and auditors to detect fraud and program
weaknesses. The surveys have consistently
uncovered numerous occurrences of suspected
fraud. In other isolated instances where
agencies have actively sought fraud, they
also identified suspected fraud cases.
(See pp. 19 to 22.)

Agencies have no assurance that those

personnel administering programs are referring all suspected frauds for investigation because:

--There are no controls to see that suspicious matters are reported.

--Large workloads hinder identifying suspected fraud by program personnel. For example, only three employees were responsible for administering $104 million in one Department of Labor program.

--Employees lose interest in reporting

suspected frauds when followup actions, such as investigations and prosecutions, are not promptly taken.

--Many Federal programs are administered
by State, local, or private sector insti-
tutions, and Federal agencies often un-
justifiably rely on these non-Federal en-
tities to identify and report frauds.
(See pp. 23 to 26.)

Agency investigators often do not have the
background, experience, and training needed
to effectively detect and identify fraud.
About 70 percent of them have had no prior
experience in fraud investigations, and
about 80 percent have had no formal training
in investigating fraud. Where investigators
have had such training, it was generally
limited to procurement fraud. Most investi-
gators have also lacked the education in
finance and accounting-related subjects
often needed to identify fraud. Since fraud
against the Government often involves examin-
ing financial documents, absence of a finan-
cial background could be detrimental to

effective fraud investigations.

to 28.)

JUSTICE NEEDS TO PROVIDE

STRONGER LEADERSHIP

(See pp. 26

The Department of Justice has been slow to assist, coordinate, and monitor the antifraud efforts of Federal agencies. Justice has not provided agencies with

--overall management information on how fraud has occurred and can occur in their programs and

--specific, formal guidelines on which types of fraud cases will be accepted for prosecution and how they should be developed to increase the likelihood of successful prosecution.

In 1975 Justice, recognizing the need to deal with white-collar crime, established a white-collar crime committee. One activity of this committee was to provide guidance to agencies on combating fraud. It has met extensively with agency officials and has assisted agencies in carrying out several successful projects demonstrating the existence of fraud in their programs. However, this effort's effectiveness relies on persuasion and encouragement and the availability of resources Justice can devote to it. ch. 4.)

ACTIONS NEEDED TO ENHANCE

THE FEDERAL EFFORT

(See

Current national media coverage of the alleged frauds in building construction and maintenance contracting at the General Services Administration highlights Federal vulnerability to white-collar crime and the consequent need for an effective strategy to combat it.

GAO believes a more active, systematic approach to identifying fraud is needed. Heads of the Federal agencies discussed in this report should:

--Develop management information systems aimed at providing information on the most likely types and methods of fraud, including the development of techniques for estimating the magnitude of fraud in agency programs.

--Elevate fraud identification to a high agency priority.

--Take steps to make employees more aware of the potential for fraud and establish controls to see that irregularities are promptly referred to appropriate person

nel.

--Fix organizational responsibility for identifying fraud.

--Provide agency investigators with appropriate fraud training. In future hirings, concentrate on recruitment of personnel with backgrounds and education more suited to the financial complexities of fraud.

The Attorney General should establish a formal plan to assist Federal agencies in combating fraud, including such procedures

as:

--Working with Federal agencies to develop information on the nature of potential fraud in their programs.

--Consulting with agencies to devise systems to identify and investigate fraud.

--Advising agencies of the types of cases which will receive priority for prosecution and working with agencies to devise alternative solutions for those which will

not.

--Providing feedback to Federal agency officials on program and administrative weaknesses developed by Federal prosecutors during the course of various prosecutions.

AGENCIES' COMMENTS AND RECENT ACTIONS
TAKEN OR TO BE TAKEN

The various Federal program agencies agree that more needs to be done to effectively cope with fraud and abuse in Government programs. Most of the program agencies have said that they have recently made fraud identification a high priority and have fixed organizational responsibility for fraud detection. These agencies have also identified certain other actions they have taken or plan to take to further bolster the fraud detection effort. (See apps. I to VII.)

The Department of Justice also agrees that there is substantial room for improvement in its efforts and those of agency enforcement groups. It believes that efforts already underway such as expanding resources committed to program fraud, training investigators in fraud detection, and establishing special fraud units in U.S. attorney offices, will upgrade the Department's effectiveness. (See app. VIII.)

Some of these agencies did voice concern over certain statements contained in this report and the manner in which the report characterizes their fraud detection efforts. Chapter 5 addresses these concerns and the various agency actions taken.

Senator CHILES. We will recess our hearing until tomorrow morning at 10 o'clock.

[Whereupon, at 1 p.m., the hearing was adjourned, to reconvene at 10 a.m., Tuesday, September 19, 1978.]