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The Surprising Truth About Government Fraud

US Politics & Gov't  (tags: americans, congress, corruption, cover-up, crime, dishonesty, economy, government, Govtfearmongering, lies, media, propaganda, socialsecurity )

- 1769 days ago -
Government programs, from food stamps to Medicare, don't have unusually high fraud rates -- and the culprits are usually managers and executives, not "welfare queens."

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Kit B (276)
Saturday August 17, 2013, 9:56 am
Photo Credit: clementine gallot/Flickr

I’ll never forget the day after Christmas 2005, standing alongside my car, which was tilted at a 45-degree angle in the ditch that passed for a curb alongside a pitted, crumbling road. As the sky darkened, not a light glowed anywhere within sight; neither a single police car nor any other sign of public authority appeared for hour after gloomy hour. I was in post-Katrina New Orleans.

I’d been asked by the State of Louisiana to advise on the design of programs to aid homeowners dispossessed by the hurricane -- what ultimately became known as the “Road Home” program. I don’t claim to know much about housing policy, but I do know about the ways governments screw things up. I quickly recognized a classic case in the making.

The receding waters in the Gulf had left behind the conditions for a perfect storm of fraud: hundreds of thousands of poor people clamoring for billions of dollars of federal aid that needed to get out the door as quickly as possible. As a result, post-Katrina discussions were shaped by the perceived need to ensure multiple safeguards and to move slowly in releasing the intended aid.

I thought that was backward. If the money were made more easily available, there would have been more fraud. But if the program had stated upfront that ill-gotten gains would be met with fierce investigation and prosecution on the back end, it could have distributed the cash faster, enabling more people to rebuild their homes, and their lives, much quicker. Instead, it was two to three years before most victims started receiving any money. Two and a half years after the storm, nearly 40 percent still had not received a cent.

Meanwhile, there was fraud anyway. The federal government reported about $500 million of it -- or a little less than 10 percent of the total aid payout. Most of this wasn’t undeserving poor people ripping off the system just so they could get a new house in one of the grimmest neighborhoods in the country. More frequently, it was undeserving middle-class people ripping off the system to pocket the money for themselves. It turns out fraud was rampant among officials at government agencies and even charities. The resulting federal report was so scathing that some of these folks actually gave back $18.2 million in fraudulent gains; no one knows how much more disappeared. Those who did properly receive payments were often ripped off by shifty contractors and, as a result, never able to rebuild their homes.

None of this was unique or unpredictable, however -- because the problem with fraud isn’t government programs or beneficiaries. It’s that fraud losses are a cost of doing business in just about everything.

According to the Association of Certified Fraud Examiners (ACFE), the typical business loses 5 percent of its revenue to fraud each year. Even when detected, 40 to 50 percent of victimized companies don’t recover their losses. The industries most likely to be victims of fraud are the banking and financial sector; government and public administration; and manufacturing. I can’t quite figure why manufacturing is on the list, but it’s easy to conjecture that banks and governments are frequent targets of fraud because they’re in the business of handing out money. But as ACFE reports -- and as we just saw in the Katrina example -- it’s usually managers and executives who commit the worst fraud.

It’s not easy to get agreement on actual fraud levels in government programs. Unsurprisingly, liberals say they’re low, while conservatives insist they’re astronomically high. In truth, it varies from program to program. One government report says fraud accounts for less than 2 percent of unemployment insurance payments. It’s seemingly impossible to find statistics on “welfare” (i.e., TANF) fraud, but the best guess is that it’s about the same. A bevy of inspector general reports found “improper payment” levels of 20 to 40 percent in state TANF programs -- but when you look at the reports, the payments appear all to be due to bureaucratic incompetence (categorized by the inspector general as either “eligibility and payment calculation errors” or “documentation errors”), rather than intentional fraud by beneficiaries.

