Government Brief

Volume 1–January 2012
Government Brief
From the Business, Industry & Government Team
Proactive Detection of
Improper Payments
By Tina Kim, Deputy Comptroller for Audit, Office of the
New York City Comptroller
“Audit reveals city paid $11.8 million in
housing subsidies to dead people” blared
a recent headline. Auditors, by matching
program participant data with the Social
Security Death Master File, proactively
identified thousands of individuals who had
continued to receive housing benefits after
their death, resulting in potentially millions of
dollars in revenue returned to the general fund.
More and more government auditors are
incorporating computer-based deductive
detection approaches into their audit work
to identify improper payments, which, in
turn, leads to increased findings and more
powerful audits. Deductive detection involves
determining which type(s) of improper
payments can occur in a particular situation
and then using technology and other methods
to determine if those type of payments do, in
fact, exist. Auditors:
1. Examine internal controls to determine
which type(s) of improper payments could
occur.
2. Determine what anomalies those payments
would generate.
3. Use analytic tools and databases to search
for those anomalies.
4. Follow up to determine if payments are
actually improper.
For example, in the audit of housing benefits,
auditors determined that the agency at issue
lacked a mechanism to identify instances in
which benefits may need to be discontinued
because of a change in circumstances, such
as a tenant’s death. Agency personnel relied
on either the deceased tenant’s landlord or
family to notify it of a tenant’s death. Using
data matching, auditors looked for payments
made on behalf of deceased tenants that were
made after the date of death. Specifically,
auditors compared tenant data with the
Social Security Administration Death Master
File (DMF). The DMF is a file of all deaths,
beginning around 1936, reported to Social
Security Administration (SSA) from sources
other than states. Created in 1980 as a result
of a Freedom of Information lawsuit, the DMF
contains over 87 million records and is available
from the National Technical Information Service
(NTIS), part of the Department of Commerce.
The benefit of this approach is that it can be
used by the agency in the future to detect
these types of improper payments on a
periodic basis.
Computer-based deductive detection is a
proactive approach that can find anomalies
early, resulting not only in significant cost
savings but also as a strong deterrent when
used routinely. It allows auditors to test for
specific risks that would be difficult to test
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using traditional methods. Unlike traditional
methods which involve the use of samples,
computer-based deductive detection is more
comprehensive—testing the entire population so
that 100% of transactions are scrutinized. Testing is
done in a fraction of the time required with manual
methods even when data volumes are large.
However, like other computer-based approaches,
such methods are limited by the data captured
as well as the quality of the data. Use of data that
lacks integrity or that is incomplete can lead to
faulty conclusions or inaccurate assumptions. It is
important that data reliability testing be performed
first to ensure that data is sufficiently complete
and error-free so that it used for this purpose.
proof that they are dead, as in rare instances, it
is possible for the record of a person who is not
deceased to be included erroneously in the DMF.
Therefore, prior to determining that a payment is
inappropriate, the death of an individual must be
verified.
An understanding of the data and its potential
limitations is also a prerequisite for computerbased deductive detection. For example, the
DMF contains names and basic information about
persons with Social Security numbers whose
deaths have been reported to the SSA. However,
the absence of a person’s name in this file does
not prove that the individual is alive. Further, the
inclusion of a person’s name in the file, is not
With the increased emphasis on early detection
of fraud, waste and abuse, governmental auditors
should consider adding to their tool kit proactive
computer-based methodologies for the detection
of improper payments—including deductive
detection approaches. Such tools can be a cost
effective method of preventing and detecting not
only improper payments but fraud itself.
This illustrates a key point regarding deductive
detection—identification of an anomaly in the data
is only a starting point in the process, representing
only a symptom or red flag of a potential problem.
Auditors must follow up on results to ensure that
they are, in fact, findings and not the result of
data errors or other situations that result in similar
symptoms.
Investigative Related Resources for Auditors:
Black Book Online
www.blackbookonline.info
BRB Publications, Inc.
www.brbpub.com
Searchsystems.net
www.searchsystems.net
Federal Government Web Portal
www.usa.gov
State and Local Government Directory
www.statelocalgov.net
Sex Offenders Registry
www.fbi.gov/hq/cid/cac/states.htm
Social Security Death Index Search
ssdi.rootsweb.com
Federal Prisoner Lookup
www.bop.gov
For More Information
Government Accountability Briefs:
“What Government Entities Need to Know About the American Reinvestment and Recovery Act of 2009”
“Internal Controls: Just the Start of a Fraud, Waste and Abuse Prevention Program”
Whitepaper:
Members in Government Guide to Understanding Internal Control and Internal Control Services
Online resources:
Governmental Audit Quality Center Recovery Act Resource Center
DISCLAIMER:
This publication has not been approved, disapproved or otherwise acted upon by any senior technical committees of, and does not represent an official position of, the
American Institute of Certified Public Accountants. It is distributed with the understanding that the contributing authors and editors, and the publisher, are not rendering legal,
accounting, or other professional services in this publication. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
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