July 8, 2010

The Low-Income Home Energy Assistance program provides $5 billion annually to the states, which distribute the funds to businesses, nonprofits, and homeowners. Unfortunately, the states do a poor job making sure the money isn’t lost to fraud and abuse.

In response to a recent case of massive LIHEAP fraud in Pennsylvania, the Government Accountability Office investigated programs in seven other states. Prior to the investigation, federal oversight of the LIHEAP program had been virtually non-existent. 
The following are some of the GAO’s findings:
  • The applications of 9 percent of the households receiving LIHEAP benefits contained invalid identity information. For example, the identities of over 11,000 deceased individuals were used as applicants or household members for LIHEAP benefits. The GAO also found 725 instances where incarcerated individuals were used as applicants or household member. 
  • Even federal employees are gaming the program. The GAO identified 1,100 federal employees whose salary exceeded the maximum income threshold at the time of their application. One federal employee admitted that she saw the “long lines” of applicants and wanted the “free money.” 
  • The GAO identified several recipients living in million-plus dollar houses in Maryland and Illinois. But because these two states don’t consider the household’s assets in determining this “low-income” program’s eligibility, it’s technically not fraud! One LIHEAP recipient lived in a $2 million home and owned a late 2000s Mercedes. 
  • GAO investigators posed as applicants, created fake documentation, and set up a fake energy company to receive LIHEAP checks. In every instance the states paid out benefits. 
The GAO found that state oversight was severely lacking: 
[T]he 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. 
Several state officials told the GAO “that they generally did not pursue investigations and prosecutions. The reason is that the benefit amounts are relatively small.”
This response illustrates the problem with governments being charitable with other people’s money. The states have little incentive to ensure that the money is properly spent because it comes from the federal government. This is a reason why the federal government should only fund those activities permitted by the Constitution. Energy subsidies and other subsidies for state and local activities are not among those activities.
See this essay for more on fraud and abuse in government programs.


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