Fraud and Corruption Detection System

Fraud and Corruption Detection System

World BankIndia Ministry of Health and Family Welfare

Conan C. Albrecht, PhDBrigham Young University

Type 1 and 2 Errors

Problems Exist No Problems

Problem Found and Reported

✔ Wasted Money or Embarrassment

Problem Not Found or Not Reported

Very Bad; Problem Will Be Found Later!

✔

Detectlet Introduction

A Detection Solution

Detectlets

• Since fraudsters constantly change and update their schemes, the system needs to quickly adapt and improve

• The fraud knowledge is encoded in detectlets: small, self-contained plugins

Sequential Security Instrument Numbers

Contracts not matching Benford’s Law

Item Amounts That Are Exact Percentages

Fraud Detection System

Detectlets

• A detectlet encodes:– Background information on a scheme– Detail on a specific indicator of the

scheme– Wizard interface to walk the user

through input selection– Algorithm coded in standard format– “How to interpret results” follow-up

Detectlet Example: Digital Analysis

View All Contracts Screen

View Contract Detail Screen

View Contract Indicators Screen

Maintain Indicators Screen

Example Fraud Indicators

• Red Flags of Collusion– Winning bid too high compared with cost estimates,

published price lists, similar jobs or industry– Persistent high prices by all bidders– Bid prices drop when a new bidder enters the competition– Rotation of bidders by job, work, or geography– Losing bidders hired as subcontractors– Round numbers in bids– Bids exact percentages apart– Address, phone, name matching of bidders– Sequential bid securities, bonds, etc– Certain companies always bid against each other– Losing bidders submit identical bids on different jobs– Distant bidders underbid local bidders– Different amounts bid on same items by same bidder in

different contracts

Why Detectlets Work

• Economy– Framework is free (and always will be)

• It is released under the GPL

– The entire cost structure is based on open source software• Linux operating system (if desired)• Python language• PostgreSQL, MySQL, ODBC databases• Picalo

Why Detectlets Work

• Self-Sustainability– Detectlets puts the development and

maintenance of the tools in the hands of the community. It does not rely upon a company or single source.

– The framework allows countries to build and evolve their own, specific corruption libraries• It also encourages sharing of these libraries

Why Detectlets Work

• Repeatability– Detectlet routines are scripted,

meaning they can be repeated, adjusted, and upgraded

• Routines developed for one area can serve as the basis for routines in another area

• A central repository is being developed right now– http://www.picalo.org/

Why Detectlets Work

• Viability– The framework is realistic -

comprehensive data analysis requires scripting. Detectlets support this advanced type of analysis

– Detectlets can be embedded into existing systems

– The framework makes logistics easier• No keys to buy and distribute (or lose)• No need for expensive piracy audits• It can be installed on as many computers as

desired

Example Fraud Detection Systems

• United Nations Red Flags Application

• Amoco Oil (now British Petroleum) Fraud Detection Database

• North Carolina Picalo Data Mining System

• India Ministry of Health andFamily Welfare