Washington fraud-busters turn to social analytics

Sunday, 12 February 2012

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By Robin Hicks | 20 April 2010

Faced with a US$1.8 billion budget deficit plus staff cuts and pay freezes in the civil service, losing millions to fraud is the last thing the state of Washington needs. In an interview with FutureGov in Seattle last week, fraud detection agents from Washington’s Department of Labor and Industries (L&I) revealed how social networking business analytics is curbing the rise of compensation cheats.

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“In desperate times, people think that certain behaviour is acceptable which was not in the past,” said Carl Hammersburg, Fraud Prevention and Compliance Manager, Department of Labor and Industries, an agency dedicated to the safety, health and security of the state’s 3.2 million workers. “People are getting laid off and sucked into an underground economy which profits from compensation premiums. We estimate that 10 per cent of claims are fraudulent, which amounts to US$153 million a year in lost revenue.”

The problem is not new, although it is being exacerbated by the weak economy. L&I set up the Fraud Detection and Prevention Unit six years ago amid criticism that the issue was not being effectively tackled. “We think that we were only correctly identifying cases of fraud 50 per cent of the time. Often we were taking time out of an employee’s schedule to investigate him or her, when there wasn’t a problem. There was no ROI,” said Hammersburg.

In the past, L&I used a variety of inhouse technologies when investigating an employee or firm; rules-based programmes were used so that when questions were answered in a certain way, an investigation would be triggered. Now the department is replacing the systems its auditors use with a single platform, developed by SAS, to cut down on the time taken to investigate a case and make audits more efficient and effective.

The new system uses social networking analytics to assess the likelihood of fraud, and to determine whether that case could be related to others that form part of a crime syndicate. “Fraud is decreasingly about a single individual or company. It’s become a way of business that grows as others are recruited,” said Doric Olson, Fraud Detection/Operations Manager, L&I. “Our new system can find connections between cheating individuals.”

The system can identify when a new potential perpetrator joins a fraud network too. “We can find these individuals by tracking backwards and aggregating the information over time. We can also see how these networks are evolving,” said Olson.

The new platform is expected to reduce the average audit time by 30 per cent, allowing the number of audits done each year to double; from 2600 to 5600. Meanwhile, the money recovered from fraud cases is expected to increase from US$8 million to US$24 million.

“At a time when the state has a sizeable budget deficit – US$1.8 billion – and faces staffing cuts, as an agency we’re holding even,” said Hammersburg. “We bring in US$8 for every dollar that’s spent. With that ROI, we can prove to the state legislature that we are exceeding our targets.”

However, Hammersburg added that his agency is reaching the limits of its capabilities in detecting and preventing fraud. “We’re still nowhere near where we need to be. We need to re-engineer the system so that it’s much easier to do the right thing.”