States, territories,  Indian tribes, and tribal organizations that wish to assist low-income  households in meeting the costs of home energy may apply for a LIHEAP  block grant. LIHEAP Is at Risk for Fraud and Improper Benefits in Selected States

Our analysis of LIHEAP data revealed that the program is at risk of fraud  and providing improper benefits in all seven of our selected states. About  260,000 applications—9 percent of households receiving benefits in the  selected states—contained invalid identity information, such as Social  Security numbers, names, or dates of birth. Many applications may have  inaccuracies due to simple errors such as typos or incomplete sections,  making it impossible to determine whether these cases involve fraud. As described in the bullets below, thousands of cases show strong  indications of fraud and improper benefits. The identities of over 11,000 deceased individuals  were used as applicants or household members for LIHEAP benefits. Incarcerated individuals. Matching LIHEAP data  with federal civilian payroll records, we identified about 1,100 federal  employees whose federal salary exceeded the maximum income threshold  at the time of their application. Our investigators  created this energy-related company to receive the energy assistance  payments. The Federal Government and Selected States Lack an Effective Fraud Prevention Framework for LIHEAP

LIHEAP’s internal controls framework has several key weaknesses at both  the federal and state levels, as shown by GAO’s fraud prevention model. At  the federal level, HHS has not provided specific guidance to states and  other grantees for preventing fraud and abuse of LIHEAP. While grantees  are primarily responsible for preventing fraud in LIHEAP, the LIHEAP  statute establishes a number of oversight and enforcement responsibilities  for HHS to ensure that grantees are properly applying the funds, including  requiring the issuance of regulations to prevent waste, fraud, and abuse in  LIHEAP. In addition, the selected states do not have an effective design for a  comprehensive fraud prevention framework. In fact, the states are lacking  key efforts in all three crucial elements of a well-designed fraud  prevention system: preventive controls, detection and monitoring, and  investigations and prosecutions. Preventive controls. To be efficient in reaching similarly targeted  recipients, certain states automatically enroll LIHEAP recipients based on  the applicant or household member receiving benefits for certain federal  programs (e.g., TANF or SNAP). Several state officials stated that they  generally did not pursue investigations and prosecutions involving  LIHEAP. Recommendations for Executive Action

To establish an effective fraud prevention system for the LIHEAP program  in the seven states, the Secretary of HHS should evaluate our findings and  consider issuing guidance to the states addressing the following six  recommendations:    Require applicants and household members to provide Social Security  numbers for themselves and all members of the household in order to  receive energy assistance benefits. These  states were selected primarily based on the magnitude of total LIHEAP  funding and the availability of a centralized database of applicants and  benefits. To illustrate cases of fraudulent, improper, and abusive activity in  LIHEAP, we identified 20 cases for detailed audit and investigation. To identify potential weaknesses in the design of key aspects of LIHEAP’s  internal controls framework, we interviewed LIHEAP officials from the  selected states and HHS. This audit was conducted in seven states, including  Michigan. We did not determine  that qualifying LIHEAP recipients based on their eligibility for such  programs is prone to excessive fraudulent activity. 2.
Why GAO Did This Study

Federally funded at about $5 billion a year, the Low-Income Home Energy Assistance Program (LIHEAP) provides financial assistance to low-income households for heating and cooling costs. The Department of Health and Human Services (HHS) awards LIHEAP funds based on low-income populations and other factors. Grantees--states, the District of Columbia, territories, and Indian tribes and tribal organizations--then provide energy assistance payments to low-income households. GAO was asked to audit (1) the risk of fraud and abuse in LIHEAP in selected states; (2) case studies of fraudulent, improper, and abusive LIHEAP activity; and (3) key weaknesses in the design of LIHEAP's internal controls framework. To meet these objectives, GAO analyzed LIHEAP data from seven states for fraud indicators, interviewed federal and state officials, performed investigations, and conducted proactive testing in two states using a bogus company, individuals, addresses, and documents. The seven states were primarily selected based on size of LIHEAP grant and availability of centralized database.

What GAO Found

LIHEAP is at risk of fraud and improper payments in all seven of our selected states. About 9 percent of households receiving benefits--totaling $116 million--in the selected states contained invalid identity information, such as Social Security numbers, names, or dates of birth. Although some of these cases are likely due to simple errors such as typos or incomplete data, thousands of other cases show strong indications of fraud and improper benefits. For example, the identities of over 11,000 deceased individuals were used as applicants or household members for LIHEAP benefits. Hundreds of individuals were used as applicants or household members even though they were incarcerated in state prisons, making them ineligible. Finally, we identified over a thousand federal employees whose federal salary exceeded the maximum income threshold when they applied. We nonrepresentatively selected and investigated 20 cases that either validated the potential fraudulent activity noted above or illustrated other improper activities. Although states are primarily responsible for preventing fraud, LIHEAP's internal controls framework has several key weaknesses. HHS has not provided specific guidance to states, instead issuing only broad regulations for states to establish appropriate systems and procedures to prevent fraud. The selected states do not have an effective design for a comprehensive fraud prevention framework. In fact, the states lack key efforts in all three crucial elements of a well-designed fraud prevention system: preventive controls, detection and monitoring, and investigations and prosecutions. Specifically, states lack essential preventive controls by not verifying identities or income. Some states automatically enroll certain individuals based on their eligibility for other programs. Although efficient in reaching similarly targeted recipients, this practice is dependent on the accuracy of the initiating program's eligibility determination. Finally, several state officials stated that they generally did not pursue investigations and prosecutions. The reason is that the benefit amounts are relatively small.

What GAO Recommends

GAO makes six recommendations to HHS to issue guidance to states to better prevent fraud in LIHEAP. HHS agreed with the six recommendations.