GAO Issues Report: Fraud Risk Management – Key Areas for Federal Agency and Congressional Action

WASHINGTON, April 17 -- The Government Accountability Office has issued a report (GAO-23-106567) entitled "Fraud Risk Management - Key Areas for Federal Agency and Congressional Action."

Here are excerpts of summaries associated with the report.

What GAO Found: "GAO's prior work has highlighted five areas in which federal agencies need to take additional actions to help ensure they are effectively managing fraud risks, consistent with leading practices in GAO's A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework).

GAO has recently made several recommendations to, for example, the Department of Labor (DOL) to improve fraud risk management in the Unemployment Insurance programs, including recommendations to assess fraud risks and to design and implement an antifraud strategy. DOL has begun taking steps to implement these recommendations, but its work remains incomplete. Completing these efforts would help DOL manage Unemployment Insurance fraud risks more effectively.

GAO's prior work has also identified actions that Congress can take to strengthen fraud risk management practices across the government.

* Reinstating the requirement for agencies to report on their antifraud controls and fraud risk management efforts in agency financial reports . In March 2022, GAO recommended that Congress amend the Payment Integrity Information Act of 2019 to reinstate certain reporting requirements. Requiring agencies to report annually on their antifraud controls and fraud risk management efforts will help facilitate congressional oversight and focus agency attention on strategic fraud risk management--both during normal operations and in emergencies--and help align their efforts with leading practices.

* Establishing a permanent analytics center of excellence to aid the oversight community in identifying improper payments and fraud . Inspectors General did not have access to a government-wide analytical capability to help identify fraud until more than a year after agencies began distributing relief funds. Without permanent government-wide analytics capabilities to assist the oversight community, agencies will have limited resources to apply to nonpandemic programs to ensure robust financial stewardship, as well as to better prepare for applying fundamental financial and fraud risk management practices to future emergency funding."

Why GAO Did This Study: "Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government. The increased flow of federal funds associated with the COVID-19 pandemic has increased opportunities for fraud. While the extent of fraud associated with COVID-19 relief programs has not yet been fully determined, available information indicates substantial levels of fraud and potential fraud occurred. For example, in December 2022, GAO reported that estimated fraud in DOL's Unemployment Insurance programs during the pandemic totaled over $60 billion.

To help federal program managers strategically manage their fraud risks during both normal operations and emergencies, GAO published the Fraud Risk Framework in July 2015. It provides a comprehensive set of leading practices that serve as a guide for agency managers to use when developing efforts to combat fraud. Since 2015, GAO has issued over 70 reports with numerous recommendations to help federal agencies manage their fraud risks.

This report highlights areas where GAO's prior work has shown that federal agencies and Congress can take action to help ensure effective fraud risk management."

What GAO Recommends: "From July 2015 through December 2022, GAO made 142 recommendations to over 40 agency or program offices related to one or more of the five key areas. As of January 2023, 74 of the recommendations had not been fully implemented."

The report was sent to Sen. Gary Peters, D-Michigan, chairman, Sen. Rand Paul, R-Kentucky, ranking member of the Senate Homeland Security and Governmental Affairs Committee, Rep. James Comer, R-Kentucky, chairman, and Rep. Jamie Raskin, D-Maryland, ranking member of the House Oversight and Accountability Committee, on April 13, 2023.

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April 13, 2023

To: The Honorable Gary C. Peters, Chairman, The Honorable Rand Paul, M.D., Ranking Member, Committee on Homeland Security and Governmental Affairs, United States Senate

The Honorable James Comer, Chairman, The Honorable Jamie Raskin, Ranking Member, Committee on Oversight and Accountability, House of Representatives

Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government./1 It contributes to financial and nonfinancial risks that waste taxpayer dollars, threaten national security, or put consumers at risk. Additionally, fraud--which involves obtaining something of value through willful misrepresentation--continues to add to the improper payments made by the government./2

The public health crisis, economic instability, and increased flow of federal funds associated with the COVID-19 pandemic have expanded opportunities for fraud. The extent of fraud associated with COVID-19 relief programs has not yet been fully determined. However, available measures and estimates indicate substantial levels of fraud and potential fraud occurred. For example, in December 2022, we reported that extrapolating the lower bound of the Department of Labor's (DOL) estimated national fraud rate for the regular Unemployment Insurance (UI) program for performance year 2021--which covers July 1, 2020 through June 30, 2021--to total spending across all UI programs during the pandemic would suggest over $60 billion in fraudulent UI payments./3 Further, based on findings from our prior work and other audits, we added three programs that account for a large portion of COVID-19 funding to our High-Risk List in March 2021 and June 2022, namely

* The Small Business Administration's (SBA) emergency loans for small businesses issued under the Paycheck Protection Program (PPP),

* SBA's COVID-19 Economic Injury Disaster Loan program, and

* DOL's UI program.

Managers of federal programs may perceive a conflict between their priorities to fulfill the program's mission, such as quickly and efficiently disbursing funds or providing services to beneficiaries, and taking actions to safeguard taxpayer dollars from improper use. However, proactively managing fraud risks can help facilitate the program's mission and strategic goals by ensuring that taxpayer dollars and government services serve their intended purposes.

The heightened fraud risks and prevalence of fraud in various relief programs during the COVID-19 pandemic underscore the imperative for federal agencies to manage fraud risks strategically. To help federal program managers strategically manage their fraud risks during both normal operations and emergencies, we published A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework) in July 2015./4 In June 2016, the Fraud Reduction and Data Analytics Act of 2015 (FRDAA) required the Office of Management and Budget (OMB) to establish guidelines for federal agencies to create controls to identify and assess fraud risks and to design and implement antifraud control activities. The act further required OMB to incorporate the leading practices from the Fraud Risk Framework in the guidelines./5 In March 2020, the Payment Integrity Information Act of 2019 (PIIA) repealed FRDAA but maintained the requirement for OMB to provide guidance to agencies in implementing the Fraud Risk Framework./6

Since we issued the Fraud Risk Framework in July 2015, we have issued over 70 reports with recommendations to federal agencies to align their efforts to manage fraud risks with leading practices from the Fraud Risk Framework or the fraud risk principle of Standards for Internal Control in the Federal Government (Green Book)./7

We prepared this report under the authority of the Comptroller General to conduct work to assist Congress with its oversight responsibilities. This report highlights areas where our prior work has shown that federal agencies and Congress can improve fraud risk management efforts.

To address our objective, we identified GAO reports issued from July 2015 through December 2022 that assessed agency efforts against one or more leading practices from the Fraud Risk Framework or the Green Book's fraud risk principle. We reviewed these reports to identify recommendations made to align agency efforts with these criteria. We determined the status of relevant recommendations as of January 2023.

We analyzed the content of the recommendations to identify broad areas in which federal agency actions to manage fraud risks could be improved.

We also reviewed the reports for examples of federal agencies meeting leading practices from the Fraud Risk Framework.

In addition to recommendations to various agencies, we identified recommendations to OMB and Matters for Congressional Consideration that could help improve federal fraud risk management efforts.

This report is based upon work we previously conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

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Footnotes and the full text of the GAO report are posted at: https://www.gao.gov/assets/gao-23-106567.pdf

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