Mish's Global Economic Trend Analysis: States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There?: I suspect fraud is in the neighborhood of 25-50% (and higher would not surprise me one bit). The reason is that States Have an Incentive to Promote (Not Stop) Disability Fraud.
This all goes back to 1996 when president Bill Clinton promised to "end welfare as we know it". He did indeed do just that, and fraud is the result.
The federal government pays disability, but states pay part of welfare costs. This creates a huge incentives for states to actively promote disability fraud (simply to get people off state-sponsored welfare programs). (read more at link above)