The fix for fraud that government isn't using

Federal agencies that use continuous transaction analytics could reduce improper payments by as much as 25 percent, but flawed marketing techniques keep most agencies in the dark about the existence of the software, according to a private-sector expert.

Since the passage of the Improper Payments Elimination and Recovery Act of 2009, agencies have beefed up their efforts to fix the longstanding problem of improper payments, overhauling financial systems and leveraging technology to detect waste, fraud and abuse. 

Although there is no simple solution to prevent improper payments from occurring, adding continuous transaction analytics could help agencies considerably in preventing them, said Aubrey Vaughan, managing director of the public sector at Oversight Systems, a provider of big data analytics software

‘The reality is that most agencies aren’t using CTA because it’s not properly marketed to them from the contractors,” he said. “The majority of federal financial management is represented by the large big accounting firms, and accounting firms aren’t really keen on promoting different technologies that can help streamline processes.”

However, one of the tools that currently exists to prevent wasteful spending and detect fraud is the Treasury Department’s “Do Not Pay” list.  It requires every agency to cross-check databases to ensure recipients’ eligibility before granting them federal benefits payments or federal awards. But it also lacks transaction analysis or analytics that could identify, for example, if a vendor is engaging in fraudulent activity, Vaughan said.

Vaughan used the analogy of needles in a haystack to describe CTA: The technology removes all the hay and leaves you with needles. Not all needles are sharp though -- that is, not all the concerns that could be raised are reason to worry -- and CTA helps sort through the pile. 

“What CTA does is filters out all the noise in a fully automated flow and determine ‘this needle here is sharp because it’s a duplicate payment,’” Vaughan said. “That whole concept can be replicated across government in a number of programs.”

This kind of technology also allows agencies to derive a lot more insight out of data than just continuous monitoring, said Ray Muslimani, president and CEO of GCE, a firm that provides management and systems integration solutions to the federal agencies.

“Imagine how we use Google,” he said. “You have some goal in mind – you want to find something to buy -- and you get on Google and type in a question and Google gives back with some answers. You pick one of those answers, and you may find the answer to another query.” 

The private sector has used CTA for a long time, but implementation of it -- as well as other types of analytics -- is growing much more slowly in the federal space, particularly over financial and procurement data, Muslimani said.

Not everyone is sold on the concept, howevver. Daniel Castro, a senior analyst at the Information Technology and Innovation Foundation and a former auditor at the Government Accountability Office, warns that automation lacks human judgment.

“Imagine, for example, having your credit card suspended because you are traveling overseas and it mistakenly gets flagged as fraud,” he said. “Also, auditing is designed to be a check on systems to prevent fraud, waste and abuse, but any system (automated or otherwise) can be gamed. For example, pervasive company fraud may not appear as an anomaly because it’s routine. This is the problem of false positives and false negatives.”

The solution, he said, is to avoid relying solely on automated controls to detect system breakdowns. “However, since many of the activities that auditors engage in are routine and can be automated, there is no reason not to provide tools and technology to make those tasks easier,” Castro said. “This allows auditors to apply their skills to higher-value, higher-productivity tasks and reviews.”

For vendors, the challenge lies in not getting enough exposure for their products that could be the most advantageous for agencies. And although many vendors offer data analytics and monitoring solutions, “everyone is trying to fit a square peg into a round circle,” Vaughan said.

Products that aren’t prebuilt could cost millions of dollars for the government to implement, an irony itself considering its effort to slash wasteful spending, he added.

“It’s time consuming, costly to the American taxpayer and highly inefficient – all of the things that we’re trying to stop around fraud, waste and abuse and improper payments,” Vaughan said,  predicting “nothing short of political wrangling” could push agencies toward using tools like CTA.

“It’s going to take an amendment to the improper payments bill, basically telling agencies to use CTA or to use out-of-the-box software,” he added.