Texas Senate Finance Examines Fraud, Waste, and Abuse

Estimated Time to Read: 12 minutes

As Texas state lawmakers begin preparing for the 90th Legislative Session, one question is beginning to shape the conversation surrounding the next state budget: how can lawmakers better ensure taxpayer dollars are being spent responsibly before appropriating even more?

That question was the focus of a nearly five-hour hearing held by the Senate Committee on Finance last week. Charged with examining fraud, waste, and abuse throughout state government, Senators heard testimony from the Legislative Budget Board (LBB), Comptroller of Public Accounts, State Auditor's Office (SAO), Health and Human Services Commission (HHSC), Office of the Attorney General (OAG), Texas Workforce Commission (TWC), Texas Education Agency (TEA), Texas Southern University (TSU), and several other entities responsible for overseeing the expenditure of taxpayer funds.

Although the hearing did not consider legislation, it offered one of the clearest previews yet of the issues likely to shape fiscal policy during the upcoming legislative session. Committee members repeatedly returned to questions about agency accountability, contract oversight, Medicaid integrity, financial reporting, and whether Texas possesses the tools necessary to identify improper spending before taxpayer dollars are lost.

The discussion also comes at an important moment in Texas budget policy.

Over the last two budget cycles, appropriations from state funds have increased by approximately 42 percent, substantially exceeding the combined growth of population and inflation. Earlier this month, Governor Greg Abbott (R), Lieutenant Governor Dan Patrick (R), and House Speaker Dustin Burrows (R-Lubbock) instructed most state agencies to submit Legislative Appropriations Requests (LARs) that reduce their baseline budget requests by three percent for the 2028-29 biennium. While that announcement signaled greater attention to fiscal discipline, Texas Policy Research (TPR) noted at the time that the directive does not actually reduce state spending and exempts several of the state's largest budget categories. Ultimately, the Legislature, not executive guidance, determines how much taxpayers will ultimately spend.

Viewed together, those developments help explain why the committee devoted an entire hearing to oversight. Before lawmakers decide how much government should spend during the next biennium, many appear interested in understanding whether the money already being appropriated is being managed effectively.

Oversight Is Increasingly Focused on Prevention

One of the strongest themes throughout the hearing was a shift in emphasis from recovering taxpayer dollars after they have been lost to preventing improper spending from occurring in the first place.

Historically, discussions surrounding fraud, waste, and abuse have often focused on investigations, prosecutions, and recovering money after improper payments have already been made. While those efforts remain important, much of the testimony centered on strengthening internal controls capable of identifying risks before they become expensive problems.

The LBB described a wide range of oversight functions already employed across state government, including internal audits, utilization reviews, regulatory enforcement, cybersecurity, quality assurance programs, tax compliance activities, and increasingly sophisticated data analytics. Rather than functioning independently, these tools are intended to help agencies continuously monitor financial activity, identify unusual patterns, and detect potential problems earlier in the spending process.

Federal policy appears to be moving in much the same direction. The LBB highlighted recent federal initiatives designed to improve information sharing between agencies, strengthen grant oversight, establish anti-fraud task forces, expand fraud screening tools, and leverage modern data analytics across programs ranging from Medicaid and SNAP to higher education financial aid and housing assistance.

That evolution reflects an important reality. Recovering taxpayer dollars after fraud occurs is valuable, but preventing those losses altogether is considerably more effective. Every dollar prevented from being spent improperly is a dollar that never requires investigation, litigation, or recovery.

As lawmakers prepare to write the next state budget, improving preventative oversight may prove politically easier than reducing appropriations outright. Regardless of differing views about the proper size of government, legislators generally agree that taxpayers should expect public dollars to be protected through effective internal controls, modern oversight tools, and responsible financial management.

Medicaid Remains the Legislature's Primary Focus

Although the interim charge covered fraud, waste, and abuse throughout state government, the hearing made clear that Medicaid continues to receive the greatest attention from lawmakers.

That is hardly surprising. Medicaid represents one of the largest and most complex areas of state spending, involving billions of taxpayer dollars, millions of beneficiaries, and an extensive network of healthcare providers and contractors.