A similar story emerges with everyone’s favorite punching bag, food stamps (or, as they’re known today, SNAP). Earlier this year, Senator John Thune of South Dakota and Rep. Marlin Stutzman of Indiana, both Republicans, introduced legislation to save $30 billion over 10 years from SNAP, purportedly by “eliminating loopholes, waste, fraud, and abuse.” Once you dig into their fact sheet, however, none of the savings actually come from fraud, but rather from cutting funding and tightening benefits. That’s probably because fraud levels in SNAP appear to be as low as with the other “pure welfare” programs we just touched on: “Payment error” rates -- money sent in incorrect amounts and/or to the wrong people -- have declined from near 10 percent a decade ago to 3 to 4 percent today, most of it due, again, to government error, not active fraud. The majority of food-stamp fraud appears to be generated by supermarkets “trafficking” in the food stamps. Beneficiaries intentionally ripping off the taxpayers account for perhaps 1 percent of payments.

No one knows for sure how much Medicaid and Medicare fraud there is. According to the FBI, the cost for Medicare fraud is anywhere from 3 to 10 percent, while Attorney General Eric Holder estimates $60 to $90 billion in fraud in Medicare and almost the same amount in Medicaid fraud -- approaching 20 percent. While nowhere near as large as Medicare and Medicaid, the Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) programs are each estimated to be paying about 10 percent of their expenditures in fraudulent claims.

To round out the picture, you can toss in defense contractor fraud -- perhaps as much as another $100 billion per year, roughly in the same range as Medicare and Medicaid combined. All told, fraud in federal programs may come to $300 billion a year or about 10 percent of the budget (as with financial services). Simply cutting that in half, to the average fraud levels in the private sector -- which, as we’ve seen, the federal government has done in recent years with error rates in SNAP – would achieve as much in savings as the entire sequester. Fraud doesn’t consume government, and eliminating it -- as I previously discussed with waste -- won’t solve the deficit problem.

But it would help. A number of techniques have been developed for identifying fraud and its perpetrators:
•Tap the profit motive. Florida uses private-sector audits conducted in return for a portion of the money recovered from fraudsters.
•Cross-reference benefit-recipient lists. Cross-referencing databases of social benefit recipients can cut down on fraud, such as recipients who did not disclose income from one programs that would make them ineligible for another; prisoners collecting benefits to which they are no longer entitled, like unemployment; or those who are simply dead.

•Use new technologies. Artificial-intelligence detection systems are programmed to learn normal billing patterns and identify aberrant billing activities. The systems can also identify collusion between provider networks.

•Do it the old-fashioned way -- just more. Research has shown that the typical anti-Medicaid-fraud worker recovers, on average, $200,000 per year. As unpopular as it is to say, sometimes hiring more government workers saves taxpayer money.

•Enlist beneficiaries in fighting fraud. This may sound heretical to government-haters, but the fact is that any program’s intended beneficiaries aren’t the problem -- they’re the stakeholders. Road Home beneficiaries reported fraudulent claimants. Medicare and Medicaid patients have been enlisted to spot billing fraud.

And that takes us back to the main point: For the most part, fraud isn’t the product of scheming low-income beneficiaries -- Mitt Romney’s 47 percent -- living high on the hog on your dime, but rather someone other than the beneficiary standing to make a buck off it. Medicare and Medicaid fraud is largely committed not by patients -- very few people are trying to rip off taxpayers to obtain unneeded spinal taps or root canals -- but by providers: unscrupulous (or sometimes just incompetent) doctors and hospitals billing for procedures the patient didn’t need or didn’t receive.

A landmark 2012 study in the Journal of the American Medical Association not only found that fraud rates are consistent across both government programs and wholly private health care; it also concluded that a “less harmful strategy” than the “common” approach “to contain costs us[ing] cuts, such as reductions in payment levels, benefit structures, and eligibility” would be to “reduce waste” -- mostly on the provider side. “The savings potentially achievable from systematic, comprehensive, and cooperative pursuit of even a fractional reduction in waste are far higher than from more direct and blunter cuts in care and coverage.”

