Protecting the public purse: tackling fraud, error and debt

GLOBAL GOVERNMENT FINTECH LAB 2023: BREAKOUT SESSION

How are fintech solutions helping tackle fraud across the public sector? Daniel Tost reports on a breakout session at the Global Government Fintech Lab 2023

Fraud is a persistent scourge of governments around the globe, encompassing guises ranging from procurement fraud or corruption to false benefit claims.

The Covid-19 pandemic amplified susceptibility to such threats. Instances of financial fraud surged, resulting in losses to the public purse of billions.

The topic of how new technologies, as well as collaboration between the public and private sectors, are being harnessed in the battle was the focus of a breakout session during the Global Government Fintech Lab 2023 in Dublin.

The panel comprised: Euan Slack, who is responsible for the development and adoption of digital tools within the UK Cabinet Office’s Government Grants Management Function; Rahav Shalom-Revivo, head of the Financial-Cyber Innovation and International Engagements unit in Israel’s Ministry of Finance; and Paul Blackwell, who is manager of public sector business (UK & Ireland) for technology company Nintex (the session’s knowledge partner).

The session, moderated by former UK civil servant Siobhan Benita, saw the trio outline their initial thoughts before moving into topics such as getting the balance right in the trend towards automation and why prevention of fraud is typically receiving greater focus than attempted clawback of funds.

RELATED ARTICLE Acceleration under pressure: governments tackle fraud with fintech –write-up of the ‘How can fintech help governments tackle fraud, error and debt?’ session at the Global Government Fintech Lab 2022

‘Harnessing’ fintech via better data

Slack kicked off by describing the evolution of a Cabinet Office-created due-diligence tool, Spotlight, which aims at improving the quality and reliability of data used in awarding government grants and contracts.

The tool (which he also discussed at the Global Government Fintech Lab 2022) is built ‘by the government for the government’ and is operating on a ‘software-as-a-service’ model. “Based on the cloud, we build [government] departments’ accounts within that and then license it out,” he explained, adding that it “touches on fintech and hopefully puts the government in a position to harness it”.  

Government data sources including records of previous grant awards, contracts and applications feed into the tool alongside commercial data from sources such as Dun & Bradstreet to assess financial viability. Adverse media (negative news) screening, as well as screening checks for politically exposed persons (PEPs) and sanctions, are also “extremely important”.

Payment verification is a further important element, Slack said (for this, data company Experian is used). “We could really move forward into ‘payment insights’,” he continued, explaining that the objective would be to track how grants are specifically spent. “We have put government in the place where it’s got the right technology and data, but how do we drive forward the change to get consent [to do that]?”, he asked, rhetorically.

One further area moving forward is identity verification at Companies House (through the UK’s Economic Crime and Corporate Transparency Bill). This should help stymie “still painfully easy” fraud via this route, he added.

But with more than £30 billion-worth (about $37bn) of applications processed through the tool, Spotlight has already saved the government “billions”, Slack said.

He envisaged further progress with the use of new technologies, saying that by leveraging machine-learning and artificial intelligence (AI), the system should “mature over time” to analyse a wider range of data points and detect potential fraud or errors more efficiently.

‘Tons of fintech products out there’

Shalom-Revivo began by outlining the focus of her Financial-Cyber Innovation and International Engagements unit. “‘Financial-cyber’ means providing cybersecurity protection to the entire financial ecosystem,” she explained, adding that the Israeli Ministry of Finance has an ‘operational centre’ that provides services to help companies.

She described “tons of fintech products out there” with the potential to help, saying it was incumbent on the government to assess its ability to embed them.

One of several initiatives in which government agencies are involved is an Israel Innovation Authority-led pilot programme initiative involving tax, security and banking supervision authorities working to “articulate the use-cases and the problems that the public sector needs answers for, then identify[ing] the relevant fintechs that can provide a solution to implement that product as a pilot in their specific regulatory environment” – a scheme that helps all parties; another is Israel’s FinSec Innovation Lab (a joint-venture of Mastercard and Enel X).

Collaboration is, she said, important from three perspectives. First, inter-government agency co-working to share fraud-related data in a standardised and specific manner to break down silos.

Second, she emphasised the importance of public-private partnerships. “The private sector leads the way,” she said. “They have the money, they have the budget, they have the personnel that can identify, analyse and see a lot of information related to fraud.”

Third, she highlighted the need for international collaboration, mentioning Israel’s involvement in financial ‘cyber-defence’ exercises with other finance ministries and financial organisations (the first such exercise was held in 2021 and the next is scheduled for early 2024, hosted by the Organisation for Economic Co-operation and Development, she said).

“When we build our systems, we must think like hackers or thieves to be able close all the loopholes,” she said, on the theme of cyber-crime. She later said that Israel is employing the services of so-called ‘white-hat hackers’ in this context, describing their abilities as “unbelievable when you compare them to standard people.”

Concluding her opening remarks, Shalom-Revivo provided insights into technology used in Israel, such as software to identify tax evasion, leveraging information from “marketplaces around the world”; and enhanced user-identification methods, such as sending one-time passwords to SIM cards. She also mentioned the use of 3D Secure (a security protocol designed to provide an additional layer of security for online credit-card and debit-card transactions) to shift liability from the government to the card-issuers.

Focus on people and processes

Blackwell began by describing the “absolutely huge” numbers (cost) related to fraud and error in the public sector in the UK alone.

As an example, a recent National Audit Office report (‘Tackling fraud and corruption against government’ – March 2023) notes that the public sector lost between £33.2 billion (about $41.2bn) and £58.8 billion (about $73bn) to fraud and error in 2020-2021 (excluding Covid-19 schemes).

