Improper welfare payments, including welfare fraud and abuse, are estimated to account for 9.2% of all federal welfare payments and total $101 billion in fiscal year 2023. The estimate stems from the Office of Management and Budget (OMB) [i] and the General Accounting Office (GAO) reports. Seven Welfare Programs [ii] make the OMB list of “High Priority Programs.” These programs have a high exposure to loss.
Improper Payments Are Huge
Total welfare fraud, welfare abuse, and improper payments of $101 billion are enormous. It is greater than the entire budgets of TANF, Head Start, Job Training, WIC, Child Care, Liheap, and the Lifeline Programs combined. The high level of Improper Payments stems from the complexity and uniqueness of income qualifications in multiple welfare programs. In addition, the reliance on users for income information causes errors. Finally, eight federal agencies run the programs, which cause unique databases and methods. Shown below are explanations by OMB of the causes of improper payments.
See the U.S. Welfare Programs Page for a summary of the United States Welfare System.
Welfare Fraud and Abuse Definition
Welfare fraud is the criminal deception of acquiring welfare benefits for personal gain. It is perpetrated against federal, state, or local governments. Welfare abuse can include fraud but is also used to describe the improper use of welfare that is not criminal. For example, a welfare recipient who uses welfare money to buy excessive alcohol is considered to abuse the system.
Improper Payment Definition
Improper Payments are described this way by the OMB [iii]:
“An improper payment is any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirement. The term “improper payment” consists of two main components (1) improper payments resulting in a monetary loss to the Government and (2) improper payments that do not result in a monetary loss to the Government. Monetary loss occurs when payments are made to the wrong recipient and/or in the wrong amount. Improper payments that do not result in a monetary loss include under-payments and payments made to the right recipient for the right amount, but the payment was not made in strict accordance with statute or regulation. Although working to reduce all improper payments is important, prevention of improper payments resulting in a monetary loss is the federal government’s highest priority.”
Types of Welfare Fraud and Abuse
Understating income is the most common method of welfare fraud. This allows individuals to qualify for welfare benefits when they otherwise would not. A common way to underreport income is not to report income earned in cash. This results in lower income taxes but can also help qualify people for welfare.
Additional welfare fraud occurs when individuals falsely claim that they have dependent children. For example, a divorced father might claim a dependent child that lives with the mother. This allows for payments under the refundable tax credit programs. Some of the more egregious welfare fraud cases involve collecting welfare on deceased people, creating fake identities, and identity theft. In each case, a welfare claim is filed under a false pretense.
Welfare fraud of a different type occurs when welfare recipients use the benefits falsely—for instance, using SNAP benefits to buy alcohol instead of food. This type of fraud often involves a conspiracy with others. In this example, food retailers.
Big Criminals
Some criminals in the past have acquired millions of dollars in welfare fraud. Generally, they have done this by creating identities of nonexistent people and successfully filing welfare claims. Here is an interesting website detailing such crimes.
Federal Law – Improper Payment Reporting
The OMB describes the reporting process as follows [iv]: “The Payment Integrity Information Act of 2019 (PIIA) (P.L. 116-117) and Appendix C to Circular No. A-123, Requirements for Payment Integrity Improvement require Federal agencies to report information related to improper payments. The information included on this website has been reported by agencies to the Office of Management and Budget.”
Federal agencies must report Improper Payments under a 2002 statute amended in 2010 [v].
Report Welfare Fraud – Use FraudNet
The GAO says this about reporting fraud: “GAO maintains the FraudNet hotline to support accountability across the federal government. If you suspect fraud, waste, abuse, or mismanagement of federal funds, FraudNet can help report your allegations to the right people. Here is the link.
Welfare Fraud and Improper Payments Table
The table below shows billions of dollars of estimated welfare fraud and Improper Payments by welfare programs. The table takes total expenditures by program and applies the Improper Payment percentage (detailed by program below).
$2.7 Trillion Overall Problem
Here are excerpts from the GAO fiscal year 2023 Report on overall Federal Government Improper Payments:
“Improper payments—payments that should not have been made or were made in the incorrect amount—have consistently been a government-wide issue despite efforts to identify their root causes and reduce them. In fact, the government still doesn’t fully understand the size of federal improper payments, partly because it doesn’t have complete, reliable, or accurate estimates.”
