In recent months, U.K. officials have steadily raised their estimates of the potential fraud and losses in many of the coronavirus pandemic relief programs, especially the Bounce Back Loan scheme designed to aid small businesses with government-guaranteed loans of up to £50,000.

 

Even as the program was being launched in May, banking industry leaders warned that the speed of loan approvals and fund distribution sought by the government and the laxity of anti-fraud controls would result in high default losses. The estimates of loss levels have climbed steadily since then. The National Audit Office recently said up to 80% of loans could be unrecovered and combined losses from defaults and fraud could reach £26 billion.

 

Government officials have defended their efforts and pointed to some successes. British Business Bank (BBB) Chief Executive Catherine Lewis said in November that nearly 27,000 loan applications for a total of £1.1 billion had been rejected as fraudulent since the program launched in May. The BBB also said, however, that up to 60% of borrowers could default on loans. The full extent of losses, both credit, and fraud, will not emerge until the loans start being repaid in May 2021.

 

Fraudsters have used a range of strategies to make improper loan applications, including:

  • Identity theft: Using the names and credentials of actual small businesses and owners to make applications in their names without their knowledge while directing the loan money to bank accounts the fraudster’s control
  • Making duplicate loan applications
  • Buying inactive/non-operating limited liability companies and using their credentials to apply for the loans with the intent to default and/or declare bankruptcy

 

How to prevent losses with anti-fraud technology

The level of these potential losses underscores the need for increasing the use of automated anti-fraud technology. With a holistic view of data, many of these improper payments could have been prevented. Agencies should look to implement more sophisticated real-time transaction monitoring and analytical systems to help detect fraudulent behaviors.

 

In the near term, technology can help to prevent additional improper payments, improve the internal controls of relief programs, and hold those accountable who have committed fraud.

 

Two factors created special challenges for preventing fraud and waste in the pandemic-related relief programs:

  • The huge scale of the funds allocated to the relief effort, and
  • The extreme pressure on officials to distribute funds quickly

 

Yet both those factors underscore the critical role of technology, with its capacity to process data and inform decisions at scale and with speed.

 

Data is at the center of fraud prevention

Using available data, analytic software tools can use techniques like entity resolution to determine if different entities are in fact the same person or company. Relationships between all types of entities, including financial accounts, IP addresses, people, and companies can be quickly revealed, and scoring models can rank the highest risks and threats. Government agencies using data-driven, analytical approaches to fraud prevention can discover risks and threats faster compared to traditional methods.

 

UK government agencies are not the only ones feeling the pressure of pandemic-related fraud. In the U.S., federal and state governments have also experienced high levels of fraud in their pandemic relief programs. A common challenge to automating fraud prevention systems is siloed data – which could be highly valuable if it were available in a single place. This was allegedly a key factor in the $1.4 billion in COVID-19 stimulus payments made to deceased persons by the U.S. Treasury Department. The Internal Revenue Service, which is part of the Treasury Department, maintains accurate death records, but those records were not available to the Treasury’s Bureau of Fiscal Service, which distributed the stimulus payments.

 

“The coronavirus pandemic highlights the need for rapid, real-time information to support decision making in government. Traditional government data systems and reporting processes were designed for semi-annual or annual reports and analytics, yet in a global health crisis, decision-makers need information much faster – on a daily or even hourly basis,” according to Effective Data Governance, a survey of U.S. federal government Chief Data Officers released in September 2020. “…The global pandemic highlights an ongoing need for government to have data collection, management, and analytic capabilities at the ready to support decision-making needs.”

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