Countering Fraud in Social Benefit Programmes

5. Future directions to mitigate external fraud risks

This report highlights key areas for improvement to prevent and detect external fraud in SBPs. By addressing certain gaps in current prevention, detection and evaluation measures, governments can strengthen their anti-fraud approaches and ensure that they deliver SBPs efficiently. Taking action against external fraud not only leads to fewer financial losses, but also non-financial gains in terms of better service delivery and preservation of trust in government. As described in this report, governments and responsible entities can take concrete steps to prevent, detect and evaluate external fraud in SBPs.

5.1. An ounce of prevention is worth a pound of cure

An overarching strategy that communicates the strategic vision for tackling fraud is vital. This provides staff with a roadmap for how the entity plans to approach the issue of external fraud, differentiating it from other types of improper payments. Also, communicating the strategy to the public can help build trust and demonstrate that the organisation is committed to reducing fraud in SBPs.

The report highlights the need to ensure effective controls in the claimant registration phase of SBPs. As evidenced in many countries, this stage is particularly susceptible to fraud. By targeting preventive controls at this stage and simplifying processes for declaring additional income and re-registering for benefits, entities can minimise fraud risk and potentially prevent individuals from committing fraud at a later stage.

Linked to this is the need to understand what motivates individuals to commit fraud and to design communication and deterrence campaigns in a nuanced way. By testing and adapting fraud deterrence messaging, public organisations can ensure that control activities and public campaigns are responding to the reality of how and why individuals commit fraud. This helps governments move away from traditional, punishment-focused approaches that are costly and inefficient to fraud prevention. Last, using risk management to prioritise and target control activities can render service delivery more cost-efficient and strengthen fraud prevention efforts.

5.2. Enlisting technology and people for better detection

The report highlights the opportunities for public organisations that are responsible for SBPs to use data as a strategic resource. By investing in tools to facilitate fraud detection and developing intelligence capabilities, entities have a better chance of early detection when it comes to potential or actual fraud. Furthermore, data analytics tools and techniques such as data matching can facilitate real-time decision making and monitoring of fraud risks, as well as identifying red flags for fraud in data sets.

Internal and external audit bodies contribute to fraud detection, and there are opportunities for public organisations to make better use of audit findings to hone their anti-fraud measures. Internal audit functions can identify control weaknesses and trends that may suggest fraudulent activity or abuse, while supreme audit institutions (SAI) can provide a broader view and analysis of whether anti-fraud measures in SBPs are effective. Thematic studies and reports undertaken by SAIs can draw attention to deficiencies and provide recommendations on where public organisations can make improvements.

In SBPs, the public provides valuable information regarding suspected or potential fraud, and governments should therefore ensure that there are appropriate mechanisms in place to facilitate reporting. By ensuring that hotlines and online portals are available to the public, with the option of reporting anonymously, public organisations can gain information on potential fraud that they may not otherwise have access to. Strategies to promote reporting should be evidence-based to identify which reporting methods are most effective in obtaining information from the public. Furthermore, governments can encourage reporting by communicating about the impact of fraud in SBPs. Often perceived as a victimless crime, fraud diverts funds from vital programmes and deprives beneficiaries of SBPs of services.

5.3. Evaluating what works

As data are becoming more readily available, there are increasing opportunities to measure fraud levels in SBPs. In line with the previous recommendations on using data as a strategic resource, public organisations can leverage data in SBPs and extract certain data points to track fraud levels and determine fraud patterns, which in turn can inform control activities. A baseline allows for monitoring changes in the rates of fraud based on changes in the control environment, which is a critical feedback loop for managerial decision-making. If data are available, public organisations can draw from statistical models to determine fraud rates and create baselines.

In addition, evaluating control activities regularly helps direct resources towards those that prove to be cost-effective. While acknowledging that there are certain challenges in measuring outcomes of anti-fraud control activities, public organisations can adapt their evaluation methods in line with their capacity and resources. By analysing the results of evaluations and monitoring baselines of fraud, public organisations can produce annual fraud reduction targets that are evidence-based and realistic. This serves to incentivise managers and employees to meet anti-fraud requirements while promoting a more comprehensive approach to designing and implementing fraud control activities.

