“The federal government provided an estimated $1.2 trillion in assistance to state and local governments in fiscal year 2025, according to a late July report by the U.S. Government Accountability Office that was revised on August 8. “Each year, this funding helps support services, including transportation, education, and community development. There are many reasons for, and benefits to, administering federal programs at the state level. However, the reliance on nonfederal agencies to distribute payments, make eligibility decisions, and conduct oversight can heighten fraud risks”.

As the GAO reports, “All programs have fraud risks, even if there have not been judicially determined cases of fraud. Fraud risk is greatest where there is incentive and rationalization to commit fraud and where program vulnerabilities exist that allow fraud to occur.”

In fact, according to the report, “Twenty programs, supporting services from health care to disaster assistance, made up nearly 90 percent of federal obligations among programs administered by state and other government entities with obligations of over $100 million in fiscal year 2025. Subrecipients, contractors, and others can also be involved in delivering these programs’ benefits and services. This decentralized structure can leave programs vulnerable to fraud schemes involving all these groups.”

What’s more, “Information about fraud risks specific to each of the 20 selected programs varies, in part, because federal agencies have not fully assessed their risks,” according to the GAO. “Identified risks include fraudulent claims, access to benefits using stolen identities, and misuse of funds for personal expenses.”

One example sited in the report was taken from a investigation from the Department of Education in 2025. It noted a “scheme where two people were charged for orchestrating fraud rings that targeted more than $12 million in aid. One individual allegedly ran a 10-year scheme that involved the submission and fraudulent applicants for over 1,200 people involving over 100 schools in 24 states. The other individual also allegedly ran a 10-year scheme involving over 80 individuals who were primarily enrolled at the same community college for the same or similar degree programs and online courses.’

Unfortunately, uncovering fraud cases is often a process limited by resource constraints. “For example,” according to the GAO, “an Office of Inspector General official noted in our prior reporting that they can only investigate the “worst of the worst” and do not have the capacity to investigate many possible instances of fraud. To help prioritize scarce resources, they said that some investigative organizations have thresholds that may impact the cases organizations investigate. Further, the statute of limitations may cause organizations to prioritize some cases over others.”

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