It seems like everywhere I turn, someone is talking about what’s going on out in Washington (state) and how the Department of Labor and Industries is using an innovative approach to the fraud problem. While many people are talking about it, what most folks don’t know is how they’re doing it. In this week’s Fraud Flashpoints, I’ve gathered the critical information on the issue, the L&I approach and the key factors driving their success.
From the research conducted while writing this article there appear to be several problems that L&I was targeting:
In a January 2011 State of Washington press release, fraud prevention and compliance manager Carl Hammersburg said, “Finding fraud used to be like finding a needle in a haystack, dependent on anonymous tips and a little bit of luck.” Hammersburg’s statement reflects the approach that many business and governments use to detect, investigate and fight fraud and unfortunately some still do today.
Hammersburg went on to say “our investments in targeting tools and outreach to drive referrals are paying off.” Indeed, they are as the “Fraud Prevention and Compliance Program brought in $137.4 million in 2010” from fraudulent activity according to their report to the Washington legislature.
Like most good anti-fraud efforts, the L&I effort involves a holistic approach (the use of legal tools, outreach efforts and a new communication medium—blog). But that’s not enough as there has to be some type of technological engine driving the program, performing analytics, producing investigative leads and serving as the anti-fraud detection backbone.
In looking at L&I’s press release the phase “targeting tools” jumped off the page at me, and while there is no specific mention of what “targeting tools” L&I is using to drive their results, I’ll connect the dots as a bit of industry research led me to a key factor in their battle against workers compensation fraud: analytics. More specifically, the Washington Department of Labor & Industries reached out to one of the largest U.S. software companies, SAS, and is using one of their analytic tools, the SAS Fraud Framework for Government.
At a time when governments across the country are cutting programs due to a lack of revenue, the Washington Department of Labor and Industries did something innovative and broke the mold for state governments by investing in fraud-fighting technology. While their exact fiscal investment is unsubstantiated at the time of this article, given the returns quoted by the State of Washington, the initial investment is believed to be a little over $17 million and is paying off at a rate of 8:1. That’s right, for every $1 spent L&I is currently getting $8 back. That’s a pretty significant ROI in the battle against fraud, especially when “good results” might otherwise be considered 2 or 3:1.
Given these kinds of results, the fraud solutions architect had a pretty solid idea what L&I’s issues were and how the software would perform under those types of conditions. Undoubtedly James Ruotolo (principal, Insurance Fraud, Global Fraud and Financial Crimes Practice at SAS) was somehow involved in the project blueprint and played a role in the implementation of SAS technology at L&I along with recommendations for successful deployment. Ruotolo is one of the sharper, predictive, analytic, anti-fraud minds in the industry today.
How long will the SAS technology investment produce those kinds of fiscal returns for L&I? That’s unclear as deterrence, communication and prosecution might ultimately help stem some of the previous large losses but insurance fraud will never go away completely. So, anti-fraud technology will always play a pretty significant role.
What is clear, however, is that Washington L&I seems to be a progressive new player in this space and it doesn’t appear they’re content to sit on their cards any time soon. The information I reviewed suggests they are also exploring social networking analytic platforms as another tool in their investigative toolbox to ferret out even more acts of fraud, waste and abuse.
L&I’s interest in jumping into the use of social media tools to battle fraud is understandable. In fact, the use of social media applications in investigations seems to be all the rage right now despite investigators having used readily available Web-based information dating back to its commercialization in 1996.
A word of caution is in order here. Companies want to jump into this area immediately but often lack the proper company foundation, policies, practices and procedures to do so. In fact, a 2009 Manpower survey conducted globally suggested that 20 percent of all companies have a social media policy in place for employees to follow. Other entities are currently producing survey results that place the number of companies with social media policies anywhere between 10 percent to 50 percent.
While there is a range of deviation in the results obtained, in accordance with the survey population and the questions asked, one thing is clear: there is a lot of work for companies to do in the area of social media policy creation as the lack of a proper social media foundation creates significant liability risk for potentially invasive methods used to gather information about others.
Not too long ago, I wrote a piece (“Top Ten Steps to Take Before Your Company Uses Social Media in Investigations & Anti-Fraud Efforts”) about the value of social networking apps in corporate investigations. While there is value, it is often described as a “minefield” requiring a well-developed policy on the use of social media applications prior to implementation. With the right roadmap it can be done quite successfully and it will be interesting to see how Washington Labor and Industry’s plan, implementation and fraud fighting results play out going forward.
About the Author
Daniel W. Draz is the principal of Fraud Solutions, an international fraud consulting firm. He has 26 years of successful fraud investigation, fraud training, fraud prevention, fraud management, risk (management and investigation), audit, regulatory and compliance experience exclusively in the financial services sector.
In his previous role, he was the corporate investigations manager at TransUnion LLC, where he over saw the Corporate Investigations Department, also serving as the global anti-fraud liaison to TransUnion’s operations in 25 foreign countries on six continents. Additionally, his responsibilities included oversight for all internal employee investigations involving violations of ethics, code of business conduct, hotline and acceptable technology usage policies and procedures. Daniel’s staff also investigated all customer interfacing matters and violations, violations of customer contract agreements, violations of federal rules and regulations governing permissible purpose, access of consumer credit information and cases with federal law enforcement agencies involving rings, organized criminal activity and national security matters.
Prior to joining TransUnion, Daniel was a fraud investigator in the Special Investigations Unit at Standard Insurance Company in Portland, Oregon. In that capacity, he conducted sophisticated insurance (life, health and disability) investigations (civil and criminal) into questionable/fraudulent claims; referred insurance fraud investigations to local, state and federal law enforcement agencies nationwide for prosecution consideration; coordinated investigations with law enforcement agencies and prosecutors; and advised counsel, senior management and business units on fraud issues/problems/solutions. Additionally, he was also responsible for development and delivery of anti-fraud training programs and training on red flags/fraud avoidance/investigation procedures/methods to minimize exposure to financial loss.
Previously, Daniel owned and operated an investigative and fraud consulting agency in California, providing specialized fraud consulting, investigative and litigation consulting services to businesses and corporations, insurance companies, self-insureds, financial services firms, large law firms, government agencies, telecom carriers and select individual clients nationally.
Daniel has been a Certified Fraud Examiner (CFE) since 1996 and is a member of the American Society for Industrial Security’s (ASIS) Economic Crime Council. He has an M.S. in Economic Crime Management from Utica College (2005) and a B.S. in Criminal Justice from Arizona State University (1985). He currently holds adjunct professorships at four colleges, where he teaches a variety of graduate and undergraduate classes involving various forms of fraud, economic crime, white collar crime and criminal justice. He also has extensive experience teaching both in the classroom and online, and with developing unique academic curriculum.
Daniel is a former member of the International Association of Special Investigation Units (IASIU) and a frequent speaker at national industry conferences. He is formerly associate editor, fraud investigations for PI (Private Investigator) Magazine, where he wrote on a variety of fraud-related topics. Daniel also created the first insurance fraud column for FRAUD Magazine, the official publication of the Association of Certified Fraud Examiners and is an occasional contributor to SIU Today, the official publication of the International Association of Special Investigations Units. He has been published over 40 times in industry and trade publications over the years and frequently mentors other investigators and fraud professionals around the country.
To contact Daniel, email him at firstname.lastname@example.org.
Daniel writes a regular column, Fraud Flashpoints, for Corporate Compliance Insights.