THE NEW STANDARD IN FIGHTING PUBLIC-SECTOR FRAUD: REAL-TIME DETECTION AND PREVENTION

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Figure 1

Does your organization currently have an effective solution for detecting and preventing fraud?

The View from the Front Lines

At all levels of government, few topics are as highly charged as the problem of fraud. Generally defined as obtaining something of value through willful misrepresentation, fraud affects a wide array of government programs and missions — entitlements, subsidies, loans, grants, procurement, compliance inspection, taxes, and more — and costs tens of billions of dollars annually. Citizens, legislators, auditors and government leaders alike often view fraud as a barometer of effective governance, accountability, financial stewardship and competence. Public-sector fraud also undermines government program effectiveness and mission accomplishment. As a result, protecting public assets from fraud and similar abuse is widely viewed as critical to building and maintaining public trust and confidence in government agencies.

There is another important reason for all levels of government to adopt effective approaches and capabilities for detecting and preventing fraud: constrained budgets. Mission effectiveness today means making every dollar count and lowering the prevalence of fraud is critical to achieving that. So it is no surprise that almost all (97.3 percent) of the 400 public-sector workers who responded to a recent GovLoop survey — underwritten by SAP Public Services— said fraud is an issue that government needs to address. Moreover, an overwhelming majority of respondents (78.5 percent) said fraud is a concern at their organizations.

More concerning, however, is that a much smaller majority (59.1 percent) said their organizations currently have an effective solution in place for detecting and preventing fraud. To tease out the more nuanced aspects of the counter-fraud posture in place at public-sector organizations nationwide, GovLoop has partnered with SAP Public Services, a global leader in fraud management solutions for the public sector. For this research brief, we will examine how public-sector professionals perceive the challenges and needs that exist in the fraud arena and then explore approaches to address those. Specifically, we will examine their views on:

• The state of fraud detection and prevention today.

• Reasons behind the shortfalls that exist in those capabilities.

• The greatest technical needs for enhancing fraud-fighting capabilities.

• Priorities associated with fraud detection and remediation.

• The role big data analytics can serve in the fraud arena.

This survey is notable, said Dante Ricci, SAP’s Senior Director Global Public Services, because it provides clarity concerning the challenges that public-sector organizations are facing in their anti-fraud efforts. These challenges include balancing privacy needs with fraud detection, integrating a multitude of data streams and systems, engaging leaders in the fraud fight, hiring people with the right technical skill sets, and accelerating fraud detection to the point of prevention.

THE CHALLENGE OF PUBLIC-SECTOR COUNTER-FRAUD: OUTDATED TOOLS

Yes 60%

No 40%

“Sixty percent of GovLoop survey respondents think that their public-sector organizations currently have an effective solution for deterring and preventing fraud, which, for me, is nice to hear as a taxpayer. What’s not nice to see is that 40 percent-plus don’t think they have the right anti-fraud capabilities in place, which means that there’s a lot of opportunity in government to prevent and stop fraud.” — Dante Ricci, SAP, Senior Director, Global Public Services

THE NEW STANDARD IN FIGHTING PUBLIC-SECTOR FRAUD: REAL-TIME DETECTION AND PREVENTION 3

When assessing the results of a recent GovLoop survey of federal, state and local government employees, several important takeaways stand out that, when combined, paint an interesting picture of the state of anti-fraud technology today in the public sector:

1. Fraud is a universal concern. Taxpayers and government organizations clearly view fraud — and combating fraud — as a high priority.

97.3% say fraud is an issue that government needs to deal with.

78.5% say fraud is a concern at their organization.

2. The explosion of available data has rendered manual fraud detection efforts far less effective.

64.9% say big data analytics capabilities would improve their organization’s anti-fraud effort.

40.9% say their organization does not have an effective solution for detecting and preventing fraud.

60.6% of those with an effective fraud solution — and 34.6% of all respondents — say their system can analyze data from multiple disparate data sources.

52.7% of those with an effective fraud solution — and 30.1% of all respondents — say their system can provide real-time data analysis.

60.6% of those with an effective fraud solution say their system can analyze data from multiple disparate data sources.

3. Although fraud detection and prevention are clearly high priorities within the public sector, so is the protection of individual privacy.

#1 ranked requirement for a fraud management solution: providing and protecting privacy — and the ability to limit displaying sensitive fraud information (chosen by 41.7% of respondents).

4. There is a recognized need within government to continue modernizing and growing fraud detection and prevention capabilities. This is especially true for capabilities that can prevent fraud; detect fraud in real time; develop deep, data-driven insights; and adapt to evolving fraud patterns.

#2 ranked requirement for a fraud management solution: preventive control capabilities to avoid employee fraud (chosen by 28.7% of respondents).

