GAO: Improved fraud detection needed for 'high risk' IRS, Medicare

The Internal Revenue Service must improve fraud detection after it paid out up to $250 million to fraudsters in 2021, according to a new Government Accountability Office report. 

The study, released on April 20, is the latest in the congressional watchdog's High Risk Series, which "identifies government operations with vulnerabilities to fraud, waste, abuse, and mismanagement, or in need of transformation."

The GAO identified tax law enforcement as an area that remains "high risk" for fraud, noting that the IRS estimated it paid between $50 million and $250 million to identity theft (IDT) refund fraudsters in 2021.

The agency recognized that the IRS has demonstrated "some progress" by developing "tools and programs to further detect and prevent IDT refund fraud."

Despite these efforts, the GAO study found that the IRS "lacks the governance structure to coordinate all aspects of its efforts to protect taxpayer information held by third-party providers."

The study revealed that the IRS still "lacks a dedicated entity with defined responsibilities and the necessary authority to perform its role" for the oversight of identity theft efforts.

Almost 180 of GAO's recommendations to the IRS related to tax law enforcement haven't been fully implemented, including "expanding third-party information reporting to improve sole proprietor compliance."

Many of the GAO's recommendations to Congress have also not been addressed yet. These include "establishing requirements for paid tax return preparers to help improve the accuracy of the tax returns they prepare" as well as requiring that tax returns "prepared electronically but filed on paper include a scannable code printed on the return to better leverage the Return Review Program's capabilities."

Improper payments across the federal government remain a major source of waste, particularly in Medicare.

Improper payments, which are made for an incorrect amount or paid to an ineligible recipient, reached an estimated $46.8 billion in fiscal year 2022, according to the latest figures reported by the government.

GAO said that as of February 2023, 82 of its recommendations related to the Medicare program, including those related to improper payments, are still open and not fulfilled.

"We recommended that the Administrator of [the Centers for Medicare and Medicaid Services] seek legislative authority to permit payment for recovery auditors to conduct prepayment claims reviews," the GAO report recalled. "Reviewing Medicare claims before payments are processed can prevent improper payments. We also recommended that CMS develop policies and procedures for future emergencies, such as postponing rather than waiving fingerprint-based criminal background checks during future emergencies."