Combatting fraud requires efforts and investments that target the real perpetrators, not cheap shots at beneficiaries and reflexive cuts in their programs. There are, after all, equal levels of fraud and theft in other fields, most notably finance -- but we don’t try to reduce it by shutting down the entire industry and blaming the customers.

By: Eric Schnurer | The Atlantic |

John C (75)
Saturday August 17, 2013, 10:15 am
Great article! Thanks!

Arielle S (313)
Saturday August 17, 2013, 10:33 am
Bravo! It has been my experience most of the time that poorer people are also very honest and giving. There will always be the few who take advantage of a good thing but it's hardly the epidemic some would have us believe.

Stephen Colbert talked about the average food stamp allowance being $134 a month. Just enough he said, to buy a foot-long Subway - eat three inches for breakfast, three inches for lunch, 4 inches for dinner and the plastic bag for dessert. Certainly worth staying home from work and milking the government for that.


Kit B (276)
Saturday August 17, 2013, 11:13 am

So true Arielle. For the pittance of money involved few can be bothered with the efforts required to perpetuate a fraud. More people are now on SSDI, not because they are defrauding the system, not at all an easy task, but there are more people. I know we are not supposed to draw a conclusions about such things, but I have to wonder how many problems are directly related to the increased consumption of pollution. Air, water, soil, and food is heavy with toxins and people are sick. Is that really jumping to a conclusion or just making an observation?

. (0)
Saturday August 17, 2013, 12:26 pm
What else is new and why should I be surprised?

Arielle S (313)
Saturday August 17, 2013, 1:22 pm
Alert observation, Kit - and if we can see it, wouldn't you think those who are supposedly more in the know would see it? Too many drugs given too freely, too much junk - really junk - food, and far too many chemicals in our air and water. The entire country needs an intervention!

pam w (139)
Saturday August 17, 2013, 1:43 pm
Thanks, Kit! What would conservatives do without their favorite WELFARE QUEEN myth?

Roger Skinner (14)
Saturday August 17, 2013, 1:58 pm
The same sort of situation exists with all the new voter ID laws that are supposed to prevent "voter fraud." Voter fraud by individuals is not only rare, but basically useless. It takes an organized system influencing thousands of votes to make a real difference in election results, especially in state-wide or national elections. That takes corruption at a high level.

Marilyn K (50)
Saturday August 17, 2013, 4:32 pm
In a subtle way the GOP is heading toward a Dictatorship (of course they would do the dictating) that is where their experience comes to the forefront.

Sheila D (194)
Saturday August 17, 2013, 5:17 pm
The average SNAP allowance varies from state to state. Calculations are done depending on where you live. Depending on the state, the southern US gets a bit less than the Northern Midwest, like MN. Yet if you live in the Notheast you get a few dollars more. Of course, this all depends on whether you live in the big, more expensive, city or in the rural areas, where the government says you don't eat as much - and prices are Supposed to be cheaper.
Having lived both in big bad city and the backwards rural small towns, I find the opposite to be true. There's more competition in the cities so the prices tend to be less than in a small town that may have only one or two grocery stores.

And all of this also depends on your income. Every time we get SSA and/or SSI raises, our SNAP drops down by one half of your raise. Then if you're also on rent assistence, they take the other half. And if you live in an apt owned by my owner, he takes his share, which means you end up losing money because the government was nice enough to give you a raise.

All of these calculations are done to figure your SNAP benefit. Never forget to report Any extra money to any of these, and other govt, programs or you' be charged with fraud - important because if charged you can be kicked off any, usually all, these programs for a specified time - if convicted, for Life.

Now that we have the EBT cards I would think there's less fraud - of course, those that really want to cheat can always find a way. Noted and thanks.