#3 ranked requirement for a fraud management solution: ability to spot suspicious activity in real time (chosen by 28.4% of respondents).

#4 ranked requirement for a fraud management solution: ability to monitor data in real time (chosen by 25.9% of respondents).

5. Public-sector organizations lack adequate information technology skills that are perceived as needed to operate modern fraud detection and prevention solutions that use data analytics technologies.

#1 ranked priority for better identifying and remediating fraud: a digital skill set.

21.2% of those lacking an effective fraud solution say it is because they do not have the required skill set.

KEY FINDINGS: THE STATE OF COUNTER-FRAUD CAPABILITIES IN THE PUBLIC SECTOR

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All levels of government accept that countering fraud is an important priority, but hurdles to doing this effectively and efficiently remain. Among the many technical challenges that governments face are:

• Large data volumes.

• Disparate systems to access and integrate.

• Poor fraud detection and investigation efficiency.

• Constantly changing fraud schemes.

• Balancing privacy with fraud detection.

• Having people in place with the right technical skill sets.

• Being able to accelerate fraud detection and

prevent fraud from occurring.

The survey results reflect many of these challenges. Public-sector employees appear to be well aware of how advances in IT and data analytics have changed the equation when it comes to detecting and preventing fraud. And when asked to choose what they would most like to see in their own fraud management solution from 11 capabilities, the responses were telling. (See Figure 1.)

Figure 2

What are your top requirements for a fraud management solution?

PUBLIC-SECTOR FRAUD MANAGEMENT: CHALLENGES AND NEEDED CAPABILITIES

#141.7%

To provide and protect privacy and be able to limit displaying sensitive fraud information

#228.7%

To provide preventive control capabilities to avoid employee fraud

#328.4%

The ability to spot suspicious activity in real time

#425.9%

The ability to monitor data in real time

#524.9%

#623.4%

Robust executive and compliance reporting capabilities

#723.4%

Predictive analytics capabilities to identify future fraud patterns

THE NEW STANDARD IN FIGHTING PUBLIC-SECTOR FRAUD: REAL-TIME DETECTION AND PREVENTION 5

THE VALUE OF FASTER, MORE POWERFUL ANALYTICS

With these responses, public-sector employees are basically saying they want to see a great deal more sophistication, modern technology and super-fast, data-driven capabilities at their disposal.

“The majority of the government sees the need to continue to invest toward new fraud-fighting capabilities,” Ricci said. “And if you look at some of the questions, really what you see lacking today is real-time

detection, the ability to uncover hidden trends and patterns.”

Real-time detection and powerful big data analytics capabilities are especially critical features to accelerating the detection of activity that points toward potential or likely fraud. And this is important for many reasons. First, the faster that fraud can be detected, the easier it becomes to actually prevent it from happening. For instance, if an analyst notices a suspicious pattern of transactions or repetitive behaviors suggesting potential fraud, she can take action to suspend

further payments pending an investigation. In other words, the best way to ensure funds lost to fraud are recovered is to never disperse them.

Also, once a new pattern of fraud behavior is detected, modern tools enable an organization to more quickly look for similar patterns in other datasets and environments to see if the problem is more widespread. In short, the value with such a capability is the ability to quickly spot new and evolving fraud schemes and then adapt detection strategies to those. These capabilities also enable an organization to run simulations to more fully explore the ways in which fraud schemes may be running.

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Another critical need today is the ability to consolidate all fraud capabilities and resources onto a platform. (See Figure 2.)

“It’s clear that there’s too many systems for people to access,” Ricci said. “And that led to the high percentage of respondents wanting to have one holistic platform with an end-to-end capability to fight fraud.”

Figure 3

#2 ranked priority to better identify and remediate fraud:

#5 ranked top requirement for a fraud management solution:

60.6% of those with an effective fraud solution — and 34.6% of all respondents — say their system can analyze data from multiple disparate data sources.

The survey found that system access control end-to-end, integrated functions for fraud identification and case lifecycle management rank high on public-sector workers’ wish lists.

“That was really interesting,” Ricci said. “It’s great to see that because, a few years ago, if you asked the question, ‘Can you analyze data from multiple disparate data sources?’ the percentage would have been much lower. So I love this progress that we’re seeing here.“

But just because a fraud system can analyze data from multiple sources, it does not necessarily mean that the system automatically integrates those disparate data streams. “Do you have to go to those multiple data sources? Or can you look at it from that one spot by just going into one or two systems?” he added. This is critical because having to pull data streams from those disparate systems takes considerable time and labor. A 2014 article by Forrester Consulting reports that a customer’s fraud analysts needed to look at 23 total systems to analyze, identify and investigate fraudulent employee transactions.”

