The state of identity fraud 2026: Public sector

Identity fraud is on the rise, but the risks vary widely depending on the industry. In a new report from Lumin, we surveyed decision-makers across three countries to understand which sectors are most vulnerable, and how they're taking action.

Compared to most commercial industries, the public sector reports a relatively low incidence of identity fraud. However, respondents are also very concerned about AI-powered fraud and its impact on agreement workflows. So, while the risk profile differs from that of private businesses, it's still very real.

For similar insights into other industries, see our other guides to identity fraud in the financial services, consulting, legal services, and healthcare sectors.

Lower exposure, significant risk

Lumin recently surveyed 1,000 decision-makers across financial services, consulting, legal services, healthcare, and the public sector in the United States, New Zealand and Australia. Among these industries, the public sector reported the second-lowest exposure to identity fraud overall, with 25% experiencing an incident in the past 12 months. Only legal services had a lower figure (20%).

While the public sector experienced far fewer instances of identity fraud than financial services (80%), consulting (68%), and healthcare (63%), it's important to point out that one in four organizations was still affected. That's a meaningful figure, especially considering how much sensitive data the public sector handles every day.

Much of this data belongs to citizens or involves public funds, making the sector extremely vulnerable to scammers. A single identity fraud event, no matter how small, can have massive consequences for government agencies or local authorities, leading to potential compliance breaches and a loss of public trust. In worst-case scenarios, identity fraud might even disrupt public services, leaving communities without essential resources.

Interestingly, 84% of public sector respondents said they would be less willing to work with another organization if it had recently experienced identity fraud. This is a considerably higher rate than other sectors, including healthcare (67%) and consulting (64%).

The threat of AI-powered fraud to agreement workflows

While overall exposure to identity fraud is relatively low in the public sector, concern about the impact of AI fraud when managing legal contracts and agreements is high. According to our survey, 59% of decision-makers in the public sector rate their agreement workflows as "very" or "extremely" vulnerable to AI-powered threats, which is above the cross-industry average of 51%. The industry's fear may be driven by the highly valuable data and assets it manages, which include tax records and healthcare information.

AI fraud in agreement workflows can take many forms, but examples include:

• AI-generated signatures that look like those of real people
• Fake identity documents that bypass verification checks
• Deepfake audio and video clips that impersonate trusted officials.

While these problems exist across all industries right now, the public sector faces unique risks. Many agreements involve the handling and distribution of government funds, so a single signature can carry real legal and civic weight. If someone fakes a document or impersonates an official with artificial intelligence, it can weaken trust in public institutions.

Low confidence in eSignature platforms

The public sector is the second-highest adopter of dedicated eSignature platforms, with 63% using them as their primary method for capturing agreement signatures. This technology streamlines agreement workflows by reducing paperwork and speeding up approvals.

That said, only 17% of decision-makers in the public sector say they have complete trust in the eSignature tools they currently use, which is a lower rate than all other sectors apart from legal services (10%). Eighty percent of respondents in this industry say their existing platforms could be improved.

So, why such a lack of confidence? Perhaps the sector's awareness of AI-powered threats has led them to scrutinize their tools more closely. Weak security features, for example, could allow fraudsters to exploit sensitive public data, resulting in compliance breaches and misuse of funds.

Support for digital identities

Digital IDs can help public officials confirm identities during agreement workflows, reducing all kinds of fraud risks. Here's how they work: A government authority or accredited private organization verifies someone's identity once before issuing a verifiable digital credential, allowing organizations to reduce manual checks every time a digital agreement needs to be signed.

Ninety-one percent of decision-makers in the public sector support the introduction of government-issued digital IDs, which is among the highest rates across all sectors. When asked why they support them, respondents noted the following benefits:

• Improved security and reduced fraud (54%)
• Easier identity verification (24%)
• More convenient and efficient services (13%)

Unlike some commercial sectors, security is the biggest benefit of digital IDs for the public sector. This may reflect the industry's awareness of AI fraud and how it can infiltrate agreement workflows. With a stronger identity infrastructure, public sector organizations can protect public funds, improve compliance, and increase trust.

Investment in identity verification

Across all respondents, 78% say they intend to increase investment in identity verification processes and technology in the next 12-24 months. In the public sector, this figure stands at 75%. Fifty-three percent of decision-makers plan to spend "moderately" more during this time period, while 22% plan to spend "significantly" more.

The reason for this increased investment might reflect what's going on in the public sector as a whole:

• Security and reduced fraud are the main benefit decision-makers see from digital IDs
• Trust in existing eSignature platforms is low
• Concern about AI-powered fraud remains high.

By spending more on identity verification, the public sector can prepare itself for the threats that lie ahead and reduce the time it takes to check someone's credentials. Currently, 50% organizations of all industries spend between an hour and several days verifying identities, while 21% consume more than four hours per agreement.

Learn more about identity fraud

Lumin's new report has additional insights about identity fraud in the financial services, legal services, consulting, and healthcare sectors. Download Digital identity in business: The threats, impact, and opportunities to find out how decision-makers are responding to the latest threats.