“Federal agencies made an estimated $236 billion in improper payments in FY 2023, and cumulative federal improper payment estimates have totaled about $2.7 trillion since FY 2003. “
“However, the $236 billion total does not include estimates for certain risk-susceptible programs, such as the Department of Health and Human Services’ Temporary Assistance for Needy Families program.”
Uncollected Taxes and Improper Payments Exceed $500 Billion Annually
The GAO reported in October 2015 [vi] that uncollected taxes by the federal government, plus fraud and improper payments made by the federal government, exceed $500 billion a year. That compares with a deficit in 2015 of $442 billion [vii]. The bulk of the errors stems from inaccurate reporting of household income.
The Problem of Income Reporting
The GAO explains the problem of income reporting as follows: “… the extent to which individual taxpayers accurately report their income is correlated to the extent to which the income is reported to them and the Internal Revenue Service (IRS) by third parties. Where there is little or no information reporting, such as with business income, taxpayers tend to significantly misreport their income.”
The tax code and individual welfare programs have complex and unique definitions of income. This exacerbates the income reporting problem. In addition, eight different federal agencies run the tax and welfare system.
Descriptions by Program
Shown below are descriptions of welfare fraud and Improper Payments by welfare programs. See the U.S. Welfare Programs Page for background information on individual welfare programs,
Medicaid
OMB reports a 8.58% Improper Payment rate related to Medicaid for fiscal year (“FY”) 2023. This is a high-priority program classified by the OMB. OMB describes the root causes of the errors as follows [x]: “The primary cause of Medicaid Improper Payments is insufficient documentation from states, mostly related to eligibility redetermination and verification, as well as provider screening, revalidation, and NPI requirements.”
Refundable tax credits
EITC and the Child Tax Credit make up Refundable Tax Credits. OMB reports a 33.47% improper payment rate for the EITC Program and a 14.48% rate for the Child Tax Credit Program in FY 2023. Both are high-priority programs as classified by the OMB. OMB describes the errors in both programs as follows [x]: “inability to authenticate qualifying child eligibility requirements and taxpayer income misreporting, and information needed to confirm payment accuracy is not available at the time the return is processed.”
SNAP
The USDA estimates an error rate in SNAP of 11.55% in FY 2023. The OMB classifies this program as a high-priority program and describes the errors as follows [x]: “administrative or process errors made by state or local agency.”
Housing assistance
OMB reports a 0% Improper Payment rate for rental housing assistance programs.
SSI
OMB reports a 9.2% Improper Payment rate for SSI in FY 2023. This is a high-priority program classified by the OMB. OMB describes the errors as follows [x]: “Reliance on timely self-reporting of employment and wage information.”
Pell Grants
OMB reports a 2.82% Improper Payment rate for the Pell Grant Program in FY 2023. This is a high-priority program classified by the OMB. OMB describes the errors as follows [x]: “Specific root causes include, but are not limited to, ineligibility for a Pell Grant and incorrect self-reporting of an applicant’s information that leads to incorrect awards based on Expected Family Contribution (misreported information).”
Child Nutrition
The school lunch, breakfast, and after-school food programs comprise the Child Nutrition Program. OMB reports the school lunch program had a 2.99% Improper Payment rate, and the school breakfast program had a 2.38% Improper Payment rate for FY 2023. The average of 2.69% was used for Child Nutrition as a whole. Both Programs are high-priority programs as classified by the OBM. OMB describes the errors as follows [x]: “Households may incorrectly self-report and administrative staff may miscalculate household’s application information resulting in miscertification. There are no dataset/database that include household-level information for each household application.”
TANF
The Health and Human Services Agency (HHS) has not estimated TANF Improper Payments. Here is an explanation as provided by the GOA [viii]: “Further, HHS reported it does not have the authority to obtain the information it needs to estimate or report improper payment information for its Temporary Assistance for Needy Families (TANF) program.” “HHS’s 2021 agency financial report identifies two statutory provisions in the Social Security Act that render HHS unable to require states to provide it with the data needed to develop a TANF improper payment estimate. Consistent with recommendations made by HHS’s Office of Inspector General, HHS has in previous budget proposals requested, but not received, such authority from Congress.”
