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How to prevent procurement fraud
Government agencies must switch from manual fraud defenses to hybrid analytics
By Jon Lemon, Systems Engineer, SAS
The federal government spends billions each year to conduct mission-critical activities for the American people and, in most instances, it does a good job. Unfortunately, fraud, waste and abuse is a problem - the House Committee on Oversight and Government Reform estimates the government lost $261 billion to fraud, waste and abuse in 2012.
One area of fraud that is particularly problematic, but is perhaps not as widely considered as benefits or services fraud, is federal procurement, or acquisition, fraud. It’s time to take a look at it and how it can be prevented.
Acquisition fraud is perpetrated in several ways, most commonly:
- Contract bid rigging. Several parties compete for a contact – each taking a turn at being the lowest bidder – lowest bidder usually wins the contract.
- Grants. An individual lies on the grant application or fails to follow through with the conditions for receiving the grant.
- Travel cards. Federal employees misuse their travel cards for purposes other than travel or in violation of the travel card use requirements.
- Small-acquisition purchase cards. Federal employees are allowed to make some purchases on a purchase card, as long as the expense doesn’t exceed a certain threshold. It’s fraudulent to use that card to break a large purchase into multiple small payments – thus avoiding the bidding process.
- Procurement and acquisitions. This is a “catch-all” category for fraud ranging from kick-backs and pass-thru contracts to large businesses that continue to bid on work they were eligible to compete for as small businesses.
These are difficult to detect.
In theory, there are multiple layers of safeguards built into the government acquisition system. The first line of defense is trained and certified contracting officers, their supervisors and compliance officers. The second line is internal auditors who review contracts, conduct periodic audits and employ rudimentary analysis looking for notable deviations from standard practices. And third, each agency has an Inspector General who audits programs and investigates allegations of fraud, waste and abuse.
And yet, experts estimate that five to seven percent of all taxpayer-funded projects will be lost to fraud, outright theft and abuse. Why?
These defenses have one thing in common: they rely on cumbersome manual processes; inadequate, siloed data; and audits, tips and whistleblowers to uncover the fraud. In other words, they learn about it after the fact.
In my experience working proactively with federal agencies, I’ve found 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. The combination of data integration and a hybrid analytical approach is key to uncovering the crime organizations in the first few months, which greatly limits potential losses to the government and taxpayers.
Integrated analytical applications can help you quickly connect – and reconnect – the information in a variety of ways. Each “strand” of connections represents another way of looking at a fraud event as part of a potentially much larger threat. In this way, applications work together to:
- Stop the pay-and-chase by spotting fraud and error before payment.
- Provide information about threats, trends and risks to support strategic decision making.
- Deliver a complete view of fraudulent behavior.
- Test, simulate and deploy models and rules quickly without dependence on IT.
Criminals take advantage of the government’s inability to connect the dots between state and federal government databases, which contain data about retailers, retail store sales taxes, wage taxes, income tax, corporation records, driver’s licenses, business licenses, criminal records, deportations and more. You have to connect that information if you want to spot anomalies and fraud patterns, and recognize malignant social networks BEFORE the fraudster has a chance to strike. The integrity of the procurement process is at risk if government agencies don’t increase their use of hybrid analytics.