The problem studied in this survey is how to optimize the allocation of audit resources over an auditee population with respect to available population statistics. The auditees are assumed to optimize their expected utility based on information about the audit strategy. This survey is limited to models where the auditee can vary the fraud amount along a continuous scale. If the auditor is not able or willing to announce the audit strategy, a Nash equilibrium can be derived in which the auditor and auditee correctly anticipate each others strategies. If the auditor announces the audit strategy in advance, the problem is formulated as a sequential game with perfect information which is solved as an optimization problem. Early models in the literature resulted in unrealistically high degrees of fraud. Later models have incorporated a split into one group of inherently honest auditees and another group of potentially dishonest auditees. The fraction of inherently honest auditees is exogenous. In this paper, the four combinations of non-announcing/pre-announcing the strategy and all potentially dishonest/some inherently honest auditees are studied. For the case of pre-announcing the strategy with some inherently honest auditees, two new solution methods are presented. Two main conclusions are as follows. First, models with some inherently honest auditees have greater external validity. Second, when a pre-announced strategy is feasible, as it often is with tax and benefit audits, the pre-announced strategy is preferred by the auditor over the non-announced strategy. (C) 2020 The Author(s). Published by Elsevier Ltd.

The aim of this project is to study the possibility to apply audit strategies developed for taxation on fraud and involuntary errors in the social benefit sector. The efficiency of different audit strategies is compared using a computer-based optimization algorithm.

Two types of audit strategies are used in this study. One is to adapt the audit intensity to the propensity for errors and fraud in different segments of the group studied. The other type of audit strategy is based on adaptation of behaviour through information concerning the audit intensity. A model for determination of optimal tax audit strategies of the latter type was developed by Erard & Feinstein in 1994.

This study is based on data from a large study of temporary parental benefit performed by the Institute for Evaluation of Labour Market and Education Policy (Institutet för arbetsmarknadspolitisk utvärdering, IFAU) in 2006.

The study has shown that it is possible to apply the Erard & Feinstein model on benefit fraud. However, the solution method developed by Erard & Feinstein has proven to be non-optimal. A new solution method based on simulation has been developed and used in the study.

This paper introduces a new method for the determination of near-optimal audit strategies with the Erard & Feinstein model. It is demonstrated that the solution method presented by Erard & Feinstein does not lead to optimal audit strategies. The new method simulates taxpayer behaviour for a class of audit functions among which the best function is selected. Using a simple class of functions, the resulting strategies are superior to those obtained with the Erard & Feinstein method.

The simulation method can easily handle variations of the model, for instance with involuntary taxpayer errors as well as with partially discrete true income distributions.