The Hidden Cost of Fraud: How Much Money Is Lost by the Federal Government— and Could Some of It Help Protect Social Security?

The Hidden Cost of Fraud 

Every year, American taxpayers send trillions of dollars to the federal government to fund Social Security, Medicare, Medicaid, national defense, infrastructure, foreign assistance and hundreds of other programs. Yet a significant amount of that money is lost through fraud, improper payments, overpayments, errors and unpaid taxes. The precise amount is impossible to determine because fraud is intentionally hidden and the federal government does not have one comprehensive system that captures every fraudulent dollar. However, the government’s own watchdogs provide a revealing picture of the scale of the problem. 

The U.S. Government Accountability Office, or GAO, estimates that the federal government loses between $233 billion and $521 billion every year to fraud. The estimate is based on federal data from fiscal years 2018 through 2022 and represents approximately 3% to 7% of average federal obligations during that period. The GAO emphasizes that this is an estimate, not an exact accounting, because fraud is inherently difficult to measure.¹ 

Put another way, if the low end of that estimate continued for ten years, the cumulative amount would be approximately $2.33 trillion. At the high end, it would be approximately $5.21 trillion. Using the midpoint of the range, $377 billion annually, the ten-year equivalent would be approximately $3.77 trillion. These figures are mathematical illustrations rather than a government forecast, but they demonstrate the extraordinary financial scale of the problem. 

It is important to understand that these numbers should not simply be added to every other fraud and waste estimate published by federal agencies. There is significant overlap among the various categories, and the government uses different definitions and methodologies. Fraud generally involves intentional deception to obtain something of value, while an improper payment is broader and can include fraud, administrative mistakes, overpayments, underpayments, insufficient documentation or other errors.² 

The Scale of Improper Payments 

The scale of improper payments is itself enormous. In fiscal year 2025, federal agencies reported approximately $186 billion in improper payments across 64 programs, according to GAO. Approximately $153 billion, or 82%, was attributed to overpayments. Since fiscal year 2003, executive-branch agencies have reported roughly $3 trillion in cumulative improper payment estimates.³ Again, that $3 trillion should not be characterized as $3 trillion of fraud. It represents a broader category of payments that should not have been made or were made in the wrong amount. 

Medicare and Medicaid 

Healthcare is one of the largest areas of concern. Medicare alone accounted for approximately $56.7 billion in estimated improper payments in fiscal year 2025, including $28.83 billion in Medicare Fee-for-Service, $23.67 billion in Medicare Advantage and $4.23 billion in Medicare Part D.⁴ CMS specifically cautions that improper payments are not a measure of fraud and that many of these payments result from documentation or administrative problems rather than intentional wrongdoing. Nevertheless, when a program distributes hundreds of billions of dollars each year, even a relatively small percentage of improper payments can translate into tens of billions of dollars. 

Medicaid presents another significant challenge. CMS estimated approximately $37.39 billion in Medicaid improper payments in fiscal year 2025, representing an estimated 6.12% improper-payment rate. Importantly, approximately 77% of the Medicaid improper payments in that year’s estimate were associated with insufficient documentation, which CMS says is generally not indicative of fraud or abuse.⁵ The distinction matters, but so does the underlying financial exposure. Every dollar that is paid incorrectly represents money that could otherwise be used for legitimate healthcare services or returned to taxpayers. 

COVID-19 PPP and Pandemic Fraud 

The COVID-19 pandemic demonstrated just how quickly fraud can expand when the government distributes money on an emergency basis. Congress authorized trillions of dollars in pandemic relief, including the Paycheck Protection Program, Economic Injury Disaster Loans and other emergency programs. The government deliberately moved money quickly to businesses, workers and households, but the speed of the response also created opportunities for organized fraud. GAO reports that estimates from some of the largest pandemic-relief programs place the losses to fraud at approximately $300 billion.⁶ That does not mean $300 billion was stolen from the Paycheck Protection Program alone, nor does it represent every pandemic-relief program. It is an estimate covering some of the largest programs and illustrates the vulnerability created when enormous sums of money must be distributed rapidly. 

Tax Return Fraud and the Tax Gap 

Tax noncompliance represents another enormous financial issue. The IRS estimates that the nation’s gross tax gap was approximately $696 billion for tax year 2022. The tax gap is the difference between the taxes legally owed and the amount paid voluntarily and on time. It includes approximately $63 billion from nonfiling, $539 billion from underreporting and $94 billion from underpayment.⁷ The IRS does not classify the entire $696 billion as fraud, and it would be inaccurate to do so. Some of the gap results from mistakes or other forms of noncompliance. Nevertheless, the number demonstrates that hundreds of billions of dollars in legally owed federal taxes are not collected on time each year. 

