Fraud Prevention

Success is at jeopardy if fraud needlessly undercuts the value of a company. Information is absolutely essential to fraud prevention. How do we use it? Let s start with everyone s favorite government department ”the tax man. Taxes and death, two sure things we can never escape. Except that tax evasion, tax fraud and innocent filing errors happen all the time.

Iowa Department of Revenue and Finance

In tough economic times with high unemployment rates and tight government budgets , the Iowa Department of Revenue and Finance has invested time and money into centralizing and standardizing its information resources and using its improved understanding of the tax base to increase its revenues (that s taxes to the average person). Iowa s specific goals are:

• enhance voluntary compliance

• collect all taxes that are due

• manage the state s financial resources more efficiently

  With better information, Iowa can analyze audit data and determine the cause of noncompliance .

• Was it an education issue?

• Was it a tax law issue?

• Was the tax form not clear?

• Or was it fraud?

  On the other side of the equation, Iowa can forecast the state s growth needs and analyze the impact of tax law changes before making the final decision to implement.

  In a typical year the state processes more than 4 million documents. In 2001 it collected in excess of $5.8 billion from individuals and businesses and issued $538 million in refunds . In 2000 and 2001, the two years since it began its information initiative, Iowa has collected more than $20 million of new tax revenues from non-compliant taxpayers and the state anticipates increased revenues of $10 million annually.

 

Of course, information does not only help the government uncover fraud. Information also enables companies to track behavior patterns and see suspicious activity. A pattern of canceled will-pay subscriptions by the same subscriber. Early term claims on new insurance policies. Erratic credit card use.

Credit card fraud proliferates. Preventing it requires timely information and quick action. Most stolen credit cards hit their spending limit within 48 hours. So, detection needs to happen within minutes or it may already be too late. With timely information, on-the-spot analysis of current ( potentially fraudulent) transactions combined with purchase history enables companies to react to behavior as it is happening.

For example, one pattern companies watch for is the use of a credit card for a purchase in which no people are involved. One traditional pattern is to test a stolen credit card on a gas pump, to make sure it works, and then begin using the card. Other patterns are sudden large purchases of consumer electronics, jewelry and airplane tickets. Credit card companies can flag these transactions, compare them with purchase history and react accordingly . Gauging the right reaction is important. A customer doesn t want their credit line cut off unnecessarily or to be contacted at every purchase. They also don t want a thief to spend their money. It s a delicate balance and striking it right has a direct impact on profitability.

Identifying and preventing fraud protects our hard-earned bottom line. We need to stay current. We can t rely on stale information. We are only ever one step ahead of the fraudsters, and their creativity will often match ours. The more information there is available, the better our decisions will be. Information and the power of our information resources enable us to control the difficult logistics and operational issues, and prevent fraud.

In the next chapter we ll change the angle of our perspective and look at a key issue that underlies every decision we make and is, ultimately, at the core of managing profitability ”risk management.