posted on October 01, 2012 21:13
For as long as there have been organizations, waste, fraud, and abuse have been a problem. Public sector organizations are no different. Although government agencies have internal controls, audits, and inspector generals in place, issues still tend to arise. As a result of various legislation aimed at reform, such as the recent financial and healthcare reform measures, many agencies’ responsibilities have expanded to include additional oversight and enforcement of policies, rules, and regulations.
Historically, audits have been the primary means of rooting out waste, fraud, and abuse. Conducted by external organizations, such as public accounting firms, audits review public agencies, and organizations of all shapes and sizes. The Government Accountability Office has a longstanding successful tradition of evaluating agency performance and taking on the role of government-wide watchdog.
Audits provide several advantages. They allow for:
• Deep financial, program, and performance evaluation
• Independent or semi-independent outside assessments
• Flexibility in when, how, and who conducts them
Financial and performance audits review controls, policies, and procedures at different points in time. Audits produce recommendations that improve policies and enforce controls.
When paired with advanced analytics however, audits produce even greater results for government agencies. These results often take the form of increased programmatic performance, while either minimizing the risk to tax payers or earning them a positive return. While there will always be a place for financial and performance audits in the oversight of government operations, audits alone as a means of surveillance and enforcement have their limitations: audits tend to be historical – neither real-time nor predicative.
New Crime-fighting Team: Advanced Analytics and Big Data.
For decades, advanced analytic techniques have complemented the audit process in rooting out fraud and improving public sector performance. Now, through the advent of “big data” and advanced predictive analytics, organizations are automating all aspects of program oversight, fraud detection, and enforcement activities.
IBM defines “big data” in terms of “three Vs”: Volume, Variety, and Velocity:
• Volume, from Terrabytes to Zettabytes: Traditionally, the analytics process has involved hypothesis generation, data collection, and then analysis to either support or disprove that hypothesis. Often, this approach resulted in a stove-piped approach to analytics in that it was both costly and time consuming to collect the volume of data required for a robust, iterative analytical process.
• Velocity, data at rest and data in motion: Analyses of waste, fraud, and abuse detection have typically focused on historical snapshot data, simply because historical data is all that has been available. Now, “big data” allows organizations to conduct analyses in real-time or near real-time, on data in motion.
• Variety, no limits on data types: Up until recently, it was only possible to use structured data in analyses. Now, “big data” enables analysts to incorporate unstructured data – e-mail, video, chat, and social media - into their work. The ability to work with data from multiple sources, in multiple formats, is critical in rooting out fraud. Unsavory characters rely on the truth of fraudulent activity getting buried in a variety of data sources, out of site from enforcement and oversight officials.
Big data brings two unique dimensions to advanced analytics in the government context:
1. Enterprise and Mission Analytics: Big data helps government agencies increase mission performance while improving operational efficiency. In this video, the District of Columbia Government describes how “big data” and advanced analytics combine to improve the performance of the DC water and sewer system, all the while saving the city money.
2. Fraud Surveillance and Enforcement Analytics: As illustrated in this video, advanced analytics can greatly facilitate tax collections. At both federal and state levels, analytics helps auditors and other enforcement officials root out and prioritize investigations of fraudulent activity.
Achieving multiple aims simultaneously is the beauty of the partnership between big data and advanced analytics. This final video on New York’s experience integrating analytics into its tax collection processes illustrates the potency of the big data/advanced analytics combination. By combining big data with advanced analytics techniques, New York was able to:
• Stop over $1 billion in refunds going to tax payers
• Bring in $800 million in new revenue
• Reduce mailing costs by 30 percent
• Realize a 60 percent reduction in exception processing
In future blogs, we’ll dive into each of these dimensions and illustrate some of the techniques used to achieve operational efficiencies and root out fraud.