Guardians of the Public

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Charleen Gallagher
5 years ago
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1 Guardians of the Public Jamie Ralls, ACDA, CFE Kathy Davis Auditors with Oregon Audits Division Objectives Understand risk areas that could result from policy decisions and legislative change Examine analytic techniques for identifying waste, fraud, and abuse in entitlement programs Understand Benford s Law and how to apply this tool Learn how to leverage analytics to help drive audit fieldwork 2

2 Who we audit If statistics are boring, then you ve got the wrong numbers Edward Tufte, Emeritus Professor & Author, Yale University

3 Changes what are the risks? Public Assistance Audit

4 Public assistance audit Connection between findings & policy change 8

5 Medicaid Audit (In Progress) What we are doing in Oregon One billion dollars in $100 bills 10

team of ACL super users to analyze Medicaid claims Found

6 Quantity of data is hard to comprehend One claim 200,000 sheets of paper 11 Inspired by Massachusetts Dedicated team of ACL super users to analyze Medicaid claims Found hundreds of millions in question costs and duplicate payments 12

7 New systems new challenges 13 Temporary Assistance to Needy Families (TANF) Audit

8 Leveraging analytics helps win awards 15 Caseload growth is #1 1 st 16

9 Hours of job training & other activities is #50 50 th 17 Merging the silos 18

10 Supplemental Nutrition Assistance Program (SNAP) Fraud a.k.a. Food Stamp Fraud Fraud scheme Results to date 4 Merchants arrested Over 250 individuals prosecuted Mexican Drug Cartel operation taken down Oregon received $300,000 grant Decreased fraud from other merchants Tens of thousands in restitution paid

11 Analytics helps deliver data driven evidence 21 Carniceria Mi Pueblo #1 Merchant on our top 30 list 22

12 Compelling fraud story told through data Store Type Average Transaction Average % Even Convenience stores Mini markets 7-11 $6 ~5% Walmarts $33 ~5% Safeway/Albertsons $24 ~5% Dollar stores $8 47% Meat markets $37 12% Carniceria Mi Pueblo $54 51% 23 Visualizing transaction amounts over time 24

13 Most recent merchant suspected of fraud 26

Visualizing outliers Normal gas stations average between $4 and $8 per transaction Shell X averaged $35.

14 Visualizing outliers Normal gas stations average between $4 and $8 per transaction Shell X averaged $ Most of any gas station in Oregon and 534% of the statewide average 27 Hundred dollar transactions 28

Competitor Next Door 40 minute drive to store (each way)

15 Abnormal client travel Red = more than $500 Green = $100 to $250 Yellow = $250 to $500 Black = under $100 Shell X Competitor Next Door 40 minute drive to store (each way) Frequent clients live within walking distance 29 Visualizing fraud growth 30

16 More stories 31 Benford s Law

There is here the peculiar fact that numbers that individually are without relationship are, when considered in large groups, [following the same pattern] Frank Benford Jr.

17 There is here the peculiar fact that numbers that individually are without relationship are, when considered in large groups, [following the same pattern] Frank Benford Jr., The Law of Anomalous Numbers, 1938 What is Benford s Law? 35% 30% 25% 20% 15% 10% 5% Did you know in many data sets, most numbers start with a 1? Fraudsters don t! 0% Benford 30.1% 17.6% 12.5% 9.7% 7.9% 6.7% 5.8% 5.1% 4.6%

18 Lets put Benford s to the test 35 Key assumptions 1. Set of numbers is not limited 2. Numbers span multiple orders of magnitude 3. Sample size is very large 36

What works, what doesn t Typically follows Benfords Most accounting related data, such as Accounts Receivable Transaction level data Addresses Bank account balances

19 What works, what doesn t Typically follows Benfords Most accounting related data, such as Accounts Receivable Transaction level data Addresses Bank account balances Census data River drainage Doesn t follow Benfords Ages Heights Zip codes Payroll Invoice numbers Check numbers Product price ATM withdrawals 37 Real world use of Benford s Law

20 Two digit test reveals fraud Find fraud with the click of a button Benford s Law would have caught Enron 40

21 Embezzlement in Arizona 41 Key points #1 Keep up with legislative changes and policy decisions. They may help you identify risk areas. #2 Analytic software helps you quickly analyze large data sets to detect potential waste, fraud, and abuse #3 Leverage Benford s Law in your work! 42

22 THANK YOU CONTACT US AT : Jamie.n.ralls@Oregon.gov Kathy.h.davis@Oregon.gov (503) (503)

Benford s Law A Powerful Audit Tool

Benford s Law A Powerful Audit Tool Dave Co(on, CPA, CFE, CGFM Co(on & Company LLP Alexandria, Virginia dco(on@co(oncpa.com The Basics 1,237 is a number It is composed of four digits 1 is the lead digit