Preventing Fraud and Getting Government Payments Right the First Time

Improper payments have long been a chief concern for federal agencies. Defined as any payment that should not have been made or was made in an incorrect amount, improper payments add up to hundreds of billions of dollars a year.

Last year alone, the United States government estimated there were roughly $151 billion in improper payments across 78 programs at 19 agencies.1 That represents a 7 percent uptick from the fiscal 2017 estimate of $141 billion.2

Not all improper payments are fraud, and not all improper payments represent a loss to the government — they include underpayments as well as overpayments. But they all harm the integrity of government programs and compromise citizen trust in government.

“Getting Payments Right” in the President’s Management Agenda

In 2018, the President’s Management Agenda (PMA) announced the government was taking a new approach in the battle against improper payments. Until then, agencies were focused on curbing improper payments more broadly, such as by addressing process errors that do not necessarily affect money paid. The PMA changed that, placing the focus more squarely on reducing the amount of taxpayer dollars lost through incorrect payments.3

One of the PMA’s cross-agency priority (CAP) goals, called “Getting Payments Right,” encourages agencies to focus more strategically on issuing payments correctly, the first time.4 Specifically, the focus of “Getting Payments Right” is to reduce intentional or unintentional overpayments made to the wrong recipient or in the wrong amount.

Most overpayments are unintentional and attributable to things like administrative errors, insufficient documentation, or an inability to authenticate someone’s eligibility for funds. But intentional overpayments — in other words, fraud — are not insignificant: Last year, government agencies paid out about $5.2 billion that was confirmed as fraudulently obtained.5 And most experts agree that this figure vastly underreports the actual amount of fraud because so much goes undetected.

To better spot potentially fraudulent activity before payments are made, the “Getting Payments Right” CAP goal is encouraging agencies to identify and leverage strategic data sets that can help and to develop mitigation strategies for preventing monetary losses.

The Government Fraud Fighter’s Data Problem

But finding useful data sets can be challenging for agencies. Consider that, in 2018, more than 27 percent of federal improper payments were attributable to insufficient documentation to verify the accuracy of the payment; another 24 percent were due to agencies’ inability to authenticate the eligibility of the individuals or entities receiving government funds.6 From our experience helping healthcare agencies oversee healthcare providers, we have found that the identifying data for as much as 15 percent to 35 percent of providers lacks sufficient detail or is plagued by inconsistencies. The result is that many providers are not properly relegated to a high-risk category meriting further attention when they should be.

These data shortcomings leave agencies vulnerable to fraud, such as instances where companies use stolen corporate identities, unverifiable addresses, virtual offices, fake business references, or convoluted corporate structures to obtain government payments and loans.

One way to address this problem is by exploring whether external data sets and analytic assets can provide high impact and value for specific fraud-prevention programs. Very often, the costs associated with improved data and risk modeling are a fraction of the benefits gained. These benefits include reduced monetary loss to fraud and less money spent on recovering improperly paid funds.

Using Analytics to Shift the Fraud Paradigm From ‘Pay and Chase’ to Prevention

The value of data and data analytics was echoed by the government’s Anti-Fraud Playbook, released in October. The playbook, which offers best practices and fraud prevention techniques for use across government, points out that “the most effective antifraud control you can put in place is a data analytics tool of some sort.”7 It also notes that the Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nations found that organizations using data analytics techniques to fight fraud reduced the cost of fraud schemes by 52 percent and reduced the duration by 58 percent.8

Another challenge that agencies often have is figuring out where to start when it comes to shifting the fraud paradigm from ‘pay and chase’ to prevention. Here again, the playbook offers great tips for how agencies can create a culture of fraud prevention, identify and assess fraudulent schemes, prevent and detect fraud, and turn insights derived from data analytics into action.

Many of the playbook’s suggested analytics techniques for detecting and preventing fraud — rules-based analytics, anomaly detection analytics, predictive analytics, network/link analytics, and text analytics — would mesh well with the business data that Dun & Bradstreet provides. Our business credit reports leverage tens of thousands of data sources and provide predictive signals that can be helpful in confirming background information on a company.

The Five C’s of Fraud Prevention

When it comes to detecting and preventing fraud, another effective method is checking what we call the five C's of fraud prevention. These are particularly helpful when addressing the large subset of government fraud that concerns payments to illicit companies through procurement, healthcare, emergency management, tax, and other programs.

Adapted from commercial best practices for credit management, the five C’s provide a conceptual framework for building systematic, vigorous and comprehensive due diligence into an agency’s existing controls and information systems. The five C’s are:

  • Confirmation: Make sure the company or person truly exists.
  • Condition: Check if the company has the hallmarks of a normal, functioning business.
  • Consistency: Assess whether the stated facts about the business are consistent with other sources of information.
  • Character: Discover whether any past issues could impose risks on the transaction.
  • Continuity: Determine whether the company’s operational status has changed and might be posing new risks.

Shifting the fraud paradigm from ‘pay and chase’ to prevention requires a broad strategy, data, and proven methods. The Anti-Fraud Playbook, combined with the 5Cs of fraud prevention, can provide a strong framework to guide their monetary loss mitigation strategies.

 

 

1 Payment Accuracy 2018 Dataset, paymentaccuracy.gov
2 Payment Accuracy 2017 Dataset, paymentaccuracy.gov
3 The President’s Management Agenda, p. 38, https://www.whitehouse.gov/wp-content/uploads/2018/03/Presidents-Management-Agenda.pdf
4 Ibid.
5 Payment Accuracy 2018 Dataset, paymentaccuracy.gov
6 Ibid.
7 “Program Integrity: The Anti-Fraud Playbook,” Treasury Department, p. 41, https://cfo.gov/wp-content/uploads/2018/10/Interactive-Treasury-Playbook.pdf
8 “Report to the Nations 2018: Global Study on Occupational Fraud and Abuse,” Association of Certified Fraud
Examiners, p. 5, https://s3-us-west-2.amazonaws.com/acfepublic/2018-report-to-the-nations.pdf