Measuring fraud and error
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One of the key challenges we face in countering fraud within the public sector is limited evidence of the extent and impacts of fraud. This is because fraud is a hidden crime – deliberately concealed by those who perpetrate it.
To help address this challenge, the United Kingdom Public Sector Fraud Authority and the Commonwealth Fraud Prevention Centre have partnered to develop an International Public Sector Fraud Forum (IPSFF) Fraud Loss Measurement (FLM) Framework.
The framework’s purpose is to help public sector organisations conduct FLM exercises that provide a credible estimate of the levels of fraud and error related to a specific program, activity or function in an organisation.
Fraud loss measurement explained
FLM exercises test a sample of transactions to identify non-compliant, fraudulent or irregular transactions within the sample. From this smaller sample, the overall level of fraud and error can be estimated by extrapolating the results across the population. An ability to measure, estimate and accurately report on fraud lies at the heart of an informed and effective counter-fraud response. Organisations that are aware of their potential losses to fraud and error are better placed to implement targeted strategies to address these issues.
FLM exercises follow a 5-step process:
- Area selection – complete or review your enterprise level fraud risk assessment or undertake strategic fraud risk profiling to identify a suitable program, activity or function.
- Residual risk identification – complete or review a full fraud risk assessment to identify residual fraud risks and how they can be tested.
- Planning, sampling and initial evidence – identify a sample and map out how data and evidence will be gathered to look for fraud.
- Testing – undertake testing on all cases in the sample. Interpret results and reach a conclusion on each case.
- Reporting and next steps – produce a report with recommendations. Use the result to inform your counter-fraud strategy and public sector fraud and error evidence base.
The benefits of proactively measuring fraud
Taking proactive action to measure fraud and error will greatly benefit organisations, helping them make more informed decisions about their risk appetite and tolerance. FLM exercises will also help organisations take considered and decisive action to reduce losses from fraud and error, and minimise the risk of reputational damage by strengthening their control environments.
Connect with us
If you are currently undertaking FLM activities or wish to start, contact us for more information. We can connect you with other Commonwealth entities undertaking this work.