Much of the discussion focused on the systems Texas already has in place to oversee those expenditures. The LBB outlined the role of the HHSC's Office of Inspector General, which investigates allegations of fraud, waste, and abuse within the agency, while the OAG's Medicaid Fraud Control Unit conducts criminal investigations involving Medicaid providers. The Legislature has also appropriated additional funding for fraud detection initiatives and recovery auditors designed to identify and recover improper Medicaid payments.

Committee members also explored how recent federal policy changes could affect Texas moving forward. Witnesses discussed changes affecting Medicaid eligibility, enrollment, payment integrity, and other administrative requirements that will likely require continued attention as federal reforms are implemented.

More broadly, the discussion underscored why healthcare programs will almost certainly remain among the Legislature's highest oversight priorities during the 90th Session. Given the size of these programs and their impact on both the state budget and vulnerable Texans who depend upon them, lawmakers appear intent on ensuring agencies have effective systems for detecting improper payments while maintaining access for those who are legitimately eligible.

State Contract Oversight Receives Greater Scrutiny

While Medicaid dominated much of the hearing, lawmakers also devoted significant attention to another area that has received increasing scrutiny in recent legislative sessions: state procurement and contract management.

The LBB described the work of its Contract Oversight Team, which maintains a publicly searchable database containing more than 265,000 state contracts. In addition to managing the database, the team reviews contracts exceeding $1 million, monitors amendments that significantly increase contract values, publishes annual procurement compliance reports, and serves as a resource for legislators evaluating major state purchases.

Witnesses also reviewed the extensive reporting requirements already imposed on state agencies. Depending on the type and value of a contract, agencies must report contract awards, amendments, consulting agreements, extensions, and certain exceptions to competitive bidding requirements. Agencies that choose not to follow recommendations from the Contract Advisory Team must also provide written explanations, while long-running contracts often require additional legislative review before renewal.

The discussion suggested that lawmakers are less interested in creating entirely new procurement systems than in determining whether existing safeguards are producing meaningful accountability. As state government continues to rely on increasingly complex technology systems, outside vendors, and large consulting contracts, legislators appear likely to continue asking whether current oversight mechanisms provide enough transparency before projects grow significantly in cost or scope.

The conversation also reflects a broader principle. Every dollar spent through a contract ultimately comes from taxpayers, making procurement oversight just as important as oversight of direct government programs. Ensuring those dollars are spent competitively, transparently, and in accordance with legislative intent remains an essential component of fiscal responsibility.

Texas Has Built an Extensive Oversight System

Another takeaway from the hearing is that Texas already devotes considerable resources to financial oversight across state government.

According to the LBB, the state appropriated approximately $234.1 million during the current biennium to support independent Offices of Inspector General within four major agencies. The OAG received nearly $50 million to support Medicaid benefit oversight, while the Comptroller and the SAO together receive almost $300 million to perform audit functions across state government. Additional appropriations support fiscal oversight performed by both the Comptroller and the LBB itself.

Those figures demonstrate that Texas has not ignored oversight. Instead, lawmakers have spent years building an extensive framework of auditors, investigators, inspectors general, financial analysts, and compliance professionals responsible for safeguarding taxpayer dollars.

The more interesting question raised during the hearing was whether that framework is delivering the results taxpayers should expect.

That question carries added significance given the rapid growth in state spending over recent budget cycles. As appropriations have increased, so too have expectations that agencies should be able to demonstrate measurable stewardship of the resources entrusted to them. Legislators repeatedly returned to questions not simply about how much money oversight offices receive, but whether those investments are reducing improper payments, improving accountability, and strengthening public confidence in state government.

Good stewardship is not measured solely by how much money government recovers after fraud occurs. It is also measured by whether agencies can demonstrate that public dollars are being managed efficiently enough to prevent those losses from occurring in the first place.

Lawmakers Are Looking Beyond Criminal Fraud

Another recurring theme throughout the hearing was that fraud, waste, and abuse are related concepts, but they are not interchangeable.

The LBB explained that Texas does not maintain one universal statutory definition applicable across all of state government. Instead, different statutes define those terms for specific programs, with the presentation relying upon longstanding federal Inspector General definitions describing fraud as intentional deception, waste as unnecessary or careless expenditures resulting from deficient practices, and abuse as the improper use of government resources.

Many of the reforms lawmakers may ultimately consider have little to do with creating new criminal penalties.

Fraud rightly demands investigation and prosecution. Waste, however, often reflects ineffective management, outdated procedures, or insufficient oversight. Abuse may involve improper practices that undermine public confidence even when criminal laws have not been violated.

