Are federal applications doing sufficient to forestall fraud?

Terry Gerton GAO began off 2026 with a extremely attention-grabbing report taking a look at how federal applications implement practices to forestall and detect fraud. That’s definitely a key problem for this administration. Let’s begin by digging into the 5 applications that you simply checked out. Inform us who they’re and why you picked them.

Hannah Padilla We picked 5 applications from 5 totally different companies, and we have been requested to take a look at their oversight over fee integrity. So not simply fraud, but additionally improper funds, fraud, waste, abuse over their federal wards. We picked applications from the FCC, the Division of Power, the Division of Commerce, the Division of Well being and Human Companies and the Environmental Safety Company. These applications amounted to roughly $227 billion of some not too long ago enacted laws. One was the Infrastructure Funding Act, the Inflation Discount Act, after which the CHIPS and Science Act.

Terry Gerton So these have been big applications then, and fairly latest ones. So it’s not like they’ve been round eternally and possibly obtained written within the fifties. I imply, they’re fairly new. What did you discover? How are they doing?

Hannah Padilla Nicely, what we discovered is that considered one of our companies that we checked out had carried out all of what we thought of essential necessities. We checked out 9 necessities that we obtained from varied authorized steering and laws coming from the OMB, the Workplace of Administration and Price range, and GAO’s personal fraud framework. And people 9 necessities actually targeted round, did the companies have the right buildings in place over fee integrity? One of many necessities is that they’ve a devoted entity that oversees fee integrity. Among the different necessities focus round threat evaluation and looking out on the company as an entire. Are they doing a threat evaluation? Do they know the place the dangers lie for the precise applications? Do they know the place the chance factors are within the applications? Have they got the right management actions in place to mitigate these dangers? And are these necessities documented of their insurance policies and procedures? It’s essential to notice we didn’t look to see if these have been being appropriately carried out. We solely appeared to see in the event that they have been documented within the insurance policies and procedures as required.

Terry Gerton So solely that program on the FCC obtained all 9 appropriate. Why is that this so laborious to do? Why is it so laborious to design applications to forestall fraud, to detect fraud, to make sure fee integrity?

Hannah Padilla One of many causes is it’s very sophisticated. It’s sophisticated for the companies. They push out loads of funding. Among the applications are pushed out to different entities to manage this system, resembling state and native governments. So the federal authorities passes the cash down by to different identities, and people controls in place at these entities may not be there. So it’s essential for the federal companies, as soon as that cash leaves them, to constantly monitor the expenditures of that cash in an effort to guarantee that the state and native governments are correctly administering these applications and that they’ve fee integrity controls in place. They usually can try this in a number of other ways by single audits, for instance, that the state and native governments obtain and monitoring these outcomes.

Terry Gerton So these companies have been administering, as you stated, $227 billion of federal grants and applications. Did these grants and program enable any portion of that cash to determine the proper procedures up entrance?

Hannah Padilla Most federal awards do have an administrative allotment there for the monitoring of those applications.

Terry Gerton I’m talking with Hannah Padilla. She’s the director of economic administration and assurance at GAO. Nicely, given the 9 greatest practices and the truth that solely considered one of 5 companies obtained them proper, what did you advocate when it comes to how companies can deal with these shortcomings?

Hannah Padilla If we had 12 suggestions on this report, most of our suggestions centered round documenting these necessities of their insurance policies and procedures. It’s essential that these are documented so they’re utilized constantly and successfully. Most of our suggestions centered round threat assessments and documenting the right threat assessments. Particularly for the precise applications, it’s essential to have correct threat assessments so if you develop the prepayment controls that they’re truly mitigating the dangers that exist. We did observe that every one the applications that we checked out, all of the companies had a devoted entity to handle fee integrity and the entire applications had controls in place over funds. However what we didn’t discover was a documented match of the dangers to the controls.

Terry Gerton What would these sorts of threat assessments appear like?

Hannah Padilla We’re actually creating the chance tolerance. There may be all the time going to be a specific amount of fraud or improper funds in any program. However simply creating the chance tolerance after which trying on the threat factors of the method, the fee course of and ensuring that there are correct controls in place over these dangers.

Terry Gerton So, sort of discovering a cost-benefit level of stability between how a lot administrative process you wish to placed on to forestall fraud and the way a lot that prices versus acknowledging that some may undergo within the title of efficient administration. Has GAO obtained any suggestions from any of the companies in your findings?

Hannah Padilla We had 4 of the companies concur with our findings. We had one which didn’t concur, and that was associated to restoration audits. There’s a treatment that companies can use the place they rent restoration auditors that go in and look to see what’s gone out the door and if there funds that may be recovered. One of many companies selected to not do restoration audits, and we requested that they doc the reasoning for that.

Terry Gerton So with all of those suggestions the companies agree, what occurs subsequent? Do the entire companies sort of throughout the federal authorities perceive these 9 practices? Do we want higher coaching, documentation, steering on the entrance finish? How will we institutionalize this strategy?

Hannah Padilla I believe coaching is essential. Upfront prepayment controls which can be put into place earlier than the cash goes out the door is essential. As soon as the cash is out the door, it’s very troublesome, if not not possible, to get that cash again. So as soon as the cash’s gone, it’s just about gone. It’s very costly to get the cash again and it’s very troublesome to get the cash again. So the upfront prepayments controls are essential.

Terry Gerton Wouldn’t it be helpful if when Congress makes these appropriations to those applications, they require in statute that these practices be put in place?

Hannah Padilla Sure, effectively the 9 necessities that we picked are literally legislation. They’re authorized necessities, so they’re put in place by OMB. The companies must be following them.