Kit B (276)
Saturday August 17, 2013, 7:17 pm

Thank you GGma Sheila and Ros for sharing some personal insight to this discussion.

Kathy Chadwell (354)
Saturday August 17, 2013, 7:58 pm
. I remember Brad Pit designed and built homes for the victims of Katrina and the some of the vile press made fun of him. The same ones who do nothing for anybody. Thank goodness for those who give back.

Lindsey O (19)
Sunday August 18, 2013, 12:29 am
Definitely the biggest fraud doesn't come from individual recipients of benefits, though individual fraud certainly exists. And I think the article makes some sensible suggestions as to how to reduce the various frauds.

P A (117)
Sunday August 18, 2013, 1:15 am
Excellent article Kit - stars to just about everybody! The Right lie and lie and lie and lie and they have somehow got half the population believing it and the other half too exhausted to fight back - and that is not just in America, that seems the case in the rest of the world too! Nevertheless we must argue back and keep arguing or we are going to let them win - and that is just not acceptable!

Past Member (0)
Sunday August 18, 2013, 3:46 am
The thing about Fraud, it's so difficult to detect, and those cases not detected are not counted. And until things are recognize as fraud, they remain hidden. For example, the article states "The industries most likely to be victims of fraud are the banking and financial sector; government and public administration; and manufacturing." Kinds of miss the whole Retail Store Returns issue which dwarfs the other issues. Likewise stating "introduced legislation to save $30 billion over 10 years from SNAP, purportedly by “eliminating loopholes, waste, fraud, and abuse.” indicates the savings are to come from various initiatives, fraud being just one of them.

Kit B (276)
Sunday August 18, 2013, 6:19 am

If that is a true story John, I hope you took pictures and sent the pictures to both the department of services, and the local newspaper. If people were buying expensive cars and clothes they do not need any emergency services. I think rather you heard that and believe it to be true. I volunteer for the North Texas food bank and the few shelters left. Most of these people do not qualify for any form of services.

A luxury car is going to cost upward of $70,000 a large down payment and a strong credit rating. No one living on state or Federal welfare can achieve passing that credit rating or investigation of funds required for the loan. There are people that exploit the little service assistance there is, but they are the few and most are caught very quickly.

Kit B (276)
Sunday August 18, 2013, 6:23 am

I strongly believe that each of us has a duty to report crime when observed, to not do so makes us complicit in that crime. Fraud is a crime punishable by large fines and terms in prison.

Sheryl G (360)
Sunday August 18, 2013, 6:50 am
If people had more opportunities we'd have less who would be defrauding. With less people on the safety net programs the money could be placed into making sure that each program is run well as John points out. But it IS truly small potatoes in the overall. Not to say it shouldn't be addressed but when you have a sinking ship going after and pointing ones fingers at the small potatoes is like moving the deck chairs around on the Titanic.

This finger pointing has served the Plutocrats well, when one is bashing the person who may or may not be doing a fraud for some Food Stamps or Medical Benefits. It is easy to point to those who may be getting a few hundred dollars to maybe even thousands of dollars but ignore those who are creating the fraud in the millions and billions of dollars.

If we had Universal Health Care, then those who are sick would have no need to "pretend" they are more ill to gain some medical benefits. Allow all people a true opportunity to elevate themselves from the "Sacrifice Zones" that have be created by the 1% and there would be less reason to try to scam a few dollars in Food Stamps. Heck, the 1% should stop creating these "Sacrifice Zones" instead of increasing them like they are.

Get rid of the Drug War that has done more to destroy families and push children into poverty when parents are thrown into jail for non violent crimes instead of getting medical rehabilitation care they need. Forcing the children into poverty and never changing the scenario they face perpetuates the broken communities over and over again. Good schools in all areas, low cost or no cost training programs and higher education would do a lot better at raising people out of poverty and lessen their need to scam a system that is already failing them.

