3.2: Fraud, Waste, and Abuse
Identify Fraud, Waste, and Abuse Other Information:
No one knows how much fraud, waste, and abuse cost the federal government each year, but evidence suggests the total is in
the hundreds of billions of dollars annually. GAO’s work over the past several years has demonstrated that improper payments
are a long-standing and widespread problem. Federal agencies’ estimated improper payments in fiscal year 2009 totaled about
$98 billion and involved over 70 programs, or 5 percent of the $1.9 trillion of reported outlays for those programs. On the
revenue side, the IRS estimated that, in 2005, the net annual tax gap—or the difference between the amount of tax that taxpayers
should pay and the amount they pay voluntarily and on time— was about $290 billion. GAO will continue to perform audit work,
including cutting-edge forensic audits and special investigations, targeted at programs across the government that are duplicative
or highly vulnerable to fraud, waste, and abuse, and improper payments. To identify and locate individuals and businesses
involved in fraud and abuse of federal programs, GAO uses data mining, covert testing, and law enforcement research tools
that include the Financial Crimes and Enforcement Network and the National Crime Information Center. GAO’s focus on preventive
controls is integral to GAO’s efforts in other strategic areas as well. For example, as discussed under Performance Goal 3.3.2,
GAO will seek to identify, and annually report on, programs, agencies, offices, and initiatives with duplicative goals and
activities. Further, as discussed under Strategic Objective 1.1, GAO will continue to examine vulnerabilities in the nation’s
health care programs, including controls in place to prevent improper payments associated with programs such as Medicaid.
Also, under our Goal 2, GAO will continue to focus on Departments of Defense and State programs and areas at high risk of
fraud, waste, and abuse. Across all of these areas, GAO will recommend concrete steps that can be taken by agencies and the
Congress to implement effective fraud prevention programs. Forensic audits and investigations: GAO’s ability to conduct forensic
audits and investigations of programs across the government puts the agency in a unique position. For example, in recent years,
GAO has used its forensic audits and special investigations to identify governmentwide fraud and abuse in areas such as: first-
and business-class travel by government employees, „„ the use of government purchase cards, „„ the transit benefit program,
„„ small business procurement programs, and „„ contractors and health care providers with billions of dollars of unpaid federal
taxes. Consequences resulting from investigations: An important element of the federal government’s ability to deter fraud
is to have consequences for those who fail to pay taxes or who commit fraud against the federal government. Forensic audits
are designed to identify ineffective controls and vulnerabilities to expose areas of fraud, waste, and abuse and, in some
cases, matters of security that clearly demonstrate the “real-world” effects of broken or inadequate controls. The audits
get the attention of the Congress and the public and result in positive change. Through forensic audits, GAO has identified
tens of thousands of cases of potential fraud and abuse and has referred these cases to the appropriate law enforcement agencies
and others for criminal investigation and administrative action. For example, after Hurricanes Katrina and Rita, GAO identified
over 23,000 cases of potential individual disaster assistance fraud and referred them to the Katrina Fraud Task Force and
law enforcement agencies. Although most individuals who committed disaster-benefit fraud may never be prosecuted, over 70
of the cases that GAO referred to the task force resulted in prosecution, with convicted individuals receiving prison sentences
as long as 6 years. These prosecutions and convictions vividly highlight the consequences of fraudulent activity and help
deter future fraud against the government. GAO’s future efforts: GAO will continue to coordinate and, where appropriate, work
closely with law enforcement agencies from federal, state, and local governments in conducting its investigations and developing
cases of fraud and abuse. GAO will also continue to work with the Congress to identify programs across the government that
are vulnerable to fraud, waste, and abuse, including those on GAO’s High- Risk List, to maintain accountability over hundreds
of billions of dollars in federal assets and program payments. The need for effective accountability controls over federal
grants has increased with the dramatic growth of grant awards—in 2009 alone, federal grants increased by an estimated 50 percent.
Medicare and Medicaid—which together provide health insurance for one in four Americans—were estimated to have made improper
payments totaling about $54 billion for fiscal year 2009, which is about 55 percent of the total $98 billion in reported improper
payments for that fiscal year. GAO’s work across the government has shown that fraud prevention—including controls that prevent
the improper and fraudulent disbursement of federal dollars—is the most efficient and effective means to minimize fraud, waste,
and abuse. Once federal dollars are disbursed fraudulently or improperly, the government is likely to recover only a few pennies
on the dollar. Thus, GAO will continue to focus its work on identifying vulnerabilities in agency preventive controls and
providing recommendations to improve them. Key areas of focus for the next 5 years include health care, the tax gap, procurement,
entitlement programs, and the Recovery Act. To support this work, GAO will use tips it receives on its FraudNET hotline, an
Internet-based operation that provides a secure means for individuals to confidentially communicate their concerns about possible
fraud, waste, abuse, mismanagement, and criminal activities in federal programs. To support efforts by the Congress and the
federal government to address these issues, GAO has established the following performance goals and key efforts:
Indicator(s):
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