Association of Local Government Auditors

NBC New York recently reported that two women had pled guilty to mail fraud conspiracy in a scheme to create fraudulent food stamp cases.  The couple made off with over seven million dollars and according to Rose Gill Hearn, commissioner of the Department of Investigations for the City of New York, "These two defendants, one of whom is a former HRA employee, perpetuated a multimillion dollar fraud by using the publicly funded food stamp program as a personal treasure trove of easy money."  It's disappointing, at least, to find that there are some who will abscond with those resources so desperately needed by the disadvantaged.  Unfortunately, this occurrence is far too common in the human service environment.  It is estimated that over 300 billion dollars is lost each year world wide due to fraudulent human service transactions and more than half of that is lost to organized crime.

Fraudulent transactions occur at numerous levels in the human service environment.  The most common fraud is committed by the benefit recipient through unreported income, false or inaccurate statements as to household composition, false or inaccurate declarations of circumstances, resources, and obligations and the use of multiple identities and/or social security numbers.  But fraud is also perpetuated by providers of services to benefit recipients and employees of human service agencies.  In an incident here at Denver Human Services, an employee paid himself over $795,000 in erroneous benefits before he fled to South America.  He ultimately returned to the United States where he was arrested, spent six months in jail and then was deported back to South America.  Who says crime doesn't pay?

Why is fraud so prevalent in the human service environment?  On the surface, the answer seems very simple; anytime there is easy money to be had, you can expect scammers and con-artists to try to exploit the system.  But there are other causes at work as well. By definition, human service benefit recipients are in need of assistance and in many cases destitute. The desire for self preservation and the need to provide for family members is more than enough incentive for the recipient to falsify statements and inaccurately report family circumstances.  In addition, fees paid to service providers by human service organizations are typically below market.  Accordingly, there is a perceived need on the part of the provider to maximize income just to compete in the markets.  Finally, in many cases employees of human service organizations are paid less than their counterparts in the private sector.  Thus, many employees sense a need to make themselves whole at the expense of their employer.  Unfortunately, with every arrest and conviction that is reported by the media, the taxpaying public loses confidence in the government's ability to manage and administer human service programs. Ultimately, the unintended victim of fraud in the human service environment is the taxpaying public. 

How do we protect the taxpaying public and restore their confidence in government's ability to manage and administer human service programs?  Here again the answer would appear very simple - investigate fraudulent acts and prosecute the perpetrators. However, as with most simple answers, reality tends to be a bit more complicated. This is especially true when you consider the multitude of benefit programs and the extensive requirements and regulations for each program.  Because of the complications, most human service audit organizations use data analysis and data mining to isolate anomalies in the records and direct efforts to mitigate fraud.  The following are the techniques used by Denver Human Services to seek out potentially fraudulent transactions:

• High Issuance Review, the daily monitoring of the "High Issuance Report" to assess compliance with State and Federal Regulations and to potentially avoid erroneous over-payments.  This process seeks to identify such payments, refer them for recovery and is intended to identify potential internal and client fraud.  Typically, any payment over $1,000 from any combination of programs in one day will be scrutinized.
• High Allotment Review, the quarterly review of the contact information for the top forty client addresses of clients receiving benefits.  This analysis is done in order to identify multiple payments made to clients residing at the same address.  Any payments exceeding $1,000 from any combination of programs are subject to review, but the report isolates only the top forty addresses for the quarter.
• Electronic Benefits Transfer Monitoring, the analysis of data provided to the County by JP Morgan Chase, the benefit distribution contractor for the State of Colorado.  In Colorado, most cash and food assistance benefits paid to clients are paid on debit cards.  Various reports provided by the contractor are reviewed and analyzed to identify potential fraud or misuse.  These reports are examined for such events as out of state usage, redemption of the entire benefit in one transaction, rapid or repeated transactions, and frequency of card replacement due to loss, theft or destruction, and the number of exceeded pin attempts.  Using social security numbers, names, addresses etc. the reports are then cross matched with the use of pivot tables and an access database.  This process looks for fraud or misuse indicators such as the frequency of clients appearing on multiple reports, unusual transaction amounts, duplicated transaction amounts, and whole dollar transaction amounts.
• High Balance Report Review, the review and analysis of the status of client accounts where an available balance in excess of $5,000 accumulates and the card is relatively inactive.  High balances and infrequent card usage are often indicators of erroneous benefit payments.
• Income & Employment Verification System Review, the cross matching of income reported by the client with data provided by the state agencies.  This process identifies the potential for unreported income. 
• Citizenship and Identity Reviews, a quarterly review process where client case files are randomly selected for review and the citizenship and identity documentation is verified for adequacy, accuracy, and authenticity.
• Death Match Report Review, the quarterly review of reports produced by the Colorado Department of Human Services that identifies benefit issuances to deceased clients.  Each case is reviewed to confirm the death of the client and overpayments are referred for recovery.
• Invalid Social Security Number Review, a quarterly review process where names and social security numbers reported by clients are matched against records of the Social Security Administration.  The objective of the review is to identify clients using fictitious numbers and to establish the integrity of the client case file.
• State and County Diversion Payment Review, a monthly review of diversion payments made to clients.  Diversion payments are made to clients on a one time emergency basis and are intended to help the client avoid receiving Temporary Assistance to Needy Families.  Since the payments are typically paid in the form of cash assistance, the risk of fraud can be significant.  This overview process is intended to mitigate that risk.           

In addition to the data analysis and data mining activities we conduct at Denver Human Services, the Internal Audit function conducts an annual internal control review for the Department.  This review is coupled with an annual risk assessment where division directors and managers identify and prioritize the various operating risks facing their service area.  In service areas where there is a perceived high risk, specific audit and process review engagements are conducted and recommendations for improvements are made.

I would like to think that our efforts to mitigate the risk of fraud or misuse of public funding for the disadvantaged are successful and that the incidence of fraud is declining. However, the results of our efforts don't offer much hope for this.  With the declining economy, high unemployment, and the influx of immigrants, demand for assistance has skyrocketed and availability of resources has diminished.  Accordingly, it is highly unlikely that the incidence of fraud or misuse has declined, but the battle goes on and efforts to protect the health and well being of the public and the interests of the taxpayers continue.