The Leadership has failed a great many citizens in the USA by ignoring the Big Fraud and going after those of whom the Leadership ignored or even help to stack the cards against them; and then society turns against the ones that were pushed into the ground instead of looking at the ones who created the conditions to begin with.

JL A (281)
Sunday August 18, 2013, 8:45 am
Reagan's signature piece for CA and the nation was this so-called fraud problem--CA found the costs of trying to address it exponentially exceeded any actual fraud discovered--to the detriment of the taxpayer. Now the nation has been saddled with those myths and costs with ill-informed voices trying to perpetuate the myths.

JL A (281)
Sunday August 18, 2013, 9:06 am
I believe the audits show higher rates of errors and fraud when portions of the process have been contracted out in the so-called public-private partnership models of privatization--like it is the private providers in Medicare that create the majority of the fraud.

Kit B (276)
Sunday August 18, 2013, 9:43 am

I do think fraud should be rooted out, whether it is perpetrated by those receiving the benefits or any source. Most of the fraud and there is very little is not by receiver, though that is completely unacceptable to those who continue the Welfare Queen myths.

Peggy A (0)
Sunday August 18, 2013, 10:52 am
Thank you for sharing!

Alan Lambert (91)
Sunday August 18, 2013, 11:12 am
Kit, this is an AWESOME article, thanks for posting.

Theodore Shayne (56)
Sunday August 18, 2013, 11:26 am
Hung yau, baksheesh, fragrant grease, handling or service fees or whatever you want to call it is just the price of doing business in many places throughout the world. Corruption is common and not just in Louisiana thank you very much. Just ask your local banker how all those hidden fees actually work. It's the same principle. If you want to do business or obtain favors - you pay one way or the other.

Wayne W (12)
Sunday August 18, 2013, 4:52 pm
Thanks for posting this, Kit. But it's not surprising to me at all.

Florida's governor Rick Scott is a case in point. He was the CEO of the Columbia/HCA hospital chain which perpetrated the largest Medicare/Medicaid fraud in US history. Rick walked away, Scott-free, so to speak.
Columbia/HCA admitted guilt to 14 felony counts, including 3 counts of conspiracy to defraud the US government. "Four Florida-based Columbia/HCA executives were indicted. Two were convicted of defrauding Medicare in 1999 and were sentenced to prison, only to have those convictions overturned on appeal. A third executive was acquitted and a jury failed to reach a verdict on the fourth." Scott was never indicted. Florida, in a monumental failure of citizenship, elected Scott governor anyway. The total fine was $1.7 billion. We'll never know for sure how big the fraud was.

If a Medicare recipient or physician committed a $5000 fraud., they would go to jail

As the saying goes, "I'll believe corporations are people when we put one in jail". Or, a variation I saw recently, "I'll believe corporations are people when Rick Perry executes one".

We can't put corporations in jail, but we can put their executives there. And we can revoke their corporate charters for being a corrupt organization.

Kit B (276)
Sunday August 18, 2013, 4:58 pm

Or when Texas executes one. Which as we know is not about to happen. There is always a lot of clamoring about the so-called "Welfare Queens" but rarely do we learn about the real crooks. Thanks Wayne for showing us so much more about Rick Scott. The real fraud behind Medicare and so many scandals are those at the top of the executive ladder.

. (0)
Sunday August 18, 2013, 6:32 pm
Accountability, our government's biggest problem. If there was proper accountability and not all of this BS politics, our government could function properly or at least substantially better.

Felicita Luna (208)
Monday August 19, 2013, 5:21 am
Most government fund thieves are public servants filing one false claim after the next. You can see it with CPS, the court system, schools, healthcare and the list goes on and on. It's a disgrace, especially the drugging of little children with anti psychotics and the wrongful convictions of young people. Your tax dollars at work.

Alice C (1797)
Tuesday August 20, 2013, 1:20 pm
Why am I not surprised ? Thanks Kit.
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