In September 2024, the GAO released a report on payment integrity, noting that “significant improvements are needed to address [the federal government’s] improper payments and fraud.” The GAO acknowledges that improper payments and fraud are “long-standing and significant problems in the federal government.” This level of fraud is extraordinary and often avoidable.

The private sector offers governments, nonprofits, and businesses substantial fraud prevention tools. While nonprofits and businesses do well in attempting to limit losses, the federal government can and should do better.

One leading fraud prevention tool is so-called “credit header” information, even though this information has nothing to do with credit. Still, the Consumer Financial Protection Bureau (CFPB) is aiming to sharply curtail the use of identifying information by calling it a “credit header.” No matter what you call it, consumers will suffer if you limit its use. Billions of dollars in improper payments and payments that result from fraud could be prevented if identifying information is used to prevent improper payments and fraud.

The levels of improper payments – and preventable improper payments — will blow your mind

Not only are the levels of fraud astounding ($235 billion in 2023 alone), but when you think about this fraud more deeply, taxpayers are being cheated out of trillions of their hard-earned dollars. People deserving of federal assistance are being stolen from. In some cases, fraudsters are literally stealing food from people’s plates. How? In 2022, LexisNexis Risk Solutions, a consumer reporting agency, took a deep dive into fraud committed against SNAP benefits agencies, and the fraud rates they found were staggering. It is both frustrating and heartening that much of this fraud could have been prevented with fraud mitigation solutions, particularly those that assess digital identity attributes to address online and mobile channel fraud detection challenges. (Read more here).

We have seen this movie before

I have written before about how the government can learn from and better use the tools employed by the private sector. For example, in November 2023, the Inspector General (IG) of the Pension Benefit Guaranty Corporation (PBGC) issued a Management Alert that the PGBC wasted $127m in government money to pay benefits to 3,479 people who were not eligible for those benefits. Simple data matching, something businesses do all day long, could have prevented these improper payments. (Read more here).

State governments are susceptible to fraud, too. Colorado was overrun by fraud during the COVID-19 pandemic. A state audit showed that over $100 million in overpayments were made there. Then, the state overcorrected, and in so doing, it wrongfully withheld the benefits legitimately owed to 5,000 out-of-work Coloradans. (Read more here).

Throughout the pandemic, the GAO said, “[a]gencies across the federal government acted quickly to stand up new programs and greatly scale up existing programs.” Yet, in moving fast, these agencies did not strategically manage fraud risks and were not adequately prepared to prevent fraud” during the COVID emergency. 

Returning to the September 2024 GAO report

According to the GAO’s September 2024 report, “six program areas were responsible for approximately $200 billion of the $236 billion fiscal year 2023 improper payments estimate: Medicare, Medicaid, Unemployment Insurance, the SBA’s Paycheck Protection Program (PPP), the Earned Income Tax Credit (EITC), and Supplemental Security Income (SSI). These six programs help some of the most vulnerable Americans.

Improper payments mean overpayments, underpayments, payments made to unknown people, and technically improper payments. While the last category was the smallest percentage of the four categories of improper payments in 2023, even at 2% of the total, it was a whopping $4.6 billion.

Fraud is more challenging to detect than improper payments. That is because fraudsters deliberately seek to hide their fraud and are constantly getting better at it. Sadly, while the private sector is doing all it can to keep up with the deluge of fraud, the federal government should take a page from companies that offer fraud prevention services. The money that goes out the door from the federal government because of failures to detect fraud is also mind-boggling. From 2018 – 2022, the estimate is between $233 billion and $521 billion.

GAO recommendations show how private sector tools will help consumers, the government, and taxpayers

The GAO’s recommendations will help consumers and taxpayers. An important recommendation concerns fraud analytics. The GAO recommends “a permanent analytics center of excellence to aid the oversight community in identifying improper payments and fraud.” Businesses build their products, services, and reputations around analytics to identify and prevent fraud. So should the federal government.

Another key recommendation is for Congress to amend the Social Security Act regarding sharing full death data. “Verification through data sharing [by allowing] SSA to share its full death data with Treasury’s Do Not Pay system, a data-matching service for agencies to use in preventing payments to ineligible individuals,” makes good sense. Data sharing, another tool common in the private sector, would do wonders for the feds. Importantly, identifying information, which some call credit header data, can help drive data matching to ensure that someone ineligible for benefits is not paid those benefits.

Conclusion

Improper payments by the federal government are a pernicious problem, and it is getting worse. Ditto for fraud against the government. Improper payments and fraud are taking money from taxpayers and cheating those trying to obtain legitimate, honest benefits. To help stem the losses, the government can employ tools and lessons from the private sector. Fraud prevention is what businesses call a Tuesday.

There is a serious threat to fraud prevention on the horizon, however. The CFPB is taking aim at so-called credit header data, which is just identifying information unconnected to credit. If the Bureau had its way, it would sharply limit the ability of governments, nonprofits, and businesses to prevent fraud in the first place. If you think government fraud is high now, wait until you see what’s next if key tools are taken away.