In a 2-year study of fraud and fraud control in AFDC and Medicaid, government reports and research literature on fraud and fraud control were reviewed and analyzed; a statistical analysis was made of AFDC grant overpayments in Denver and Seattle, and program and control personnel were interviewed in Colorado, Illinois, and Washington. No statistics are available to measure fraud in welfare programs; however, interviews with AFDC recipients suggest that annual overpayments may range from a minimum of $376 million to a maximum of $3.2 billion. An estimate of fraud and abuse in Medicaid suggested a 1977 level of $668 million. The absence of statistics is symptomatic of the unwillingness of many groups, including legislators and administrators, to confront fraud and abuse in government benefit programs. Although the Federal agencies that fund AFDC and Medicaid require State agencies to adopt measures to reduce erroneous expenditures, decisions about actions to counter fraud are left to State and local welfare agencies and criminal justice agencies. Even though there is some empirical evidence that fraud control can be cost effective, it is unlikely that criminal justice agencies can handle the task alone or that taxpayers will provide additional funds for fraud control. Welfare agencies can, however, focus prevention efforts on major types of fraud and can designate specific persons and units to deal with fraud problems. To compensate for shortcomings in the criminal justice system, fraud cases can be handled with administrative sanctions and civil fraud prosecutions. The appendix lists the number of project site contacts by type of official, and 38 references are provided. (Author abstract modified)