KM challenges fraud

With a dramatic increase in unemployment benefits being paid because of the recession and the stimulus package, some systems might have strained to keep up with the increase in volume. Not so in Pennsylvania, where the State Treasury has been up and running for years with OnBase, a document management solution from Hyland Software.

Typically, the Pennsylvania State Treasury had been issuing anywhere from 4 million to 8 million checks a year for unemployment insurance, with additional checks for state supplementary payments for Social Security and workers’ insurance.

"With the increase in unemployment payments resulting from the stimulus," says J.T. Noll, chief of systems operations for the Treasury, "we issued 3 million checks for unemployment insurance just in the month of March, which dramatically increased our production requirements."

Scalability was one of the features that attracted the State Treasury to OnBase, along with its flexibility in adapting to the Treasury’s existing processes. OnBase replaced a microfilm system that was very cumbersome and had no capability for providing online images. Pennsylvania has successfully expanded a very large unemployment payment program in a short amount of time, according to Noll.

The value of OnBase for detecting fraud is derived from its ability to compare data such as the check numbers of payments that are issued to recipients with the same data from checks when they are cashed.

"We have had instances where a perpetrator has bought checks and used Treasury’s bank number to write checks to an account for themselves," states Noll. "But in our system, everything has to correspond, including the check image."

OnBase keeps track of each transaction involved in a rather complex payment process. It creates a file when a payment request is received, stores the request for a set number of days and then directs it to an "active" status in order for the payment to be made. After payment, the information is reconciled with information received from the Federal Reserve when the check clears. The timing and sequence of the steps help minimize the danger of fraud. If a recipient calls in and has not received a check, for example, payment can be stopped.

Some of the dangers of printed checks have been alleviated by the availability of electronic funds transfers (EFTs), which now constitute the majority of payments.

"We were not able to have EFT capability until we had the OnBase system in place," says Noll. "With many payments being made directly, the potential for check fraud has been reduced." However, EFT presents its own opportunities for fraud, which have to be similarly monitored.

Having an audit trail of transactions is valuable in ensuring that processes are working as intended. "Document management systems lend themselves to minimizing risk," says Ken Burns, industry communications manager at Hyland Software. "It’s possible to see who is accessing data, whether someone has changed metadata or written notes, and what the workflow was."

OnBase is designed for making sure that transaction data in line-of-business operations is in synch with associated documents, as it monitors events and handles as exceptions those exceptions that do not match the expected documentation.

The good news about fraud is that about $10 is recovered for each dollar spent fighting it. With the help of new and more sophisticated software, the losses may be reduced over time, and the return increased.