INTEGRATED CAPABILITY

#2RANKED Access control to systems

#5RANKED

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This single, integrated platform capability also connects with another challenge the survey highlights: the shortage of people with adequate IT skills. (See Figure 3.)

Figure 4

#1 ranked priority to better identify and remediate fraud:

#7 ranked top requirement for a fraud management solution:

Of course, this challenge is felt across the board. People with current IT skill sets are in need across all sectors of the national economy, but particularly in the public sector. In the fraud arena, it’s a problem if the platform an agency uses requires hands-on expertise from the IT department to operate, and that is often the case if the platform does not automatically ingest and integrate data streams from outside systems. Public-sector organizations today need counter-fraud platforms that are easy to operate and offer self-service analytics capabilities.

EASE OF USE

The ability to balance privacy with fraud detection and prevention is also a big concern, as we saw in the responses illustrated in Figure 1. Public-sector employees said this was their top requirement for a fraud management solution. This calls for an ability to limit the display of sensitive information. Modern platforms do this by anonymizing the information that is being shared and analyzed to ensure compliance with the many legal confines that accompany public-sector data today. “It might be that you can share certain aspects of that information that help you identify fraud, but don’t need to know the name of the particular person or their address or their age or other sensitive information,” Ricci said. “And then, once a judge looks at it and it becomes an investigative case, then you can go back and ask for that specific information within the law.”

Of course, underlying the topic of modernization is the need for value and efficiency and to ensure that any investments are worthwhile. As government officials consider investments in new solutions to combat fraud, they should think about what the most critical key performance indicators (KPIs) — or business metrics — would be to determine effectiveness and value. Ricci offered examples of good KPIs:

• The ability to stop payments before they’re made. “If you can reduce the number of improper payments, that’s a huge indicator that you’re preventing the fraud before it occurs,” he said.

• The number of fraudulent instances caught through automated alerts or manually.

• The number of false alarms.

• The speed to detect evidence or pattern activity indicative of fraud.

• Total cost of ownership. This is often achieved by using a single integrated platform instead of numerous systems.

PRIVACY PROTECTION

RETURN ON INVESTMENT

#1RANKED

Digital skill set

#7RANKED

Be intuitive and easy to use

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As we have seen from the GovLoop survey, people on the frontlines of public-sector fraud management have considerable need to detect, monitor and prevent fraud in real time. They recognize that speed in analysis, detection, investigations and simulations is the key to minimizing taxpayer dollars lost to fraud. But they also say that, to be useful, that capability must be married with great ease of use and built-in data protections to ensure privacy.

SAP delivers this through its SAP Fraud Management platform. It meets organizations where they are in terms of their capability and pace and enables them to advance that as far as they wish to go. The SAP platform allows customers to use their own analytics algorithms to assess data or to use preset, easy-to-consume capabilities embedded in the analytic solution. It also allows for connections to be made across organizations or departments for greater insight and to accelerate processes.

Additionally, the SAP platform is purpose-built for speed. With its trademarked HANA in-memory data analytics capability, the SAP Fraud Management platform delivers a high-performing, configurable and scalable means to instantly analyze extremely large datasets and vastly reduce detection and investigation times. The platform can automatically assess myriad fraud scenarios, prepare reports and run simulations to reduce workload and produce results in seconds rather than days. It also significantly reduces audit preparation time.

In short, the SAP Fraud Management platform provides government organizations the ability to plan, discover, visualize, predict and collaborate all on one platform with high efficiency. The end result is dramatically shrinking fraud risk over time.

HOW SAP SUPPORTS PUBLIC-SECTOR COUNTER-FRAUD

THE NEW STANDARD IN FIGHTING PUBLIC-SECTOR FRAUD: REAL-TIME DETECTION AND PREVENTION 9

Designed to help all levels of government maximize public value, SAP for Public Sector solutions enable governments to optimize limited resources in public administration while delivering responsive front-office services. Our solutions support business processes across a wide range of government functions, from accounting and procurement to case management and social services.

SAP solutions help governments leverage their finite time, money and personnel resources to fulfill mandated program and service requirements on a timely basis. Where two or more agencies share responsibility for a common outcome, these solutions can integrate information, processes and technology to support the active collaboration that delivers financial returns, as well as social and political results, to internal and external government stakeholders.

GovLoop’s mission is to “connect government to improve government.” We aim to inspire public-sector professionals by serving as the knowledge network for government. GovLoop connects more than 250,000 members, fostering cross-government collaboration, solving common problems and advancing government careers. GovLoop is headquartered in Washington, D.C., with a team of dedicated professionals who share a commitment to connect and improve government.

For more information about this report, please reach out to info@govloop.com.

www.govloop.com

@GovLoop

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