Table of Contents

    Typology of Fraud and Error Programs

    Summary

    Appendix - Listing of Control Programs by Type

DEFINITION OF FRAUD VERSUS ERROR

In the development of this typology, the two main variables selected for categorizing overpayments are the person(s) responsible for the overpayment and whether or not the person(s) intended to create an overpayment. The person(s) who may be responsible for an overpayment are the client himself, the staff member(s) responsible for the file, and external vendors of goods and services who receive payment directly from the jurisdiction on behalf of the client. The following schematic demonstrates the associated types of fraud and error.
 

Responsibility for Overpayment	Intentional Overpayment	Unintentional Overpayment
Client	Client Fraud	Client Error
Vendor	Vendor Fraud	Administrative Error
Staff	Staff Fraud

There are no clear-cut definitions of fraud and error in the sense that the dividing line, where error crosses into fraud, is based on the psychological construct of intent. And, fraud is a legal term which applies when intent can be proven in a court of law. There will be many cases identified in which the investigator is sure that fraud occurred, however, it is cannot be proven in court - this category could be referred to as "program abuse".

All of these categories of error and fraud overlap, and it is often a matter of convenience or legal niceties which determine how a particular case is labelled. Generally, the overall caseload profile shows a pattern as follows:
 

Programs which are designed to identify, reduce and control levels of fraud and error, and the contingent overpayments and underpayments, fall into five categories:
 

1. DETERRENCE - Deterrence activities and controls are intended to cause clients, staff or vendors to choose not to commit fraud or to desire to minimize errors. Given that only the individual "deterred" has any knowledge of whether a certain activity caused them to choose the desired course, this area is practically impossible to quantify. Field practitioners vouch for the efficacy of deterrence activities, but they do not lend themselves to any form of cost-benefit analysis. An example is the fingerprint imaging process which deters clients from applying twice under different names.
2. PREVENTION - Prevention activities and controls are designed to ensure that, even if an individual has decided to commit fraud, the individual would be unable to follow through on their intentions because of some intervening circumstance. Error prevention occurs when computer systems, procedures or individual knowledge intervenes in the payment process to correct the error before an overpayment actually occurs.
3. ACTIVE DETECTION - Active detection programs are predicated on a jurisdictions belief that fraud and error are an expensive reality. These programs, through an assessment of ways that an individual could make an error or commit a fraud, involve a conscious effort on the part of the jurisdiction to "go out looking" for incidences of overpayment. These are often referred to as "early detection" or "front-end" programs. If there is public knowledge of these programs, they also have both deterrent and preventive effects.
4. PASSIVE DETECTION - Passive detection programs depend on regular internal controls or on someone or something outside the jurisdiction to identify a potential case of overpayment. Once that identification of potential fraud or error has been made, however, post-fraud investigation programs move in to confirm and correct the overpayment.
5. COLLECTION - These processes and activities relate to "righting the wrong", and may involve "outsiders" to the program, such as police, courts, or personnel departments.

There are a surprisingly large number of jurisdictions who make no attempt to measure the degree of error or fraud that they have within their programs. In these cases, neither the program department itself, nor the related Auditor-General's department, have identified the issue of cost-control through reduction in fraud and error levels as a priority. These jurisdictions also invariably have few, if any, programs for controlling or reducing the level of fraud and error. It is highly unlikely that these jurisdictions are operating an error-free or fraud-free program. However, if fraud and error levels are not routinely measured and identified, there is no public or internal pressure to "solve the problem".

The public sensitivity towards levels of fraud and error in Income Security programs, coupled with a tight fiscal environment, make it critical that jurisdictions be able to demonstrate internally and publicly the integrity of the social assistance programs. Therefore, C. A. MacDonald & Associates has developed the following typology of fraud and error control programs to assist jurisdictions which are attempting to improve their levels of fraud and error in their income security programs.

1.  To provide a comprehensive framework for fraud and error programs to assist in program design, implementation and evaluation.
2. To identify new initiatives which seem worthy of implementation.
3. To determine whether there are alternative initiatives which seem to offer a higher "rate of return" to replace programs already in place which have not demonstrated a similar level of effectiveness.
4. To ensure that at least some programs are present in the jurisdiction to address each of the five major types of activities.
5. To assess current initiatives in controlling fraud and error levels.

SUMMARY

On request, C. A. MacDonald & Associates will tailor a proposal, based on this typology and creating other tools, techniques and strategies as required, to meet the needs of a specific jurisdiction in addressing fraud and error.

Appendix - Listing of Control Programs by Type