Professional criminal enterprises inflict more damage and losses on society than opportunistic individuals. Still today, many anti-fraud program managers focus on detecting outliers, researching standalone fraud events and acting on tips. Most anti-fraud analytic methods are focused at the provider or claim level; very little – if any – advanced data analysis focuses on the detection of collusive behavior among multiple entities. Criminal enterprises that exploit agencies providing everything from government loans and subsidized housing to food stamps know that anti-fraud investigators struggle to connect the dots – and they use this to their advantage. While law enforcement gets distracted with the latest fraud scheme, professional fraud organizations constantly change their tactics, always staying one step ahead of the “pay and chase” game.
Examples abound. Take the scale of fraud perpetuated against the federal food stamp program. As the number of food stamp recipients has soared to 44 million – up from 26 million in 2007 – and costs have more than doubled to $77 billion during this period, the 200,000 retailers who have been approved by the USDA to accept Supplemental Nutrition Assistance (SNAP) Electronic Benefits Transfer (EBT) have been regulated by a staff of only 40 USDA inspectors. A huge black market has developed whereby recipients exchange their food stamp benefits for cash. Savvy criminal enterprises find that these exchanges allow them to generate easy money with very little risk. Of the more than $2 billion in fraud and abuse reported by the USDA, the greatest losses are inflicted by corrupt retail merchants who exploit food stamp recipients.
Medicare and Medicaid programs have been vulnerable to organized criminal rings. Until they were indicted in October 2010, an Armenian-American fraud ring obtained more than $35 million in improper payments from Medicare over a four year period. They used stolen identities of doctors and patients whose names were used to file reimbursement requests for procedures that weren’t performed at 118 nonexistent clinics in 25 states.
Beyond Pay and Chase to Fraud Prevention
Using their ingenuity and flexibility, these groups take advantage of the federal government’s inability to “connect the dots” between state and federal government databases such as beneficiary and retailer information, retail store sales taxes, wage taxes, income tax, corporate records, driver’s licenses, business licenses, criminal records and deportations. Connecting the dots is what’s required to identify anomalies and fraud patterns as well as match and link the malignant social network. It is often the patterns and conduct of the recipients and their relationship to others that can identify a fraudulent ecosystem.
Traditional methods and systems using only a rules based approach to fraud detection are not sufficient to detect networks of fraudsters. In SAS’ experience working with government agencies, proactively identifying complex fraud schemes (and the criminals behind them) is only possible when agencies use a multifaceted, anti-fraud detection approach that combines sophisticated data integration with a hybrid analytical approach, using:
- Rules to filter activities and transactions for fraudulent behavior.
- Anomaly detection to detect individual and aggregated abnormal patterns.
- Predictive models based on known fraud cases from history so you can look for similar characteristics within future claims.
- Social network analysis to identify relationships pertinent to fraud that would normally escape notice.
The combination of data integration and a hybrid analytical approach is the key to uncovering crime organizations in the first few months, which greatly limits potential losses to the government and taxpayers.
An integrated, analytical approach can quickly connect the dots in a variety of ways. Each “strand” of analytically determined connections represents another way of looking at any given fraud event as part of a potentially much larger threat. This approach helps provide strategic insight into threats, trends and risks and delivers a holistic enterprise view of fraudulent behavior.
Federal agencies providing subsidies to citizens and legal aliens can make the commission of fraud a risky undertaking for criminals by incorporating strategies and tools that place them on the offensive. A hybrid approach allows agencies to stay ahead of fraud networks and use their resources more strategically.
Learn more by reading How a Hybrid Anti-Fraud Approach Could Have Saved Government Benefit Programs More than $100 Million. This is a free white paper that explores how government agencies can leverage multiple analytical methods to proactively identify anomalies and criminal behavior to detect, prevent and manage all types of federal subsidy and loan program abuse.