5.4. Areas to explore further

This report is a stocktaking of select challenges and issues; however, external fraud in SBPs and government responses to it are complex and constantly evolving. COVID-19 and the subsequent economic turmoil exacerbated existing risks that have long affected SBPs, and created new risks and challenges as governments respond to calls for relief from individuals and businesses. The stocktaking exercise for this report highlighted several areas that would benefit from further analysis to improve the knowledge base around what prevention and detection measures are most effective. The list below is not exhaustive, and many of these issues are not exclusive to external fraud in SBPs. However, like any area, countering fraud in SBPs requires a tailored approach to account for context, including the policies and procedures for the goods or service provided.

• Policies, strategies and guidance across government and within institutions – The tools and skills to prevent and detect fraud are critical, but are a second priority for many governments and public organisations that lack a coherent strategy and guidance to use them well. For instance, without the legal frameworks for data sharing, investments in data matching by SBPs is of limited value. Future research and support for governments can help to further articulate the key issues and “preconditions” for effective fraud prevention and detection in SBPs, to support both Centre of Government institutions and individual institutions to prioritise actions. In addition, strategies for striking a balance between controls and service delivery are critical, particularly in the context of economic crises and post-pandemic stimulus packages. Good practices for developing a strategic, co-ordinated response to proportionality and oversight is critical for SBPs that are operating under such circumstances.

• Use of data and analytics – Along the data value chain—generation, processing, sharing and use or (re)use of information for data-sharing—there are many challenges and opportunities for public organisations to improve their use of data for mitigating fraud risks in SBPs. This includes both government-wide and institutional level improvements to data strategies, skills, tools and methodologies. The OECD and others have a rich body of work on digital government and data-driven tools that could be consolidated and tailored to the SBP context to improve data-driven fraud prevention and detection.

• Innovative methods for detecting fraud – In addition to what are now “traditional” forms of data analytics, like data matching and data mining, public organisations are adopting and experimenting with many other innovative methods to prevent and detect external fraud that are applicable for SBPs. For instance, some private and public organisations are developing methodologies to sift through social media that reveals a lifestyle at odds with their purported entitlements, or using drones to survey areas following a disaster to inform eligibility criteria for relief funds. Fraud prevention and detection relies on multiple solutions carried out in parallel. Future research can uncover lessons learned from innovative initiatives that are cost-effective and can be added to the government’s anti-fraud arsenal.

• Baselines and cost-benefit analyses – A major challenge facing public organisations when it comes to evaluating the effectiveness of anti-fraud measures is the creation of baselines and conducting cost-benefit analyses. Skills, knowledge, and linking control measures to impacts that are inherently hidden and therefore difficult to measure are some of the persistent challenges. Future analysis and testing of new approaches, including quantitative assessments, could help governments to bolster their capacities in this area. In SBPs, baselines and cost-benefit analysis could consider both internal and external fraud risks involving beneficiaries, contractors and other service providers.

• The link between prevention, audit and investigations – Public organisations often make referrals to investigative bodies and then never receive feedback about the results, or they fail to absorb the recommendations or use the work of internal and external audit bodies. This break in the communication, co-ordination between entities or uptake of recommendations results in missed opportunities. Opportunities include improvements to risk assessments, control activities and reporting mechanisms for better fraud prevention and detection. Future work could explore how governments can best develop a ‘lessons learned’ approach from investigations and audits, which could include good practices for compiling and analysing results of investigative and audit reports, behavioural insights to enhance the use of audit recommendations and understanding the modus operandi of perpetrators.

• Applying behavioural insights - Existing efforts to prevent fraud and corruption are still widely based on a rational decision-making model, an approach that stresses the importance of increasing the costs and lowering the benefits of undesired behaviour. However, in recent years there has been a shift towards thinking about corrupt or unethical behaviour with a focus on addressing apparently “irrational” decision-making. Indeed, social context and behavioural biases often influence people’s abilities to act rationally and ethically. Governments could further explore the applicability of behavioural approaches in the SBP context, particularly to better understand and countervail fraud committed by those who failed to rationally consider the consequences both for them and others (OECD, 2018[34]). Governments could further explore the applicability of behavioural approaches in the SBP context, particularly to prevent fraud committed by those who failed to report income without rational consideration of the consequences.