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Pondera FraudCast

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.

Two Interesting Cases of SNAP Fraud

Two Interesting Cases of SNAP Fraud

It has been an interesting few weeks for the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp program, with two high profile busts. Both cases illustrate common schemes used to defraud the SNAP program, which distributed over $70 billion in food-purchasing assistance last year to 44 million Americans.

In Georgia, two convenience store owners used stolen identities to apply for SNAP benefits which were then loaded onto EBT cards (similar to credit cards) and mailed to addresses they controlled. Once received, they swiped the cards at their own convenience stores and pocketed over $800,000 before being caught. The U.S. Attorney assigned to the case said, “They used the SNAP system as an ATM for their personal gain, diverting critical benefits that help those who need assistance in our communities.”

Then, in Delaware, seven case workers at the Department of Health and Social Services were indicted for creating 100 fake accounts and cashing $959,000 in benefits. After creating the accounts, the case workers had the EBT cards mailed to state service centers where they simply intercepted them and used the cards themselves. Their scheme was detected when a supervisor noticed incomplete application data for one of the cards.

The Georgia case illustrates just how easy it can be (at least for a time) to use stolen identities to defraud government programs. Even if the suspects hadn't owned the convenience stores, it would not have been difficult for them to find one that would pay them a discounted price in cash for their cards.

The Delaware case is one we commonly see across states and programs where unscrupulous employees use their knowledge of the system to defraud their own government agency. Large amounts of money, combined with loose supervision, often prove too tempting for those with questionable morals.

A quick check of the government’s fraud reporting website, paymentaccuracy.gov, reveals that improper payment rates for SNAP are still not posted because of reporting problems. I look forward to updated numbers when they are available because even a small number like the 3.2% reported rate for 2014 translates to over $2.2 billion per year in improper payments.
The Dark Web, Illicit Sales, and Law Enforcement Efforts to Combat Illegal Markets

The Dark Web, Illicit Sales, and Law Enforcement Efforts to Combat Illegal Markets

While I don’t often review books on this blog, I feel compelled to share my thoughts on American Kingpin by Nick Bilton, which chronicles the history of the Silk Road. For those who don’t know, the Silk Road was a market on the dark web that sold drugs, weapons, poisons, and even human body parts. By the time it was shut down in 2013, the site was selling over $1 billion per year.

The book offers fascinating insights into the dark web, the libertarian creator of the site, the investigators who worked to shut it down, and the political schisms that often make it possible to run sites like the Silk Road. And of course, the book has great relevance to the fraud detection business because fraudsters often acquire identities on the dark web to create fictitious businesses, file for tax refunds, and make fake unemployment insurance claims.

While American Kingpin ended with the shutdown of the Silk Road and the prosecutions of the major actors behind the market, it is important to note that similar sites continue to operate on the dark web. In fact, just days after I finished reading the book, Attorney General Jeff Sessions announced that the FBI had shut down a similar site 10 times the size of the Silk Road. At the time this site was shut down last month, it contained 369,000 listings for drugs, weapons, malware, chemicals, counterfeit items, and more.

This is a sobering reminder of the challenges facing law enforcement when dealing with anonymous browsers like TOR, the Bitcoin cryptocurrency, and international crime rings. The dark web is not going away. Neither is the demand for illicit items. It will be interesting to see how this “cat and mouse” games plays out over the coming years.
36% of Lifeline Recipients Can’t be Validated

36% of Lifeline Recipients Can’t be Validated

Another federal subsidy program is garnering congressional attention for large amounts of fraud, waste, and abuse. This time it’s the Lifeline program that provides discounts to low-income households for home or wireless telephone and broadband service. This program, which many Americans have likely never heard of, distributed $1.5 billion in subsidies to 12.3 million households in 2016.

The problem is that a recent study by the General Accounting Office (GAO) could not confirm the eligibility of a whopping 36% of program beneficiaries. The surprising part of this is that validating eligibility is as straightforward as checking an applicant’s enrollment form against a qualifying benefit program, such as Medicaid-- if someone has already been deemed eligible for Medicaid, then they are also eligible for Lifeline.

It is also troubling to note that the 84-page GAO report comes after a 2010 study that found problems with the program and led to a number of recommended reforms in 2012. Fast forward five years to today, and the problems persist.

Fraud in Lifeline stems from several factors common to most government programs: pressure to distribute timely benefits, a lack of effective data matching, and service providers (in this case telecommunications carriers) that benefit from a lack of control. The GAO actually called this last one out in their report when they explained that “companies may have financial incentives to enroll as many customers as possible” despite questionable eligibility.

None of the problems outlined in the report are particularly difficult to solve from a technical standpoint. But turf battles often lead to data sharing problems that lead to eligibility validation issues. And an unwillingness to enforce fraud reforms on businesses provides them with incentives to simply “look the other way”. Multiply this problem over the 2,300 federal subsidy programs operating today, and this adds up to a lot of money, all lost due to fraudulent, wasteful behavior.

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