that the study has some limitations. For example, the estimate does not include fraud affecting the federal government that occurs at the state, local, or tribal level unless federal authorities investigated and reported the fraud. The estimate also does not include nonfinancial losses from fraud or the value of nonfinancial benefits obtained from fraud. The report does not quantify fraud in specific programs, which involve different risk profiles, and GAO stressed that the analysis could not be used to predict future losses as factors including the amount of emergency spending, effectiveness of fraud risk management and the nature of new types of fraud could substantially impact the scale of fraud.
Proposed Reforms for Better Fraud Management
The report called for two reforms to develop better data on fraud in order to better manage fraud risk.
First, the GAO report recommends that the OMB, working with agencies and the oversight community including the Council of the Inspectors General on Integrity and Efficiency (CIGIE), should develop guidance to improve fraud-related data, allowing for a more uniform approach to data collection between federal agencies.
Second, the report recommended that the Treasury Department identify methods to expand government-wide estimates of fraud, with a priority on higher-risk programs.
The Role of Whistleblowers in Detecting Fraud
As the report notes, fraud is difficult to detect, investigate, and prove, and limits on agency resources dictate that they have to make choices about what fraud to pursue. Whistleblowers can be helpful with each of those challenges. They can be particularly instrumental in assisting the government with one of GAO’s three categories of fraud – potential fraud of which the government is unaware. The False Claims Act incentivizes private citizens to bring information about fraud to the government’s attention and to assist the government in collecting damages and penalties on the government’s behalf. The statute provides whistleblowers with financial rewards as well as job protection against retaliation. In fiscal year 2023 alone, the DOJ reported recoveries of $2.3 billion from cases initiated by whistleblowers. Since the 1986 amendments to the False Claims Act, over $75 billion has been recovered. While those figures are impressive, the GAO report highlights that there is much more to do.
Addressing the problems the GAO report highlighted will take a concerted effort on the part of government and the public. If you know of fraud, waste, or abuse of government funds, contact Phillips & Cohen for a free, confidential review of your potential case.
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