Viewed through that lens, the hearing was as much about improving the performance of government as it was about punishing misconduct. Better financial reporting, stronger internal controls, more transparent procurement practices, enhanced performance auditing, and modern data analytics all have the potential to reduce waste long before prosecutors or investigators become involved.

Potential Policy Implications for the 90th Texas Legislature

Although no legislation was considered, the hearing offered several clues about where lawmakers may focus their attention when the Legislature reconvenes in January.

One likely area is the continued expansion of data analytics and automated monitoring tools capable of identifying suspicious spending patterns before improper payments occur. Agencies increasingly possess access to large amounts of financial information, and legislators appear interested in ensuring those resources are being used proactively rather than reactively.

Procurement oversight also seems likely to remain a priority. Large technology contracts, consulting agreements, and significant contract amendments continue to attract legislative attention, particularly as state government becomes more dependent upon outside vendors to deliver critical public services.

Perhaps most importantly, the hearing suggested lawmakers may place greater emphasis on requiring agencies to justify existing spending before requesting additional appropriations.

That possibility aligns with recent budget guidance directing most agencies to reduce their baseline LARs by three percent for the upcoming biennium. As TPR previously noted, however, smaller budget requests should not be confused with actual reductions in state spending. Agencies remain able to request additional funding through exceptional items, while the Legislature retains full authority over final appropriations.

Even so, the philosophy behind both discussions is similar. Rather than assuming government should continue growing automatically, lawmakers increasingly appear interested in asking agencies to demonstrate measurable performance, identify inefficiencies, recover improper payments, and explain why existing appropriations remain necessary before seeking additional taxpayer dollars.

That represents a meaningful shift in emphasis. Fiscal responsibility is not simply about limiting future growth. It begins with understanding how current dollars are being spent and whether taxpayers are receiving the value they were promised.

Make Government Transparent

The July 28 hearing also reinforces a broader principle that extends beyond fraud investigations and financial recoveries.

Effective oversight begins with transparency.

Neither legislators nor taxpayers can effectively evaluate government performance if spending information is fragmented across multiple reports, difficult to interpret, or disconnected from measurable outcomes. Transparency is what allows oversight to function. Without it, identifying fraud, waste, or abuse becomes significantly more difficult.

For that reason, Texas Policy Research's Texas Liberty Compact calls on lawmakers to Make Government Transparent by improving the quality and accessibility of state financial information. Among other reforms, the Compact recommends publishing clearer budget summaries, standardizing comparisons between spending growth and population plus inflation, consolidating reporting on supplemental appropriations and dedicated funds, disclosing long-term fiscal obligations, and providing meaningful program-level performance reporting.

Those recommendations are not simply about making government easier to understand. Better transparency strengthens legislative oversight, allows inefficiencies to be identified earlier, gives policymakers better information when writing the budget, and helps taxpayers evaluate whether government programs are producing measurable results.

If the Legislature intends to strengthen oversight during the 90th Session, improving transparency may prove every bit as important as expanding investigative authority

Looking Ahead

Looking Ahead

Preventing fraud, waste, and abuse is one of government's most fundamental responsibilities, but the Senate Finance Committee's July 28 hearing demonstrated that lawmakers are asking broader questions than simply how to recover taxpayer dollars after they have been lost.

As Texas prepares another biennial budget following years of significant spending growth, legislators appear increasingly interested in whether agencies can justify existing expenditures, demonstrate measurable performance, and ensure taxpayer dollars are being managed responsibly before requesting additional funding.

Recent budget guidance issued by Governor Abbott, Lieutenant Governor Patrick, and Speaker Burrows reflects growing recognition that the state should exercise greater fiscal discipline. Whether that ultimately produces a smaller government, however, will depend less on agency budget requests than on the appropriations ultimately enacted by the Legislature. Smaller requests for future spending increases should not be mistaken for actual reductions in state spending.

For Texas Policy Research, protecting taxpayers requires more than recovering misspent dollars after the fact. It requires transparent budgeting, meaningful oversight, measurable accountability, and a government willing to justify every taxpayer dollar it asks to spend. Those principles complement one another, and together they offer lawmakers a framework for restoring fiscal discipline while strengthening public confidence in Texas government as the 90th Legislature begins its work in January 2027.

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