The TANF Program includes very complex income and other qualification standards, which have proved difficult to control in the EITC, SSI, and Child Nutrition programs. In FY 2009, The Office of Family Assistance reported a TANF estimated Improper Payment rate of 9.3% from a review of several states [ix]. This rate was used as an estimate for the entire program, lacking a full program study. This is most likely a low estimate.
Head Start
OMB reports a 1.83% Improper Payment rate for the Head Start Program in FY 2023. This is a high-priority program classified by the OMB. OMB describes the errors as follows [x]: “Insufficient or Lacking Documentation From Vendor or provider.”
Job training
OMB reports a .9% Improper Payment rate in FY 2015 for the various programs in the Workforce Investment Act, which makes up a large proportion of Job Training. Nothing was reported for FY 2016 – 2022. In May 2016, the Office of Inspector General for the Department of Labor (DOL) issued a report including the following recommendation: “DOL included all the reporting requirements in its FY 2015 AFR; however, we continued to have concerns regarding the methodology DOL used to estimate improper payments in the FECA and WIA grant programs [xi].” A .9% Improper Payment rate was used for all job training. However, this estimate is most likely low.
WIC
OMB reports a 1.79% Improper Payment rate for the WIC Program in FY 2023. OMB describes the errors as follows [x]: “Overpayments outside the Agencies control – failure to access data/information needed.”
Child Care
OMB reports a 1.15% Improper Payment rate for the Child Care Program in FY 2023. OMB describes the errors as follows [x]: “Administrative or process errors made by state or local agency resulted in overpayments.”
LIHEAP
HHS has not issued an Improper Payment report regarding LIHEAP. The GAO reports that up to 9% of LIHEAP payments had problems associated with them in a review of payments made in 7 states [xii]. Some of the errors were simple omissions, but some were as severe as fraud. An Improper payment rate of 5.0% was used in the analysis, which is most likely a low estimate.
Lifeline (Obama Phone)
OMB reports a 2.18% Improper Payment rate for the Lifeline Program in FY 2023. OMB describes the errors as follows [x]: “Overpayments outside the agency control that occurred because of an Inability to Access the Data/Information Needed.”
Additional Information on Welfare:
Footnotes
[i] Data referenced OMB comes from PaymentAccuracy.gov. Improper Payments, a joint federal government website from the U.S. Department of the Treasury, in coordination with the U.S. Department of Justice and Office of Management and Budget (OMB). [Internet]. Data referenced as OMB Retrieved June 18, 2024. Available here. Improper Payments percentages and causes of Improper Payments are from the Numbers Page of the website unless otherwise noted.
[ii] Ibid. Program Scorecard Page of the website.
[iii] Ibid. About Page of the website.
[iv] Ibid. FAQ Page of the website.
[v] The statute is available here.
[vi] GAO Highlights. Fiscal Outlook. Addressing Improper Payments and the Tax Gap Would Improve the Government’s Fiscal Position. October 1, 2015. [Internet]. Retrieved May 4, 2022. Available here.
[vii] USGovernmentSpending.com [Internet]. Total deficit fiscal year 2015. Retrieved May 4, 2022. Available here.
[viii] United States Government Accountability Office. Report to Congressional Committees. COVID-19 Current and Future Federal Preparedness Requires Fixes to Improve Health Data and Address Improper Payments. April 2022. Page 28. Available here.
[ix] Office of Family Assistance. Erroneous Payment Initiative. Dear Colleague Letter, published March 16, 2009. [Internet] Retrieved June 18, 2024. Available here.
[x] Descriptions from OMB reports (see footnote i) from 2023 and prior years.
[xi] U.S. Department of Labor. Office of Inspector General, Office of Audit. DOL Could Do More to Reduce Improper Payments and Improve Reporting. May 13, 2016. Available here.
[xii] GAO report to Congress. LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM Greater Fraud Prevention Controls Are Needed. June 2010. Available here.