Stomping Out Fraud in Government

When you consider that each fiscal year the Federal Government appropriates trillions for projects, programs, and operating budgets, it is easy to see that there might be opportunities for misuse of funds. According to the Government Accountability Office, (GAO), a person commits fraud when they attempt to obtain something of value through willful misrepresentation. But what does that look like in day-to-day operations? Let’s examine some recent earth-shattering to seemingly minor examples that should put fraud in perspective.

Indictments for ‘Pay-to-Play’ Activities in Puerto Rico

Instead of helping the people of Puerto Rico recover and restore their electric power grid after the devastation caused by Hurricane Maria in 2017, two FEMA officials and a contractor saw this $1.8 billion objective as an opportunity for profit. Their astonishing exchange of outlandish financial and material gifts resulted in 15 Department of Justice indictments for: “conspiracy to commit bribery of public officials; acts affecting a personal financial interest; false statements; disaster fraud; honest services wire fraud, Travel Act violations, and wire fraud.” Warning: The details of this case are likely to make you question your faith in humanity.

Blatant Disregard for Eligibility Requirements

We have all heard how Head Start prepares low-income preschool children for school. A recent study at the University of California, Davis, documented the positive impact it has, particularly for children at the bottom of the achievement distribution and Spanish speakers. Although there are only a few eligibility requirements, a recent investigation conducted by the GAO found that less than half of its test cases had their eligibility determined correctly. Some of the information that should have disqualified students was disregarded, other applications were deliberately changed, and information that was required to be verified was not.

To remedy this situation, the GAO made the following recommendations to the Office of Head Start, which operates under the Department of Health and Human Services:

  • Perform a fraud risk assessment for the program
  • Explore options for additional risk-based monitoring
  • Communicate program-wide guidance on when a student’s slot should be considered vacant due to absenteeism
  • Establish procedures to monitor and evaluate new systems

It would be a shame to see a successful grant program disappear due to mismanagement.

Assessing Fraud Risk of School Meal Programs

In 2018, the Department of Agriculture (USDA) provided meals for approximately 44 million children through the National School Breakfast and Lunch Programs at the cost of $17 billion, but there had been a problem with improper payments over the past few years.

After reviewing their processes, the GAO reported that the USDA was not sufficiently assessing fraud risk. The USDA agreed to GAO’s recommendation to establish a process to plan and conduct regular fraud risk assessments for the school meals programs that align with the leading practices in the Fraud Risk Framework (illustrated below).

Source: U.S. Government Accountability Office

Are you beginning to see a pattern? In many cases, preventing fraud, waste, abuse, and mismanagement is about education, processes, supervision, and internal controls. Of course, in the situation in Puerto Rico, the problem was much more significant. Let’s look at what our government has done to stamp out fraud.

Legislature and Guidance for Addressing Fraud

The Fraud Reduction and Data Analytics Act of 2015 (FRDAA) set out to assess and mitigate fraud risks and to activate the use of data analytics to identify, prevent, and respond to fraud. To help managers combat fraud and preserve integrity in government, it mandated the implementation of the GAO Fraud Risk Management Framework, which mandates that agencies:

  • Commit to combating fraud by creating an organizational culture and structure conducive to fraud risk management
  • Assess fraud risk regularly to determine a fraud risk profile
  • Design and Implement a strategy with specific control activities to mitigate assessed fraud risks and collaborate to help ensure effective implementation
  • Evaluate and Adapt to improve fraud risk management by adapting activities and evaluating outcomes with a risk-based approach

In March 2017, the Comptroller General issued the highlights on a forum about Data Analytics to Address Fraud and Improper Payments, which explored opportunities for collaborating as well as establishing and refining analytics programs.

Do You Suspect Fraud?

By this time, you are probably wondering what you should do if you suspect fraud. FraudNet is a channel of communication established by the GAO that enables anyone to report suspected government fraud, waste, or abuse by email, phone, or web form. You do not have to be identified if you do not wish to be. Let’s hope you never need to use it.

Source: U.S. Government Accountability Office

Written by:
Natalie Komitsky
Financial Management
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