A recently released US Government Accountability Office (GAO) report benignly titled “A Framework for Managing Improper Payments in Emergency Assistance Programs” serves as a forward-looking guide for policymakers responding to future emergencies. It also includes a number of extraordinary facts about how badly government programs were abused during the pandemic.
The following highlights what GAO found:
1. The pandemic saw a large increase in government benefits fraud, and fraud is likely to be an ongoing challenge in future emergencies.
The COVID-19 pandemic saw an increase in the frequency and volume of identity-related fraud, particularly in the areas of unemployment insurance and assistance to small businesses, as well as sophisticated fraud schemes. These developments will likely continue to challenge future federal emergency assistance efforts. [Page 1]
2. Federal agencies reported over $500 billion in estimated improper payments during fiscal years 2021 and 2022, which omits some of the peak months of pandemic spending.
Federal agencies reported about $281 billion in estimated improper payments for fiscal year 2021 . . . — and about $247 billion for fiscal year 2022. [Page 3]
3. Most government programs at risk reported improper payment rates of 10 percent or more.
For fiscal year 2021, agencies reported estimated improper payment rates of 10 percent or greater for 26 risk-susceptible programs and activities, which accounted for about 87 percent of the government-wide total of reported estimated improper payments. For fiscal year 2022, agencies reported estimated improper payment rates of 10 percent or greater for 17 risk-susceptible programs and activities . . . [Page 29]
4. As with other recent official estimates, those improper payment figures are conservative estimates.
We have found that the federal government is unable to determine the full extent to which improper payments occur . . . [Page 4]
5. The legislative response to the pandemic bears some blame for rising fraud.
Legislation to address emergencies can also introduce new risks. For example, a state auditor noted that when CARES Act legislation expanded unemployment insurance payments to independent contractors, staff did not have the means to conduct traditional employment verification for them. Some independent contractors who realized the state had no way to verify their unemployment may have been able to fraudulently claim they were unemployed, contributing to improper payments. [Page 16]
6. Self-certification of eligibility is especially problematic.
We and others have repeatedly found that self-certification can increase the risk of fraud, which may ultimately reduce the total amount of funds available to eligible individuals and businesses. [Page 16]
7. Programs must do a better job using available government data to ensure benefits are protected.
Agencies should proactively identify data they may need to verify applicant identity and eligibility and resolve any barriers to accessing data before an emergency occurs, including entering into data-sharing agreements. . . . For example, agencies can enter into Computer Matching Agreements, which permit federal agencies to conduct data matches with one another to establish or verify personal information. [Page 12]
8. Even verifying Social Security numbers proved a challenge during the pandemic, and the failure to do so resulted in billions of dollars in losses.
In January 2023, the Pandemic Response Accountability Committee identified $5.4 billion in potential identity fraud associated with 69,323 questionable and unverified Social Security numbers across disbursed COVID-19 EIDL and PPP loan program applications. The committee found that if SBA had been able to verify the accuracy of the Social Security numbers on borrower applications, it could have reduced the possibility of identity theft and ensured that benefits were paid only to eligible recipients. [Page 12]
9. Quickly paying benefits without verifying eligibility and then attempting to recover improper payments after the fact, often called the “pay and chase method,” is a recipe for disaster.
States made advance payments to individuals followed by post payment verification audits, which increased opportunities for improper payments, including those resulting from fraudulent activity. . . . One state official noted that relaxing this unemployment verification control cost the state hundreds of millions of dollars in improper payments. [Page 20]
10. Prepayment controls should be a priority and can help ensure benefits are paid both swiftly and accurately.
Prepayment controls can help prevent improper payments by identifying potential fraud and control deficiencies early, and they generally offer the most cost-efficient use of resources. [Page 22]
Tools such as data matching can provide some assurance against improper payments, while potentially allowing for more timely payments. [Page 20]