A federal watchdog found that 15 of the 20 largest federally funded, state-administered programs lacked documented evidence of comprehensive fraud risk assessments, while 22 recommendations aimed at strengthening safeguards remain unresolved.
By yourNEWS Media Newsroom
The federal government may be losing between $233 billion and $521 billion to fraud each year, according to a new Government Accountability Office report that found widespread shortcomings in how major agencies identify and manage risks involving taxpayer funds.
The GAO examined the 20 largest federally funded programs administered through state and local systems. Together, those programs accounted for approximately $1.1 trillion in federal obligations during fiscal year 2025, according to the watchdog’s report, Managing Risks in Federally Funded, State-Administered Programs.
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Investigators found that most of the responsible federal agencies had not completed documented fraud risk assessments, which are used to identify vulnerabilities, evaluate the likelihood and potential effect of fraud, and determine where prevention and detection resources should be concentrated.
Of the 20 programs reviewed, only five had documented evidence consistent with identifying potential fraud risks and evaluating their likelihood to prioritize action. The remaining 15 did not have comparable documentation.
“Information about fraud risks specific to each of the 20 selected programs varies, in part, because federal agencies have not fully assessed their risks,” GAO wrote.
The watchdog said formal assessments are a leading fraud-prevention practice because they allow agencies to focus their oversight efforts on the areas most susceptible to abuse.
“Identifying fraud risks and assessing the likelihood and impact of those risks is a leading practice that can help agencies determine where to target fraud prevention and detection efforts,” the report stated.
GAO identified 22 recommendations that remain open across the programs it reviewed. Those recommendations are intended to improve fraud prevention, address known weaknesses and strengthen protections for federal money distributed through state-administered systems.
The report urged agencies to apply GAO frameworks governing fraud risks and improper payments, use federal analytic tools such as Do Not Pay to verify identities and eligibility before releasing funds, and act on findings issued by GAO and other oversight organizations.
“Federal and state agencies can better manage fraud risks and prevent fraud by applying GAO frameworks for managing fraud risks and improper payments, as well as other leading practices; leveraging available federal analytic resources, such as Do Not Pay, to verify recipient identity and eligibility before issuing federal funds; and implementing recommendations from GAO and other oversight entities that would address existing program vulnerabilities,” the report said.
The watchdog repeated an estimate first published in April 2024 showing the possible scale of fraud throughout the federal government.
“In April 2024, we estimated that the federal government could lose between $233 billion and $521 billion annually to fraud, based on data from fiscal years 2018 through 2022,” GAO wrote in the new review.
The report said federally financed programs administered through states can be particularly difficult to oversee because funds pass through multiple layers of government and private organizations before reaching intended recipients.
“The decentralized nature of state-administered programs – in which states, local governments, contractors, sub-recipients, and beneficiaries all play roles in administering federal funds – can create opportunities for fraud,” GAO said.
Examples cited by the watchdog included a consultant convicted of submitting falsified permits connected to a $4.3 million airport improvement project. The report also described landlords receiving housing-assistance payments for units that were vacant while tenants failed to report their full incomes.
Another case involved an alleged student financial aid fraud operation with more than 1,200 applicants at over 100 educational institutions across 24 states.
GAO said the harm caused by fraud is not limited to the dollar value of stolen or improperly obtained funds. Fraud can also prevent agencies from carrying out programs, delivering services and accomplishing the purposes for which Congress authorized spending.
“Every dollar or resource diverted to fraudsters hinders the federal government’s ability to achieve its goals and provide needed services,” the report said.
The findings place renewed pressure on federal agencies to complete formal fraud risk evaluations and implement outstanding recommendations before additional taxpayer funds are distributed through vulnerable programs.
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