Welcome to the Pondera FraudCast, a weekly blog where we post information on fraud trends, lessons learned from client engagements, and observations from our investigators in the field. We hope you’ll check back often to stay current with our efforts to combat fraud, waste, and abuse in large government programs.
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The preceding paragraph, which has made its way around the Internet for years, can be really fun to share with friends. However, it also serves as a caution to anyone involved in fraud detection. In many ways, bad actors, knowingly or unknowingly, have depended on how the human mind works to perpetrate fraud schemes. Like the old expression goes, sometimes the best place for fraud to hide is in plain sight.
This is especially true in government programs that process massive amounts of transactions and must adhere to a staggering number of program regulations. Traditional “top down” systems can analyze large data sets and find nothing wrong (after all, the first and last letters are in the right place). “Bottom Up” systems, on the other hand, will identify individual problems (the word is scrambled) but may miss the patterns in the data (this entire paragraph is scrambled). A common example of this is the medical provider that always “flies just below the radar” by maximizing claim amounts and frequencies.
The best detection processes take both a “top down” and “bottom up” approach. They can identify individual transaction problems as well as identify patterns of bad behavior over time. In this way, you can make the old “80-20” rule work in your favor. 80% of improper payments are likely caused by 20% of program participants. If you only address each individual transaction, you’ll never run out of work but you also never really improve your program integrity efforts.
Click here for an infographic on the "80-20 rule".
Remember back to last year when the IRS announced that cyber thieves stole personal data from 100,000 taxpayers? This sophisticated scheme accumulated personal data from other sites and used it to answer identity validation questions on the IRS web site to gain access to taxpayer accounts.
The 100,000 taxpayers affected? The IRS revised that number later in the year to 334,000 Last week they raised the number again to more than 700,000! Combine this with the high-profile hacks at Sony, Target, Anthem, and other organizations and one thing becomes very clear: bad actors are rapidly improving their identity theft methods.
In response, government agencies need to prepare for an onslaught of fraudulent tax returns, unemployment claims, Medicaid treatments, and other services. In 2015, the IRS paid out $5.8 billion in fraudulent returns. Several of Pondera’s clients also saw dramatic increases in “ghost” beneficiaries, often paired with fictitious businesses, set up solely to defraud government programs. 2016 promises to be even more problematic.
As program integrity experts, we have to recognize that we are moving into a new age of identity theft problems. We can log on to YouTube and watch a music video about Unemployment Insurance Fraud. CNN has run stories on street gangs trading liquor store holdups for benefits fraud. The barbarians are at the gate and it’s our responsibility to strengthen the defenses.
In 2009, congress enacted the American Recovery and Reinvestment Act (ARRA), also known as the Stimulus, to bolster the economy and help America recover from the Great Recession. The idea was that various tax credits, business incentives, and public works projects would stimulate the economy while also improving the nation’s infrastructure. While arguments continue over the effectiveness of the program, it is estimated to cost nearly $100 million annually for 10 years.
Today, seven years after ARRA was enacted, I think about the economic impact we could achieve through the eradication of overpayments in government programs. The government estimates that over $125 billion in FY 2015 were paid improperly. This number, even after subtracting the underpayments that are also counted in improper payments, is larger than the highly controversial ARRA spending totals. In effect, by eliminating FWA from government programs, we could implement a permanent economic stimulus!
I know that it is unrealistic to think that we could completely eliminate improper payments. But I also know that we can make drastic improvements by increasing our support for program integrity efforts and by continuing to develop and implement innovative detection solutions. It would also help if legislative bodies approved processes to support agency collection and enforcement efforts. I realize this sounds like a lot of work. But it seems to me that a permanent economic stimulus is worth every bit of effort.
By the time we engage with an agency, they are fully convinced that they need to change something: the way they are detecting fraud, waste, and abuse, or maybe the way they are managing cases. When it comes to change though, we’ve found that the devil truly is in the details.
Each of your staff will typically fall into one of the following categories. It’s important to recognize this and to staff your change projects appropriately.
Champions: These people embrace the future vision and want to help achieve it. They love new challenges but also expect that they’ll need to find ways around unexpected problems. They vocalize successes and accept changes for the “long haul”. Projects without champions will never meet their potential.
Cynics: Unlike champions, these people think that the change, usually any change, is not necessary. They perceive their value in their knowledge of how “things have always worked” and any threat to this is a threat to them. There is no way to change a cynic’s mind and no way to bring them on board. Cynics are never good for a change project. It’s important to recognize them and keep them to the side.
Skeptics: Skeptics, which can often be confused for cynics, need proof to get on board with a change effort. They need to be convinced that the change is good for the agency or for them. Skeptics are a vital component to project staffing because the rest of your agency will clearly see when a skeptic has been “converted” to a champion.
Followers: This category makes up the majority of staff assigned to most projects. At the beginning of the project, they will contribute and won’t do anything to undermine the effort. As the project progresses, they will move to whichever side is gaining momentum: success or failure. This is why champions and converted skeptics are so important—they generate excitement and commitment from followers.
If this all sounds obvious, I challenge you to think back to a change effort that you’ve observed that should have succeeded but managed to fail short of expectations. You may very well find that the reason was that identifying “change readiness” was either done incorrectly or ignored altogether. We’re not advocating expensive, complex, and lengthy change processes. But we are suggesting that you think about this before engaging in any important project or process change.
We’re all in this together. You may work in Medicaid, Unemployment Insurance, Integrated Eligibility, SNAP, WIC, TANF, or any of the other important government programs that so many Americans depend on. Regardless of the program though, we all share the common goal of fighting fraud, waste, and abuse to make sure that our programs help those people who qualify for and truly need the assistance.
The goal of the Pondera Blog is to post and share information that is relevant to all government program integrity professionals. If we’ve learned nothing else as we work across programs and across states, it’s that bad actors don’t limit their activities to one program or one state. They follow the money wherever it leads them. For PI professionals, this means there is a lot to learn from your peers in other states and other programs.
We hope you’ll check back often for new content. Our intent is to post information on emerging fraud methods, promising detection techniques, lessons learned from our projects, and a variety of other topics. Some might question why we would share this information in a public forum where Pondera’s competitors can easily view what’s of interest to us (clearly we’ll never post anything that could help fraudsters). Our answer to that question is simple: we’re all in this together.