How Governments Can Protect Themselves Against Fraud in Times of Crisis

As the COVID-19 pandemic unfolded, governments around the world scrambled to provide small businesses with financial relief to weather the storm. In a world without in-person customers and a consumer base of individuals losing their jobs, it became imperative for governments to provide companies with financial support to keep them in business.

The U.S. federal government eventually dispersed more than a trillion dollars in grants and loans to small businesses, most of whom had legitimate claims to qualify for aid. Some, however, were criminals committing fraud, taking advantage of a vulnerable time in the world.

All sectors—finance, health care, retail—and individual consumers are susceptible to fraud. There are some elements, however, that make emergency programs, and governments overall, vulnerable to these types of crime.

Why Emergency Programs Are So Susceptible to Fraud

Emergencies are unexpected by nature, and the pandemic upended the world at speed, putting lives in peril and economies on the brink. The world was taken by surprise, and governments were compelled to act to bolster the economy nearly overnight. Massive emergency programs were enacted, dealing with thousands of applicants and rushing approvals to get money into small-business owners’ hands as quickly as possible.

Fraudsters took advantage of this chaos, as well as the vulnerabilities that were already present across government systems—bulky, outdated infrastructure and technology that gives criminals ways into systems with ease.

Government employees were overwhelmed with applications for Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), attempting to balance time and speed with security that needs to be implemented. Understandably, the combination of a crisis and inadequate IT infrastructure that makes sharing data more difficult created a landscape for fraud to slip through the cracks.

Preventing and Handling Fraud in Times of Crisis

During this particular crisis, the federal government was overwhelmed by applications for the PPP and EIDL programs, giving fraudsters the opportunity to carry out their crimes in two main ways. First, legitimate business owners who qualified for relief used their businesses to gain access to funds only to misuse them. Rather than paying their employees or addressing business damages, these recipients used the funds to enrich themselves. These fraudsters used the cover of their legitimate businesses to better themselves, easily bypassing security measures to prevent fraud.

Others used the cover of chaos to submit fraudulent documentation, claiming they had hundreds or even thousands of employees to pay, when in reality the business owner was the only one on the payroll.

Hindsight is 20/20, so it’s easy for government agencies to say they should have been more careful during their due diligence checks for frauds. However, they’re up against challenges that will arise again and again during each next disaster as they continue to use outdated technology.

Entity resolution and network analytics are crucial in preventing fraud—these technologies help staff process information and applications to identify what’s real, what’s not, who is connected to whom, who is committing fraud and where that fraud is likely to occur. To stop fraud in its tracks, government agencies must have the ability to identify duplicate and previously failed applications, to harness all the information held within all of the relevant systems, to discover the hidden links within the data. Entity resolution is an essential component in a digital world where high-quality data is not always readily available in order to root out fraud while still acting quickly in times of crisis.

While trying to learn from their mistakes, government employees are stuck using systems that are unable to handle massive amounts of data, leading to gaps that fraudsters leap at. In order to prevent fraud, these institutions will need to do a comprehensive analysis of what went right and what went wrong during the onset of the pandemic, as well as look to the future.

It’s impossible to predict the next crisis perfectly, but one thing is clear—outdated technology is creating problems for government agencies and leaving them susceptible to fraud, and new technology is an important element to help stop it.

Clark Frogley is Americas Head of Financial Crime Solutions at Quantexa.