Identity theft and fraudulent activity surrounding government relief programs has exponentially increased over the past two years. Fraudsters have stolen billions of taxpayers’ dollars, monies intended for small businesses and workers experiencing economic hardship caused by the pandemic.
The proliferation of fraud is hardly a surprise. In times of great stress and panic, savvy fraudsters descend on vulnerable private sector companies and large-scale government programs where funds seem plentiful. This problem manifested with the recent announcement that an estimated $163 billion in pandemic unemployment benefits was likely lost to fraud and waste, siphoning valuable resources from those that needed it most.
U.S. government agencies have sought to verify and characterize the potential fraud risk of applicants for national COVID-19 grant programs. For example, in one case that analyzed tens of thousands of small business applicants, analytic experts at Dun & Bradstreet and fraud examiners leveraged human-guided artificial intelligence and a certified fraudulent activity repository to identify hundreds of applicants - eligible for millions of dollars in grants - who triggered potential fraud indicators, and other cases where clear-cut malfeasant activity was present.
While the agency was able to ensure funding was going to those most deserving and in the most need, it is unfortunate that these tumultuous times have created opportunities for fraudsters to exploit federal relief programs and citizens who rely on those programs. As the world digitally transforms, tools using data and analytics are getting better at exposing fraudulent activity. By detecting anomalies in data using advanced technologies such as artificial intelligence and machine learning, agencies are able to identify nefarious activity and stop it before more costly and malicious activity occurs. Actionable information extracted from data can also enable agencies to detect and prevent fraud before it happens.
The key to prevention is preparation. Multiple comprehensive strategies for covering a range of contingencies should be developed. Best practices, such as the Five Cs of Fraud Prevention, can be used as a roadmap for analyzing and mitigating risk and ensuring that the key elements of prevention are utilized.
The Five Cs of Fraud Prevention:
- 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.
Where do government agencies and contractors begin? It’s important to build a detailed, holistic picture of a company or entity to address multiple indicators of potential risk. For example, by bringing together real-time data and integrating disparate datasets, organizations can better understand key characteristics of a contracting partner, including whether it is foreign owned, the number of employees it supports, the degree of financial stress it is experiencing, and whether its owners and principles are connected to fraudulent companies. Having a holistic data picture of any company also enables investigators to alter their analytics lens as needed to adapt to ever-changing fraud tactics.
While these initial measures are helpful, it is just as important to implement a framework for the continuous monitoring and analyzing of data. Adopting such data-driven approaches aids in the implementation and oversight of timely COVID-19 relief and recovery programs, but also to the many traditional federal programs — from small business assistance, emergency management assistance, block grants, and more — that also need to use data and analytics smartly to ensure their financial programs adequately support the organization’s overarching mission to help our nation’s citizens and communities.
Using more data-driven, diligent practices will help reduce risk, fill information gaps, and ensure more effective evidence-based risk management programs today and in the future. By using data and analysis to build systematic, vigorous, and comprehensive due diligence directly into agencies’ existing controls and information systems, it is possible to stay well ahead of would-be fraudsters.
This level of fraud is a national security issue of such magnitude that President Joe Biden called it out in his State of the Union Address. The race is on to always stay steps ahead of savvy fraudsters and to do that, agencies must have the tools to defend their sensitive information—and the 5Cs are there to guide us.
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