Improper welfare payments, including welfare fraud and welfare abuse, are estimated to be 13.3% of all federal welfare payments. They total $162 billion in the fiscal year 2022. The estimate stems from the Office of Management and Budget (OMB) [i] and The General Accounting Office (GAO) reports. S the Welfare Programs make the OMB list of “High Priority Programs.” These are programs with a monetary loss greater than $100 million annually. Shown below is information on each program.
Improper Payments Are Huge
Total welfare fraud, welfare abuse, and improper payments of $162 billion are enormous. It is greater than the entire budgets of Pell Grants, TANF, Child Nutrition, 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
Individuals understating their income is the most common method of welfare fraud. This allows them 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. More.
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
Federal agencies must report Improper Payments under a 2002 statute amended in 2010 [v]. The OMB describes the process as follows [iv]: “Each department, agency, or instrumentality in the executive branch United States Government is required to report improper payments information to the Office of Management and Budget for publication on this website.”
Report Welfare Fraud – Use FraudNet
The OMB says this about reporting fraud: This website also provides information on where the public can report suspected incidents of fraud, waste, and abuse by an entity receiving Federal funds that have led or may lead to improper payments by the Federal Government. 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).
$2.4 Trillion Overall Problem
Here are excerpts from a GAO March 2023 Report on Federal Government Improper Payments:
“Improper payments—payments that should not have been made or that were made in incorrect amounts— continue to be an area of fiscal concern in the federal government. Since fiscal year 2003, cumulative executive agency improper payment estimates have totaled almost $2.4 trillion.”
“What GAO Found For fiscal year 2022, 18 agencies reported an estimated $247 billion in improper payments across 82 programs. Approximately 78 percent of this total (about $194 billion) was reported by five program areas: (1) Medicaid ($81 billion), (2) Medicare ($47 billion), (3) the Paycheck Protection Program ($29 billion), (4) Unemployment Insurance ($19 billion), and (5) Earned Income Tax Credit ($18 billion). However, the $247 billion total does not include estimates for certain risk susceptible programs, such as the Department of Labor’s Pandemic Unemployment Assistance program and the Department of Agriculture’s Supplemental Nutrition Assistance 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 15.6% improper payment rate related to Medicaid for fiscal year (“FY”) 2022. This is a High Priority Program as classified by the OMB. OMB describes the root causes of the errors as follows [ii]: 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 31.6% improper payment rate for the EITC Program and a 15.8% rate for the Child Tax Credit Program in FY 2022. Both are High Priority Programs as classified by the OMB. OMB describes the errors in both programs as follows [ii]: 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 7.4% in FY 2020. This is a High Priority Program as classified by the OMB. The USDA has not reported Improper Payments for fiscal years 2021 or 2022. OMB describes the errors as follows: “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 an 8.7% improper payment rate for SSI in FY 2022. This is a High Priority Program as classified by the OMB. OMB describes the errors as follows [ii]: “Reliance on timely self-reporting of employment and wage information.”
Pell Grants
OMB reports a 2.2% improper payment rate for the Pell Grant Program in FY 2022. This is a High Priority Program as classified by the OMB. OMB describes the errors as follows [ii]: “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 make up the Child Nutrition Program. OMB reports the school lunch program had a 1.5% improper payment rate, and the school breakfast program had a 2.1% improper payment rate for FY 2021. A 1.7% overall improper payment rate 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 [ii]: “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 conservative estimate.
Head Start
OMB reports a 0% improper payment rate for the Head Start Program in FY 2016 and has not reported a rate in FY 2017 – 2022. GAO recommended HHS reassess its procedures, saying, “HHS determined that its Head Start program was at high risk for several risk factors— including complexity per transaction and volume of payments—but did not document how these high-risk ratings informed its overall determination that Head Start was not susceptible to significant improper payments [x].
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 conservative.
WIC
OMB reports a 1.8% improper payment rate for the WIC Program in FY 2022. OMB describes the errors as follows: “Overpayments outside the Agencies control – failure to access data/information needed.”
Child Care
OMB reports a 1.3% improper payment rate for the Child Care Program in FY 2022. This is a High Priority Program as classified by the OMB. OMB describes the errors as follows [ii]: “Administrative or process errors made by state or local agency resulted in overpayments.”
LIHEAP
An improper payment report has not been issued by HHS regarding LIHEAP. The GAO reports 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 conservative estimate.
Lifeline (Obama Phone)
OMB reports a 6.1% improper payment rate for the Lifeline Program in FY 2022. Lifeline is a part of the Universal Services Fund, which is considered a High Priority Program as classified by the OMB. OMB describes the errors as follows: “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 4, 2023. 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 May 4, 2022. Available here.
[x] The United States General Accounting Office. Report to Congressional Requestors. Improper Payments. Selected Agencies Need Improvements in Their Assessments to Better Determine and Document Risk Susceptibility Report to Congressional Requesters. January 2019. Available here.
[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.