“What’s stopping the government from tackling fraud in federal programs?”

Terry Gerton Not long ago, the Government Accountability Office shared insights with Congress on reducing fraud in federal programs managed by states. One detail really stood out to me. GAO has proposed over 200 suggestions to improve fraud prevention, yet many of these recommendations remain unimplemented. Why is tackling fraud in these programs proving so challenging?

Seto Bagdoyan That’s an excellent and long-standing question. Much of it starts with leadership priorities. In my testimony, I emphasized that at the core, there’s often unwillingness to admit fraud exists. Without that recognition, nothing else moves forward. It takes focused leadership to build and maintain the ability to spot and handle fraud risks. And because those who commit fraud adapt faster than both government and private sectors can respond, ongoing attention is crucial. The key step is acknowledging the problem early—not ignoring or criticizing those who highlight it, as happened in Minnesota. Fraud is real, widespread, and demands urgent action.

Terry Gerton The Trump administration has definitely highlighted fraud in various federal benefit programs. But how much influence can agencies realistically have when many rules are set by law? Where’s the room for them to act against fraud risks?

Seto Bagdoyan Great point. How programs are designed and run is central to this issue. While laws establish programs, regulations follow, then operational procedures bring them to life. The challenge arises when agencies either restrict themselves too much or interpret rules too loosely—claiming, for instance, they can’t use data analytics or share details with state or local partners, even though those partners handle much of the actual work. Another problem is tracking funds. Once money passes from federal to state governments and then to grantees, oversight weakens and the trail gets blurry—opening doors for fraud.

Terry Gerton So where does oversight responsibility lie? With federal offices? State bodies? Local distributors? Or somewhere across all levels?

Seto Bagdoyan It’s shared among all of them. Take unemployment insurance during the pandemic. The Department of Labor facilitated about $900 billion in payments, delivered through state workforce agencies. Much of this went out based only on applicants’ self-reporting. When officials finally realized this was risky and asked Congress to tighten rules, most funds were already disbursed. By the time stricter identity and eligibility checks were added, the money was long gone. Our estimate suggests fraudsters took as much as $135 billion—around 15% of the total. Strong oversight, accountability, and controls are essential at every stage.

Terry Gerton I’m joined today by Seto Bagdoyan, who leads forensic audit work at GAO. Let’s continue exploring this. You brought up unemployment insurance. TANF is another major program we heard a lot about during the government shutdown. Medicaid is another huge federally backed,

Seto Bagdoyan Yes, absolutely massive—

Terry Gerton State-run program. These services often address urgent human needs. How do agencies balance the need to distribute funds quickly with ensuring proper safeguards and compliance?

Seto Bagdoyan Exactly. That boils down to having strong systems to handle integrity and fraud risks. It’s a tough balance—no question. But the more advanced your tools for verifying identity, confirming eligibility, calculating benefits, and issuing payments, the less delay legitimate recipients will experience. Technology and smarter processes can enable this, but we’re not there yet—far from it. The usual reaction is concern that checks will slow things down. Lawmakers and governors push to “just send the money” and fix mistakes later. But here’s the catch: the ability to recover money or spot fraud after the fact is even weaker.

Terry Gerton You’re describing the “pay and chase” method—sending funds first, chasing problems afterward?

Seto Bagdoyan Precisely. The pay-and-chase approach—just like relying on self-certification at the start—has proven ineffective.

Terry Gerton Let’s focus on those three major programs: UI, TANF, and Medicaid. They’re vast, already in operation, governed by complex rules, and supported by extensive state IT systems. At this stage, how can new technologies or process upgrades be introduced to stop fraud before it starts?

Seto Bagdoyan If legal frameworks are the barrier, then updating laws may be necessary—to permit helpful steps like data sharing, analytics, and timely investigations while blocking harmful practices like self-attestation or “we’ll catch it later” thinking. Additionally, agencies and their state partners can reconsider how they interpret current rules. Could we actually share data? Can we compare datasets and act quickly on what we find? Many organizations already use advanced analytics—but then panic at the results. Discovering hundreds of thousands of potentially ineligible recipients creates a crisis on its own.

They take no action. Everything is permitted, with the sole promise that the worst offenders will eventually be caught.

Terry Gerton Is this an issue technology can fix on its own, or do we need qualified individuals, with the proper expertise and in sufficient numbers, to make these critical judgment calls?

Seto Bagdoyan Definitely. Technology is central to the solution, with data analytics as its core. However, you still need robust controls, established processes, and the political will to act on the results. Even the most sophisticated data analytics can flag suspected fraud. Unless there’s a willingness to investigate those flags due to hesitation or lack of resources, the situation won’t improve.

Terry Gerton So when the experts involved suggest that changing a process, adjusting a parameter, or implementing a new tool could help combat fraud, who in the system holds the authority to approve and enforce that? You’ve mentioned many who say no. But who has the power to say yes and make it happen?

Seto Bagdoyan Correct. This involves the executive branch, Congress, and oversight bodies like the GAO, state auditors, and inspectors general. In my opinion, we must all be aligned. The current administration has prioritized fraud and launched several initiatives, including a new DOJ division and a separate effort led by the vice president. Cabinet secretaries, like Dr. Oz at CMS conducting Medicaid audits nationwide, are also taking positive steps. However, these efforts must be coordinated across the entire oversight community and, most importantly, sustained over the long term. If the next president belongs to a different party, will these initiatives continue, or will the focus shift? Based on my 34 years at GAO and 12 years fighting fraud, I’ve yet to see a level of achieved, consistent assurance maintained across administrations. That’s the goal we need to reach.

Terry Gerton It sounds like truly tackling fraud is an enormous, slow process. If you could suggest any initial course correction, what immediate step would you hope to see from the administration’s plans?

Seto Bagdoyan I think a crucial first step is simply acknowledging that fraud is a significant problem. This acknowledgment must permeate all levels, even if it’s met with resistance. We cannot afford to ignore GAO’s estimate of half a trillion dollars lost yearly to fraud by downplaying it as a small percentage of the budget, as OMB did. Applying even a small percentage to a massive budget yields a huge absolute number. Aggregate all those figures, and you have a substantial fraud problem.