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Steve Kroft had an expose on the federal Social Security Disability Insurance program.

The hearing involves the federal disability insurance program, which could become the first government benefits program to run out of money.

When it began back in the 50s, it was envisioned as a small program, to assist people who were unable to work because of illness or injury. Today it serves nearly 12 million people, up 20 percent in the last six years. It has a budget of $135 billion -- that's more than the government spent last year on the Department of Homeland Security, the Justice Department, and the Labor Department combined.

It's been called a secret welfare system, with its own disability industrial complex. A system ravaged by waste and fraud.

Have any estimates been made to how widespread the fraud is? (What are those estimates?)

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    "a secret welfare system, with its own disability industrial complex" is an extravagant claim, but it would seem that scope creep has occurred. One assumes this scope creep includes mental illness and was authorised by Congress. The fraud, if any, would be in the mental disability bracket as this is much harder to draw a bright line on. – LateralFractal Oct 11 '13 at 6:27
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    @LateralFractal, I don't think a ramdomized study has been done, but some case studies have found as high as 43% of commercial drivers received licenses after being declared 100% disabled (62k of 144k from 12 states) – user1873 Oct 11 '13 at 7:05
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The Government Accountability Office is a legislative audit function which performs audits for Congress.

I'll mention a few recent findings and then note a general rule of thumb from the auditing profession. There are many audits involving disability insurance, for more reading go to the GAO website and search there.

$1.2 billion in overpayments in 2015

In 2015, SSA detected $1.2 billion dollars in over-payments to beneficiaries. Over-payments are not fraud (although excessive over-payments can be indicative of poor controls which make fraud more likely). SSA was able to recover about $800 million, for a loss of roughly $1.1 billion. The audit recommends new recovery.

$1.62 billion in overpayments in 2010

This audit estimates $1.62 billion in overpayments in 2010, or about 1.3% of all disability benefits paid. GAO recommends that SSA develop a mechanism to detect over payments.

Poor Fraud Controls

Throughout a variety of audits, GAO has recommended improving internal controls related to fraud. For example:

  • A 2014 audit recommended closing holes related to physician-assisted fraud (in which a doctor helps their patient improperly collect disability benefits). In particular, SSA staff are randomly assigned files to review so there is almost no chance they could ever detect fraud by doctors (they would never see multiple claims from the same physician).
  • A 2016 audit found that SSA had nearly 1.3 million backlogged cases marked for investigation. These were disability cases that SSA intended to investigate, although it appears they choose randomly. The audit recommended actually investigating all of those as well as developing a better way to choose cases for investigation.

General Rule of Thumb

A common rule-of-thumb is that about 5% of revenues in an organization are lost due to fraud or misappropriation. Although rampant among accountants and auditors, this number also came up in a survey by the Association of Certified Fraud Examiners

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