Agencies that can turn the conversation from prosecution to prevention can limit identity theft and the loss of taxpayer dollars.
The impact of business trade malfeasance, including intent to defraud, is substantially growing. By Q2 of 2022, there had already been an 11% year-over-year increase in business identity theft and an 8% increase in business misrepresentation during the same timeframe; and the upward trend continues as we close out the year.
Fraud comes in all shapes and sizes. We’ve all heard of the high-profile cases of an unassuming citizen stealing millions in COVID relief funding to purchase cars and electronics. However, these headline cases make up a small fraction of the fraudulent activity that takes place. Whether it is fraudulent application submissions for state grant programs, unemployment fraud or a myriad of other schemes, government agencies are not just combatting individual or independent bad actors; they are now combatting large, transnational crime syndicates and sophisticated computer bots.
With the rapid rise of business fraud, preventing, detecting and mitigating loss of government funding — regardless of the program — has never been more important. However, to properly fight this growing challenge, agencies must move from defense to offense; from tracking down bad actors after fraudulent activity occurs, to preventing malicious activity before it occurs.
If the pandemic taught us anything, it is that we need to put an end to bad actors taking valuable taxpayers’ money. The ramifications for not detecting fraud are high, therefore, implementing these best practices can help all entities fight fraud.
Understand signs of fraudulent activity. Look for red flags that business identity theft may be occurring, including unauthorized filings at the Secretary of State and company registrar, spelling and grammatical errors, compromised professional licenses, financial notices indicating newly opened and/or declined accounts, vendors looking for missed reoccurring payments, outstanding bills, lawsuits or collection notices and contact by law enforcement.
Gather trusted data. Bring together real-time data and integrate disparate datasets to better understand key characteristics of a company, including who owns the company, its domestic or international location, the number of employees it supports, the degree of financial stress it is experiencing or whether its owners and principles are connected to other fraudulent companies or have previously engaged in crimes of deception. Having a holistic data picture of any company also enables investigators to evolve their analysis to stay ahead of ever-changing fraudulent tactics.
Implement advanced technologies. Automation can help analysts filter through tens of thousands of applications and discover anomalies, but automation alone cannot mitigate fraud. Agencies must create an integrated approach to bring together the best available data, analytics and technologies — such as artificial intelligence, natural language processing and machine learning — to detect occurrences of risky behavior or extract and process the contents of documents to identify anomalies. Data science can then be overlayed on top to analyze the insights.
Add human intervention. Technology alone cannot prevent or eliminate the risk of fraud. Human intervention must be added to bolster any fraud prevention and detection efforts. While advanced technology can detect signals, humans can further analyze data and detect anomalies that technology alone cannot see. For example, through investigation, expert fraud examiners can catch dormant companies suddenly producing paperwork and submitting fraudulent applications or determining — with high degree of confidence — false positives and non-fraudulent applications.
Participate in a consortium. There are private companies that may be able to partner with local public agencies for the mutual benefit of preventing fraud in a particular region or sector. Seek to establish partnerships and alliances that can contribute their intelligence, or processes that, when combined with yours, can be more powerful and effective at minimizing the impact of fraudulent activity.
The real power of this integrated approach is that it can help prevent fraud from occurring in the first place by catching fraudsters in their tracks before funds are awarded or business identities are stolen — saving business owners and the government billions of taxpayer dollars.
Andrew J. La Marca, CFE, CAMS, is a senior director of fraud, compliance, ESG and public records and intelligence operations at Dun & Bradstreet.