He went on to reference high-profile UK examples of public sector mis-spending and mistakes, as well as the cost of badly implemented government IT systems.

He quoted the examples to emphasise the importance of focusing not only on technology solutions such as robotic process automation (RPA) and artificial intelligence (AI) but also – indeed first and foremost – on underlying processes and people.

“Train the people better, train them to understand how to use the technology solutions that they’re being given,” he advised. “Quite often people are told ‘here’s this new solution that we’ve got’ and people don’t know how to implement it and use it properly. Talk to the people about what the process is – don’t just ‘bring in’ AI and RPA.” he continued.

“A robot that does things 20 times faster, 24 hours a day, will only make 20 times the number of mistakes for 24 hours a day if you don’t do it properly. It’s all about getting the process right,” he said.

Accepting ‘risk thresholds’

Kicking off the Q&A, one audience member raised a different perspective – the problem of elderly people’s vulnerability to financial crime and scams.

Slack acknowledged the problem and expanded on the challenge of seeking to ensure that older people (who are proportionately less likely than younger people to use digital tools such as online banking) are not excluded from government payments and eligibilities.

He referred to the implementation of a local authority (council) tax rebate scheme, introduced to help households in England deal with rising energy costs. This saw £150 (about $186) automatically paid to individuals’ council tax accounts if they used direct debits to pay their council tax. However, this brought various challenges, most notably for those who did not use direct debits, but also with the verification of people with bank accounts established before 1992. ‘Manual’ solutions, such as asking people to visit their post office, also “don’t work”, he said.

“Sometimes you probably have to accept a bit of fraud and error in that system as it’s very difficult in a crisis to get payments out quickly,” he said, adding that there are “risk thresholds that you [government] have to accept”.

Shalom-Revivo emphasised the importance of awareness campaigns. But she acknowledged that there is a limit to what awareness alone can achieve, mentioning a specific campaign in Israel targeting Russian-speaking elderly people. Scammers would contact them, posing as police or secret service agents, through WhatsApp, and physically accompany them to the bank to empty their accounts. Despite bank tellers warning them of the fraud, some elderly people nonetheless went ahead.

Blackwell called the issue of scams a “huge” challenge. “I think it’s not so much down to government, but actually to private companies to clamp down on making sure that their data does not get leaked into the wrong hands,” he said, expressing hope for the development of more solutions to address this issue.

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‘Presumption of honesty’

As the Q&A continued, the panel were asked by an audience member if government authorities should ‘take things a bit slower in terms of getting money out to people’ – or certainly do more to improve recipient ID processes – in order to minimise fraud and errors in outbound payments. “With a lot of stuff we do in the public service there’s a presumption of honesty,” the audience member observed.

Slack pointed out that Spotlight already provides officials across the UK with a combination of real-time data from “market-leading” data providers and the government’s own data (“we are linking up with agencies for more ‘sensitive’ sets”, he added).

“So, very quickly – in a matter of seconds – you get a real-time picture of what an entity looks like,” he said. “Where things still leak is that training and skills [element] and [the] capacity of the actual civil servants and users making the decision,” he continued, emphasising: “Our tool is very much a data-gathering risk intelligence tool, not a decision-making tool.”

Because of this, he saw no need to slow down. “The journey we need to go on is ‘how far can we take automation of certain decisions, if the data looks good enough’ and then direct the humans to focus on what look like the riskiest applications,” he said. But, he said, this would be “a big step forward” because “when a machine gets it wrong it gets it wrong every time”, not to mention the likely political scrutiny.

Blackwell added that the linking of IT systems between different government departments is “definitely helping to cut down on minor fraud”. Major fraud, however, involves “very sophisticated individuals”, making it “very hard to stop those [frauds] happening.”

Instead of ‘taking things slower’, Shalom-Revivo emphasised the need to maintain or even increase the pace of implementation of effective tools, solutions and processes to minimise fraud. By way of example she mentioned growing use of multi-factor authentication (multi-step account log-in processes).

RELATED ARTICLE UK’s Public Sector Fraud Authority turns to ‘cutting-edge’ tech – a news story (30 January 2023) on London-headquartered company Quantexa being awarded a contract by the UK’s new PSFA to use ‘new data and cutting-edge technology, including AI, to find and prevent more fraud across the public sector’

Prevention easier than clawback

The panel were asked by an audience member about further fintech-based solutions that might assist in the recovery of defrauded money.

Slack said that investment in ‘payment insights’ and also open banking (a reference to the use of ‘open’ application programming interfaces – an ambition also aired at the 2022 Lab) would likely help.

But government’s focus is on preventing fraud and error in the first place, he said, referring to “capacity issues when it [money] does leak out the system” (for example, an insufficient number of trained investigators).

The Public Sector Fraud Authority was established in the UK last year as part of the Cabinet Office and HM Treasury. It has seen a “good bit of investment” for investigation and clawback and “hopefully over the next years or so, we’ll see some good results,” Slack said. But he emphasised that recovered funds “will be tiny compared to the amount that has gone out”, referring to the high levels of fraud in Covid-19 help schemes (a representative from the private sector make the same point at last year’s Lab, highlighting the challenges with clawing back paid-out funds).

Shalom-Revivo concluded by emphasising the importance of inter-agency information-sharing in real-time in order to minimise any need to recover money. Blackwell mentioned the benefits of using technology to “take away the mundane tasks” and re-allocating public servants to customer service (direct contact) roles.

Overall, the session highlighted solutions, initiatives and trends that exemplified the importance of a multi-faceted approach involving technology, data, public-private and international collaboration to combat fraud, error and debt.

While technological advancements should lead to more efficiency, the need panellists identified to address underlying processes – and better improve government personnel’s skills – stood out.

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Global Government Fintech’s Fraud, Error & Debt topic section