For months, Heritage scholars have warned that the Obama Administration created incentives for fraud by allowing Obamacare insurance subsidies to basically operate under an “honor system” instead of requiring the IRS to verify incomes of Americans eligible for subsidies.

The Treasury Department’s watchdog confirmed those fears by warning that Obamacare subsidies may be vulnerable to fraud.

In a new audit from the Treasury Inspector General for Tax Administration, the agency found that the Internal Revenue Service, which is in charge of administering Obamacare subsidies, had not put in place a fraud strategy for its Obamacare system development, testing, initial deployment, or long-term operations.

The IRS’s current [Internal Revenue Manuals] do not address management’s responsibility for managing, monitoring, and mitigating fraud risk with the development of new information technology systems for [Obamacare]. Further, the ACA Program has not yet completed a fraud mitigation strategy to guide ongoing systems development. It is important for the IRS to thoroughly consider fraud threats and risks that could impact new ACA systems.

What this means is that the IRS doesn’t have the necessary systems in place to effectively root out Obamacare subsidy applicants who report an income that is actually lower than their true income so that they can qualify for a higher subsidy. They’ll have unfairly high subsidies on the backs of hard-working taxpayers who follow the rules.

As Heritage had noted, Obamacare supporters had claimed that the new allowances for the IRS would not encourage fraud because “applicants who receive [subsidies] for which they are ineligible will have to pay them back when they file their taxes.”

But that isn’t correct. Individuals face a maximum $2,500 fine for repayment but could reap far more benefits in the process.

This is just another example of how Obamacare puts taxpayers at risk—with its broken promises and trampling of fundamental freedoms. The Treasury audit is another red flag that Americans need less government intervention in their health care and more common-sense reforms.