Government Waste

Public employees second only to financial pros in fraud, study shows

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May 14, 2012

Government workers are among the employees most likely to cheat their employers, according to a new study.

The Association of Certified Fraud Examiners (ACFE), the world’s largest anti-fraud organization, found that public-sector administration employees are responsible for more than 10 percent of fraud cases, ranking behind only financial professionals. In 141 cases examined, the group found that a crooked employee costs taxpayers a median loss of $100,000.

ACFE analyzed nearly 1,400 cases of fraud and corruption worldwide and found that "banking and financial services, government and public administration, and manufacturing accounted for a combined 37 percent of the fraud cases reported."

ACFE spokesman Scott Patterson said access to large amounts of money and an entitlement mentality could lead to fraud in any organization.

"Government is handling a lot of money, but there have still been cutbacks, so you can have an employee who says ‘I haven’t gotten a raise in two year, so I deserve this,’" he said.

The revelations came as no surprise to Tom Schatz, president of Citizens Against Government Waste.

"The staff at government agencies is honest and hard working, but everything is so large that it’s hard to guard against fraud," he said. "The objective in Washington generally is to spend the money, not necessarily to examine results or worry about how effectively it’s being spent."

A congressional staffer who has worked to combat fraud at the federal level agreed that the amount of money being spent has stretched the government thin and left limited accountability. A culture has developed that excuses lavish spending programs, he said, pointing to the GSA’s $800,000 Las Vegas retreat, which has resulted in several firings and resignations.

"The federal government is sending all of this money out and there’s no follow up, no accountability," the staffer said. "It’s part of the culture."

However, internal fraud is small potatoes compared with what are considered legitimate pursuits of taxpayer dollars, the source said.

Leaders in state governments have pounced upon a number of loopholes to take advantage of federal money for social programs. State employees will spend small amounts of money to grab federal millions rather than pay for social services out of their own budget.

The state of Washington issued 250,000 $1 checks in 2009 for an "energy assistance program" to food-stamp recipients. The one-time payment allowed the state to capitalize on $43 million from the federal government. A state official, Leo Ribas, said the brazen move was necessary to "leverage the federal money." Despite the cunning move, the state received a $6 million bonus from the federal government for running an efficient program.

"These guys are gaming the system to get more money out of Washington, and their inefficiency and scamming is being rewarded with more money," the insider said. "This type of behavior only leads to more dishonesty and it’s emblematic of the problem Washington has when spending this kind of money."

The food-stamp program suffers many of the accountability shortfalls that can lead to a culture of lax accountability and fraud. In 2009, the program paid out approximately $50 billion in benefits; $2.2 billion of that total, however, was paid in error. More than 80 percent of the payment errors were overpayments, equivalent to $1.8 billion in program transactions, according to Kay E. Brown of the Government Accountability Office.

A case of fraud operates undetected for a median period of 18 months, according to ACFE. Operating in this type of environment allows fraud to perpetuate for lengthy periods of time, according to Patterson.

Lack of accountability creates an environment ripe for abuse, Patterson said.

"Most government organizations have audits, but … in certain bureaucracies where there aren’t the correct controls in place, that’s how the threat of fraud is more pronounced," he said.

Schatz said the government needs to ramp up its ability to control for fraud and account for how federal funds are used.

"The GAO and various inspector generals at federal agencies continually cite the lack of internal controls at federal agencies," he said. "That alone makes the expenditures difficult to account for and subject to fraud and abuse, both internally and externally."

The GAO has had its budget slashed by $60 million over the past two years, a move that could cost taxpayers a lot more in the long run.

"Sixty years ago, the whole federal budget was $42.6 billion and employed 2.2 million people; today, the budget stands at an astonishing $3.7 trillion and the federal (non-military workforce) stands at 2.7 million with millions more in outside contractors," CAGW’s Leslie Paige writes in a report. "Yet, GAO is less than half the size it was in 1950."

A Republican congressional staffer said lawmakers must focus on stopping fraud before it starts. He said the answer lies in cutting spending, eliminating government slush funds, and increasing transparency and accountability.

"It is difficult to keep track of large sums of money when it’s going to 50 states with a bunch of different systems," he said. "That’s why we need to reform how the federal government spends its money and how states can qualify for it; we can’t just write checks and not follow up on them."

Calls to the GAO and labor groups representing government employees were not returned.

Published under: Federal Bureaucracy