Social Security Fraud and Improper Payments 

Social Security has its own payment-integrity problems. The Social Security Administration’s Office of Inspector General reported that between fiscal years 2015 and 2022, SSA estimated nearly $72 billion in improper payments, most of which were overpayments. At the end of fiscal year 2023, approximately $23 billion remained unrecovered.⁸ The Inspector General has identified problems involving outdated information, beneficiary reporting, limitations in SSA’s automated systems and other administrative weaknesses. These are not all cases of intentional fraud, but they represent money that was paid incorrectly and subsequently had to be identified and, when possible, recovered. 

Foreign Assistance and USAID 

Foreign assistance has also been identified by GAO as an area with heightened fraud, waste and abuse risks. Delivering aid in countries experiencing war, political instability or weak institutions can make it difficult to monitor exactly how money, food, supplies and other resources are ultimately used. GAO has documented instances of actual and potential diversion of foreign assistance, including concerns involving Somalia, Afghanistan and Mexico.⁹ This does not mean that foreign aid as a whole is fraudulent. Rather, it demonstrates why strong oversight is particularly important when American taxpayer dollars are distributed in environments where monitoring can be difficult. 

Military Spending 

The same principle applies to the nation’s military spending. The Department of Defense spends more than $1 trillion annually and is the federal government’s largest contracting agency. In fiscal year 2023, DOD obligated approximately $456 billion for contracting activity. GAO reports that DOD identified approximately $10.8 billion in confirmed fraud between fiscal years 2017 and 2024, but GAO also states that the full extent of fraud affecting the Defense Department is not known and could be significantly greater.¹⁰ Confirmed fraud therefore represents only what has been identified—not necessarily the total amount that may have been lost. 

The Ten-Year Cost of Federal Fraud 

When these numbers are considered together, the magnitude is difficult to ignore. There is no scientifically defensible way to add the $233 billion to $521 billion annual GAO fraud estimate to every Medicare, Medicaid, Social Security, PPP, foreign-aid, defense and tax-gap estimate. Many of those figures overlap, and some measure improper payments rather than fraud. But the government’s own data make one conclusion clear: the federal government is dealing with a problem measured in hundreds of billions of dollars every year. 

The ten-year equivalent of GAO’s government-wide fraud estimate provides an especially useful perspective. At $233 billion per year, ten years represents approximately $2.33 trillion. At $521 billion per year, it represents approximately $5.21 trillion. Those numbers should serve as a reminder that improving government payment integrity is not merely an administrative issue. It is a fiscal issue that affects taxpayers, beneficiaries and the nation’s ability to fund its commitments. 

Could Fraud Savings Help Social Security? 

This raises an important question when looking at the future of Social Security: Could stronger fraud prevention and recovery become one part of the solution to Social Security’s long-term financing problem? 

Social Security does face a significant long-term financial challenge. According to the 2026 Social Security Trustees Report, the combined Old-Age and Survivors Insurance and Disability Insurance trust funds are projected to have sufficient reserves to pay all scheduled benefits until 2034. After that point, continuing program income would be sufficient to pay approximately 83% of scheduled benefits, assuming current law remains unchanged. The separate Old-Age and Survivors Insurance trust fund is projected to become depleted in the fourth quarter of 2032, at which point approximately 78% of scheduled benefits would be payable.¹¹ 

The Trustees estimate Social Security’s combined 75-year actuarial deficit at approximately 4.42% of taxable payroll.¹² That is a much larger structural problem than fraud alone could solve. It would therefore be misleading to suggest that eliminating government fraud could single-handedly rescue Social Security. It cannot. 

However, that does not mean fraud prevention is irrelevant to the discussion. Consider a purely hypothetical example. If the federal government were able to prevent or recover just 5% of the low end of GAO’s annual fraud estimate, that would equal approximately $11.7 billion per year. At the high end of the GAO range, 5% would represent approximately $26.1 billion per year. Over ten years, those amounts would equal approximately $117 billion to $261 billion. These figures are illustrations—not estimates of what the government could actually recover. The GAO has not concluded that 5% of its estimated fraud losses are recoverable. 

