Watchdog GAO estimates fraud costs taxpayers between $233 billion and $521 billion annually

A new federal watchdog report is warning that fraud across government programs remains widespread, costly, and difficult to contain, with officials describing a system strained by complexity, fragmented oversight, and evolving criminal tactics.

The report from the U.S. Government Accountability Office, released on April 15, found that “all federal programs and operations are at risk of fraud,” underscoring vulnerabilities in programs administered jointly by federal and state governments. Testifying before lawmakers, GAO officials said the scale of the problem is staggering. The agency estimates that fraud costs the federal government between $233 billion and $521 billion annually, based on recent data.

“These losses place an increased burden on the government’s financial outlook,” the report noted, adding that fraud “erodes public trust in government.”

A system vulnerable by design

The structure of many federal programs relies heavily on state agencies to administer benefits such as Medicaid and unemployment insurance. In fiscal year 2025 alone, the federal government distributed about $1.2 trillion in grants to state and local governments. While that decentralized model allows programs to reach millions of Americans, auditors say it also creates gaps in oversight and coordination. It may also lend itself vulnerable to political patronage.

"The programs vary in size, but some, such as Medicaid, involve millions of beneficiaries. Decentralized program delivery such as through distributed payment and eligibility decisions can heighten the risk of fraud," the report said.

In some cases, legal and technical barriers prevent agencies from sharing data that could help detect fraud. One state agency told investigators it was restricted from sharing information about individuals across programs, limiting its ability to identify suspicious activity.

Organized fraud and ever-evolving tactics: Traditional enforcement methods alone are not enough

The GAO also warned that fraud is no longer limited to isolated bad actors. Organized criminal gangs have increasingly targeted government programs, particularly during periods of rapid spending such as pandemic relief efforts. Officials emphasized that fraud schemes are constantly changing, requiring agencies to adapt just as quickly. Traditional enforcement methods alone are not enough.

"While it is impossible to eliminate fraud completely, managing the risk strategically by implementing preventive, detective, and response controls is imperative. And prevention is key—attempting to investigate and prosecute our nation’s way out of the problem addresses only a small fraction of fraudulent activity, requires significant time and resources, and returns pennies on the dollar," the report read.

"Further, fraudsters’ tactics are ever evolving and so should the U.S. government’s approach. To be clear, the task of managing fraud risks is never-ending. The goal is to continuously improve antifraud efforts—through analytics, evaluation, and culture—to more efficiently and effectively prevent fraud upfront, before the loss or compromise occurs," the report also read.

Longstanding weaknesses persist

Despite years of recommendations, the GAO found that many agencies still struggle with basic fraud risk management practices. The watchdog warned that weak internal controls, outdated data systems, and limited staffing capacity continue to hinder progress.

The report noted that commitment to fraud prevention at federal and state levels has often been inconsistent, even though it is “a fundamental first step” in reducing risk.

As of April 2026, the GAO has issued more than 200 recommendations to improve fraud oversight and about 40% remain unaddressed.

A “never-ending” challenge

Ultimately, auditors say eliminating fraud entirely is unrealistic. Instead, agencies must continuously improve how they prevent, detect, and respond to the issue. “To be clear, the task of managing fraud risks is never-ending,” the report concluded. Moreover, describing what kind of fraud "counts" is not a simple matter.

Although state governments are less than cooperative with the federal government in detailing — let alone rooting out and punishing fraud — various tallies show that California leads the way with $180 billion in various frauds, followed by Minnesota at $9 billion, New York at $6.5 billion, and Illinois at $5.2 billion.