Typology of

Fraud and Error

Control Programs

Developed by:
C. A. MacDonald & Associates
15407-75 Avenue
Edmonton, Alberta T5R 2Y9
Tel: (403) 487-8943
Fax: (403) 481-0923
Copyright  August, 1993

Table of Contents

    Definition of Fraud and Error

    Typology of Fraud and Error Programs


    Appendix - Listing of Control Programs by Type



There are two main types of error which can be identified on client files in the delivery of Income Security programs: financial and non-financial. Financial errors result in an overpayment or underpayment to the client. Non-financial errors, on the other hand, cannot be directly demonstrated to result in an overpayment or underpayment. For example, an issue of a supplementary benefit for which the client is not eligible is a financial error - it results directly in an overpayment. If, however, the file does not contain verification for the client's rent, then a non-financial error may have occurred. If the client is misreporting his rent, intentionally or not, this error also results in an overpayment. But, it may also be that the rent verification agrees with the amount on file, so no overpayment results. Non-financial errors are characterized by a need for additional follow-up to further define whether a financial error results or whether policy and procedures are not followed, but it does not result in an overpayment or underpayment.

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:

For purposes of this typology of fraud and error control programs, both legal fraud and program abuse are handled under the category "fraud", since the mechanisms and procedures used to identify the incident are identical. Issues of non-financial error, which are more of a case management issue, are not addressed directly. However, once the non-financial error has been reviewed and clarified as having a financial impact, then this may become another form of administrative or client error.

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.
Most jurisdictions have, at the very least, passive detection and collection processes in place. However, only a relatively small proportion of jurisdictions proceed beyond this level into deterrence, prevention, and active detection programs. There is a very clear division between these two types of jurisdiction. Only those jurisdictions who have made an active attempt to measure the degree, cause, and dollar value of overpayments have proceeded beyond the minimal programs of passive detection and correction.

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.



Using the definitions of types of fraud and error outlined earlier, coupled with the five types of activities in fraud and error programs, a typology of mechanisms and initiatives which have been shown to impact fraud and error levels, and the contingent overpayments and underpayments has been developed. This theoretical construct will enable jurisdictions to assess their own fraud and error programs to achieve the following objectives:
  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.


C. A. MacDonald & Associates has in-depth knowledge and understanding in the field of fraud and error control programs, as well as income security policy and delivery in general. Working closely with the internal management and staff from a specific jurisdiction, C. A. MacDonald & Associates can assist individual jurisdictions to reduce their levels of fraud and error, and the resulting costly overpayments and underpayments. In the current fiscal and economic climate, income security programs must be able to publicly demonstrate financial accountability and a minimal level of program waste as a result of fraud and error.

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



Publication of fraud convictions.  

Clear statement of penalties to clients through pamphlets, posters, etc.  

Strong legal wording in client declaration on application form  

Public and client awareness of specialized fraud staff  

Warning at intake about fraud and penalties  

Public announcement of "welfare crackdown"  

Public program  

Enhanced verification of need requirements  

Photo ID  

Digitized/  scanned  
fingerprint or other improved client ID  

Income Assistance ID  

Medical Card  

Intake in client's home.  

Investigation or verification prior to intake  

Safe-proofing cheques against counterfeiting  

Risk assessment of clients  

Postal code checks  

"Alerts" on system.  

Strict controls on issuing of birth certificates 

Intake worker training regarding identification of forged documents 

Direct deposit of client payments

Fraud "Profiling"  

Random Eligibility  

Data matches with other jurisdictions  

Data matches with other programs  

Non-deliverable cheques follow-up  

Review of location of cheques cashed.  

Review of late cheques cashed.  

Periodic data match on outstanding arrest warrants/serving prisoners  

Random address verification  

Periodic client cheque pickup or delivery  

Special constable status for investigators

Hiring of internal  
departmental investigative staff  

Investigation of all external reports of program abuse  

Advertizing of mechanisms for public reporting of suspected program abuse  

Establishment of a Fraud "Hot Line".  

Close Liaison with other enforcement systems, eg. police, immigration, etc.  

Follow-up on suspicious cases turned up through eligibility reviews or udits  

Amnesty period offered to clients who report program abuse

Case Closure  

Reduction of benefit levels  

Criminal prosecution  

Civil recovery procedures  

Reimbursement of funds.  



inter-program collection of  

Lien on real  




Publication of vendor fraud convictions  

Clear statement of penalties on vendor payment instruments.


Client declaration or signature required to confirm receipt of goods and services.   

Licensing of authorized vendors   

Monitoring by   

Develop close relationship and "presence" with inner city landlords

Fraud "Profiling"  

Duplicate address checks to identify "mail-drops" and kickbacks to landlords  

Undercover "sting" operations  

Random client   
verification of   
receipt of service


Public identification of reporting mechanisms  

Follow-up on all reports of suspected vendor abuse  

Development of close links with commercial crime police units/better   
business bureaus


Recovery of   
funds/criminal or civil prosecution.  

Vendor "blacklist"  

Loss of license or professional affiliation




Internal publication of identified cases   

Clear description of penalties provided to staff   

Quality training of staff  

Media coverage where criminal prosecution is undertaken  

Training of supervisors


Separation of   
client registration   
and eligibility   

Criminal record checks on staff   

Risk assessment of procedures   

Careful control of cheque/ voucher forms  

Staff rotation  

Staff code of  


Computer security


Fraud "Profiling"   

Random verification of file closure date   

Periodic random financial audits  

Address check against staff list 


Follow-up on all staff, client, and/or public reports of abuse 


Termination of services   

Criminal prosecution   





Expectations for error levels built into performance appraisal system   

Staff commitment to quality service 


Computer system with built-in edit checks and error   
correction routines  

Effective staff training program   

Program simplification  




"Pre-audit" assessment of every client payment prior to issuance   

Supervisor review of a sample of files


"Post-audit" file assessments and audits  

Clear, rapid, feedback loop on errors and immediate correction


Client repayment of funds paid in error  

No repayment - correction of error only for on-going payments  

Internal or  
External error correction




Client awareness of reporting requirements 


Monthly client reporting system for change in circumstances   

Sufficient time at intake for thorough explanation from worker   

Easy client access to staff/prompt staff response to client inquiries  

Client training on program "rules"   

"Plain English" program brochures  

Translation of program materials into key other languages


Client completed periodic file reviews  

Random eligibility and benefit verification process  

Data matches to identify unintentional non-reporting of income 


Annual reports


Client repayment of error  

No repayment - correction of error only for on-going payments

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