The Equilibrium Insight: What Fraud Can Teach Us About Trust
“Fraud is an equilibrium quantity. We can’t check up on everything, and we can’t check up on nothing…”
— Dan Davies, Lying for Money
When the Arizona Empowerment Scholarship Account (ESA) program fell into my lap in July of 2012, I wasn’t sure what to make of it. When I asked my more experienced colleagues in the Department of Education (the department) where I should start, most shook their heads, gave a shrug and quickly walked on like I was radioactive. The general consensus over the first few weeks as I went hat-in-hand to those who knew better was, better you than me.
I started with the legislation, since that’s all there was. No forms, no procedures, no rules, guidelines—nothing. We were the first, and I had one staff member: myself. It quickly became obvious that the ESA legislation was trying to be a program and a non-program, a mad-hatter’s un-birthday, a place where families could use the same public dollars but be given near-total freedom to machete their own way through a K-12 education for their children, massive trust given to the parents instead of rigid top-down oversight, that was the spirit of the law—at least as I read it. It was strange because the letter of the law, the little block of text that gave those freedoms was wrapped, stamped and delivered in the familiar format of a large government program given to an agency that tended to make lots of rules and regulations and was known for strict oversight.
Our building was full of smart people who knew how to run government programs, but this was not a typical government program, at least at the department. We were trained to work with professionals at school districts who understood funding formulas, crosswalks, and complex frameworks. The ESA program had the department working directly with parents, checking on what a parent spent their ESA money on. It quickly became apparent that this would be the primary function of the ESA unit: when a parent swiped their card to buy an item or service for their child’s education, were we okay with it?
When the realization struck that the complexity could quickly overwhelm me, I had to act to keep things in order without stifling the entire point of the ESA program—freedom.
The first year was a rodeo, but thankfully, the program remained small enough that I could call the parents directly if there was a problem. I had enough bandwidth to know most of their names and specific issues, but the program quickly grew, and soon, Florida legislative staffers were calling to see if this was something they could do.
At the time I could promise my superintendent, the legislature, and anyone who asked one-hundred percent review of every expense, because the program was so small. This answer pleased everyone, and the legislature expanded the program many times over the next few years.
Since 2012, ESA programs have proliferated across the country and expanded to serve hundreds of thousands of families; these programs are on their way to serve millions, with states allocating billions in funding. These are not one- man shows anymore; they’re massive education freedom programs that were given to agencies who largely operate very different oversight models.
The opponents of the program quickly honed in on “fraud” within the program.
What I eventually had to confront, though, was something more basic: scale changes everything.
In the early years, when the program was small, I could promise one-hundred percent review of every single transaction. And I meant it. I could call a parent the same day if something looked off. I knew the families. I knew the stories. That level of scrutiny was possible because the program was insulated.
But as it grew, I had to face a hard truth that administrative leaders are still facing today: no large public program operates on one-hundred percent review forever. Not public school districts. Not Medicaid. Not SNAP. Not federal student aid. Not even the Pentagon. As the Government Accountability Office (GAO) frequently explains in its work, improper payments and fraud exist along a spectrum, and agencies manage them through risk-based oversight systems. They measure error rates. They build internal controls. They target high-risk transactions. They accept that zero is not the equilibrium.
Dan Davies was right: fraud is an equilibrium quantity. We cannot check everything, and we cannot check nothing.
At scale, the question shifts from “Did you catch every questionable purchase?” to “Do you have reasonable controls proportionate to the size and risk of the program?”
And this is where language begins to matter.
The word “fraud” has been used liberally in debates over ESA programs. But GAO and federal auditors draw careful distinctions between fraud, waste, abuse, and improper payments. Fraud requires intentional deception. An improper payment, by contrast, can simply be a payment that does not meet technical program requirements, including misunderstandings, documentation errors, or policy gray areas.
In a program explicitly designed to allow families to customize their child’s education, gray areas are inevitable. When a parent purchases something that falls outside policy guidance, that may be a non-policy purchase. It may require clarification, repayment, or rulemaking. But it is not automatically criminal fraud as has been described in the papers.
Lumping every disputed transaction into the category of “fraud” does more than inflate headlines. It obscures the real design challenge: how to preserve freedom while building intelligent guardrails.
ESA programs were built on trust—trust that parents, given flexibility, will act in their children’s best interest. The overwhelming majority do. The policy question is not whether there will be zero improper payments. There never are in any program of scale. The question is whether the system is nimble enough to manage risk without crushing the very autonomy the program was designed to provide.
Improper payments are not a sign that trust is a mistake. It is a signal about where equilibrium has not yet been found.
And finding that equilibrium, between trust and verification, freedom and accountability, is the real work.
