The computer programmers who have helped other states detect businesses that cheat work only a 15-minute drive from North Carolina’s state Capitol.
SAS, the Cary software giant, developed fraud software in the 1990s to help banks detect irregularities. Over the years, others have tapped into the software to regulate various industries. Over the last four years, as the economy tanked, governments have turned to SAS to identify missing tax revenues.
One by one, states such as Washington and Louisiana, as well as municipal governments such as Los Angeles County, have turned to SAS to help them figure out who is skirting the laws. The programs have been applied to business tax-evasion schemes in Washington and Louisiana, and in Los Angeles they detect those illegally tapping into public welfare programs.
“It’s not easy, but it’s not rocket science,” said Carl Hammersburg, 41, a former labor department official in the state of Washington who now works for SAS on its fraud detection software. “It’s been done before.”
In simple terms, the software helps government officials quickly find those who are likely to be breaking the law. By combining data from state agencies that interact with businesses, sophisticated algorithms spot irregularities.
For instance, in Washington state, the program would flag businesses that purchased a workers’ comp policy for 10 employees while they paid unemployment tax on 50.
The assumption of those businesses, Hammersburg said, “is that government is slow and stupid.”
Unlike North Carolina, which has private insurance carriers writing workers’ compensation policies, Washington state writes its own policies for businesses. Injured workers were paid from the state’s fund regardless of whether the business bought workers’ comp, so the state had an incentive to track down employers that try to avoid buying the insurance.
In 2005, Hammersburg polled insured Washington businesses about their satisfaction with the state’s service. Time and again, they urged him to crack down on the businesses that avoided their obligations and drove up costs for those that follow the rules.
Over the next seven years, Hammersburg’s team worked to refine an in-house program built to detect fraud. They lobbied the state legislature to allow agencies to share data. Legislators approved funding for Hammersburg to hire SAS to build a database that helped state officials to more quickly identify businesses that weren’t following the rules.
In the last year, state officials identified 65 percent more businesses not following the law than they had on their own, which amounted to an additional $18 million in premiums.
Tools for fraud tipsters
Part of the key, Hammersburg said, was setting up a way for the public to help monitor businesses. State officials established a fraud hotline for anonymous callers. And they created a public search database. Citizens could see whether a business had workers’ comp coverage, its claims history and safety rating. They could also ask to be alerted if the business canceled its policy.
In the first year, Hammersburg said, 200 tips generated $2 million in unpaid taxes and insurance policies.
Louisiana realized its missed opportunities years ago when an official discovered that some citizens collecting unemployment were also receiving workers’ compensation payouts, a violation of the law. The same agency was in charge of allocating both benefits.
Officials decided to merge data from seven agencies into a single database. In 2009, the state spent about $4 million on a program that SAS designed and monitors.
“It’s so simplistic,” said Wes Hathaway, director of the Office of Workers’ Compensation in Louisiana. “It seems like there ought to be more to it. I can’t believe it took us this long. Now these agencies talk to one another.”