A Broader Fiscal Strategy 

Nevertheless, the exercise illustrates the potential significance of better payment controls. Every dollar of fraud that is prevented is a dollar that does not have to be raised from taxpayers, borrowed by the federal government or taken from another government program. Better identity verification, real-time data sharing, improved eligibility verification, stronger contractor oversight, automated payment controls and more aggressive recovery efforts could potentially reduce losses across Medicare, Medicaid, Social Security, federal grants, defense contracting and other programs. 

The federal government has already identified many of the tools that can help. GAO has repeatedly recommended stronger fraud-risk assessments, better data sharing, improved internal controls, increased accountability and greater use of technology and analytics.¹³ The objective should not simply be to investigate fraud after the money has disappeared. Prevention is generally more valuable than recovery because once fraudulent money leaves the government, recovering it can be difficult or impossible. 

The same principle applies to Social Security. The Social Security Administration processes more than $1 trillion in benefit payments annually, and even small errors can result in billions of dollars in improper payments. The SSA Inspector General has repeatedly recommended better access to outside data, increased automation, modernization of systems and stronger controls to prevent overpayments before they occur.⁸ 

The Bottom Line 

The debate over Social Security will almost certainly involve difficult choices about taxes, benefits, retirement ages and the structure of the program. Those are the major issues because the underlying financing gap is enormous. But there is another question that deserves consideration before asking taxpayers for additional money or beneficiaries to accept reductions: How much money can the federal government reasonably prevent from being lost in the first place? 

The answer is not $5 trillion, and it would be irresponsible to suggest that all of the government’s estimated fraud losses could simply be recovered and deposited into the Social Security trust funds. Some fraud cannot be recovered. Some losses are already being addressed. Some estimates overlap. And improper payments are not synonymous with fraud. 

But the potential scale is still significant. At the low end of GAO’s estimate, ten years of federal fraud losses would equal approximately $2.33 trillion. At the high end, it would exceed $5.2 trillion. Those numbers should serve as a reminder that improving government payment integrity is not merely an administrative issue. It is a fiscal issue that affects taxpayers, beneficiaries and the nation’s ability to fund its commitments. 

Social Security cannot be secured by fighting fraud alone. But if billions of dollars can be saved through better controls, stronger enforcement and improved technology, those savings could become one component of a larger strategy to strengthen the federal government’s finances. 

The basic principle is straightforward: before asking Americans to pay more or retirees to receive less, government should make every reasonable effort to ensure that the money it already collects is spent exactly as intended. 

Fraud prevention will not solve every federal budget problem. It will not eliminate Social Security’s projected financing gap. But every dollar that is legitimately saved or recovered is one less dollar that must ultimately come from taxpayers, borrowing or reductions in other priorities. 

For a program as important as Social Security, even billions of dollars matter. And with the federal government potentially losing hundreds of billions of dollars annually to fraud, improper payments and other forms of payment risk, the question is no longer whether fraud prevention deserves attention. The question is how much the country can afford not to do about it. 

Footnotes & Sources

1. U.S. Government Accountability Office, Combating Fraud: Managing Risks in Federally Funded, State-Administered Programs. GAO estimates that the federal government loses between $233 billion and $521 billion annually to fraud based on fiscal-year 2018–2022 data.
2. U.S. Government Accountability Office, Fraud and Improper Payments. GAO distinguishes fraud from the broader category of improper payments.
3. U.S. Government Accountability Office, Payment Integrity: Agencies’ Estimated Improper Payments Increased to $186 Billion in Fiscal Year 2025.
4. Centers for Medicare & Medicaid Services, Fiscal Year 2025 Improper Payments Fact Sheet.
5. Centers for Medicare & Medicaid Services, Fiscal Year 2025 Improper Payments Fact Sheet.
6. U.S. Government Accountability Office, Fraud Risk in Federal Programs: Continuing Threat from Organized Groups Since COVID-19.
7. Internal Revenue Service, The Tax Gap. The IRS projects a $696 billion gross tax gap for tax year 2022.
8. Social Security Administration Office of Inspector General, Preventing, Detecting, and Recovering Improper Payments.
9. U.S. Government Accountability Office, Foreign Assistance: Opportunities Exist for Agencies to Improve Their Management of Fraud, Waste, and Abuse Risks.
10. U.S. Government Accountability Office, DOD Financial Management: Accelerated Timelines Needed to Address Long-standing Issues and Fraud Risk.
11. Social Security Administration, 2026 Social Security Trustees Report.
12. Social Security Administration, 2026 Trustees Report Summary.
13. U.S. Government Accountability Office, Nine Ways Congress Can Combat Fraud in the Federal Government.