Fraud Detection

Patrick F. Sapinski, Senior Solutions Engineer

psapinsk@tibco.com

© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Agenda

… Who is TIBCO?
… Real-Time Fraud Detection and Prevention
{ Fraud Detection Challenges
{ Fraud Detection Approaches

… Questions

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 About TIBCO

World’s #1 Independent Business Integration Software Company

• Highest market share, highest revenues, most consistent profitability
• Most awards and analyst recognition: Gartner, IDC, Forrester, etc.
• Proven to be technical innovator; highest R&D budget

Thousands of Satisfied Customers Around the World

Ecosystem of Service and Technology Partners

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 TIBCO Software Product Category Overview

Business Process Management Business Optimization

TIBCO Enterprise Service Backbone

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Fraud Detection Challenges

© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Latest News

{ San Mateo County, California, to pay $6.8 Million to resolve claims that it
Submitted False Claims to Medicare.
{ Walgreens to pay $9.9 Million to Resolve Claims that it Falsely Billed
Medicaid..
{ Staten Island University Hospital to pay $74 Million to Settle Allegations of
Medicaid & Medicare Fraud Asserted by Private Realtors.
{ Cox Medical Centers to Pay $60 Million to Settle Allegations of Fraudulent
Medicare Payments.
{ Medtronic Spine to pay $75 Million to Settle False Claims Allegations of
Defrauding Medicare filed by two former employees. Former Employees
who filed claims to receive $14.9 Million as a Reward.`

In today’s challenging economy, finding and eliminating fraud is

a high priority for everyone.

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 An Example of the Challenges

{ Franchise Tax Board, someone we all know

{ Each year nearly 2.5 million personal returns and over 300,000 business
entity returns require manual intervention.
{ Analysts request detailed queries from limited accounting systems
information to identify fraudulent activities.
{ About 9 million records cannot be adequately matched each year.
{ By identifying potential non-filers, the state government obtains
approximately 250,000 tax returns and $500 million in total revenue each
year.
{ Unable to adequately detect fraudulent behavior given limited information
resulting in issuance of inappropriate refunds.
{ Data is in silos and is redundant and difficult to access
{ Data is underutilized and delivery is not timely
{ Data management is distributed and not optimized.

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Challenges Found in Every Business

{ Rules are difficult to access and cannot be easily changed and managed.
{ Rules are spread across various applications/technologies.
{ No solution to effectively manage business processes and rules.
{ Incorrect/incomplete cases (tax returns, benefits claims, applications, etc)
are require manual and time consuming validation process.
{ Business rules are duplicated and costly to maintain.

Each of these challenges makes it easier

for fraud to occur.

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Fraud Detection Approaches

© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Fraud Detection – Traditional Approaches

{ Forces “Rear View” analysis.

{ Does not prevent fraud, but reacts to
fraud.
{ Millions of events are occurring, but
only transactions are being
detected. Early indicators are
missed.
{ Painful to add/lookup more data
points.

Refund Check

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Real-Time Fraud Detection: Predict and Prevent!
Early Warning Signs

CEP = Minimize Response

Latency

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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Real-Time Fraud Detection: Requirements

… Correlating seemingly insignificant events/non-events into

meaningful information for decision makers in real-time.
… Real-time data scoring based on historical data and analytical
models resulting in prioritizing situations and responses.
… Models can look at dozens of interrelated variables in a
holistic context.
… Defining business rules and constraints to identify meaningful
events.
… Event data grid across servers/data centers/geographical
locations for truly distributed agent processing.
… Better prediction capability requires
{ Merging historical data with real-time events and rules
{ Considering past trends with varying confidence levels/scores
… Can be based on SOA for rapid optimization of the business.

Income
Distributed Historical Dramatic drop If income drops
Dynamic Rules Filer just Predictive
consistent
Pattern
with Of
trends
Data
+ Real time Event
in income
Processing
high
has
indication + by 75%, then
indicate
+
possible
State Management + Operational
purchase a
Decision Model
new Lexus
= Potential
Capability
Fraud
in past returns? of fraud. fraud.
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 Fraud Detection – Alternative Approach

{ Constant Real-Time Analysis.

{ Proactive response to prevent Real-Time
fraud.
{ Correlates millions of events as Refund Check Workflow
they are occurring. Management
{ Early indicators of potential
fraudulent acts are evaluated (BPM)
and scored against previous
year’s data using rules and
linear/non-linear models. Real-Time
{ Ability to execute in real-time
learning models such as Fraud
supervised, unsupervised, and
semisupervised.
Detection
{ Additional data points are easily (CEP)
added.
{ Resources focus on fraudulent Messaging Bus
activities with high potential of Real-Time
financial return.
Data Access
(SOA)
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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Summary

© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Summary
Real-Time Analysis
{ Constant Real-Time Analysis is required for fraud prevention as it is not “after the fact” analysis.
{ Event correlation enables the detection of early warning signals allowing an organization to be
proactive as oppose to reactive. (Solve a problem before it is a problem)
{ Real-time analysis using rules and linear/non-linear models enables the detection of relationships
among thousands of variables enabling a focused effort on preventing fraud.
{ Real-time analysis reduces costly false positives and negatives enabling the audit team to focus on
higher revenue generating activity.
{ Real-time analysis can be conducted over time, accounts, entities, personal, etc. whereas other
solutions can only produce results for a finite point in time.

Real-Time Data Access

{ Real-Time Data Access enables other applications/auditors to work with the latest information that is
consistent as oppose to day, week, etc. old information.
{ Real-Time Data Access enables an organization to quickly add more data sources to the solution
resulting in a more accurate analysis.

Real-Time Workflow Management

{ Real-Time workflow management enables an organization to match available resources. As more
resources become available, one can easily expand the range of cases/scores that can be
investigated.
{ Real-Time workflow management enables auditors to accurately track fraudulent cases and the
statistics of success/failure.
{ Real-Time workflow management enables organizations to take the knowledge gained from previous
audits and feed it back into the solution resulting in the solution becoming more effective over time.
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© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.
 Fraud Detection – Questions?
Patrick F. Sapinski, Senior Solutions Engineer
psapinsk@tibco.com

© 2009 TIBCO Software Inc. All Rights Reserved. Confidential and Proprietary.