Prevent fraud, waste in BP claims

By Patrick Taylor

Whenever large sums are set aside to compensate victims of a tragedy like the oil spill in the Gulf of Mexico, more than oil leaks. Money does. Lots of it.

History — and human nature — tell us that waste, double billing and outright fraud skyrocket. With $20 billion set aside as just part of the compensation to victims, hundreds of millions of dollars will likely be spent frivolously unless authorities are careful. That’s hundreds of millions that could help real people with real problems.

My suggestion: Try something that engineers call “closed loop control.”

The first instinct of almost anyone — except maybe an engineering geek like me — would be to try to centralize all the payments and keep close track of them with a single, massive database. President Barack Obama made a move in that direction by naming 9/11 fund administrator Kenneth Feinberg to oversee the herculean effort to compensate victims in the Gulf.

But while Feinberg is a good choice for the post, the concept of uber-centralization is impractical. Too many payments are being made by too many sources to take the time to clump them together in one place. Thousands of residents and businesses would have to wait too long for a central payment facility to be put into operation. That’s a delay that we, as a caring nation, can’t afford.

So rather than wasting time trying to centralize everything, we should try a more dynamic approach. A closed loop control system allows a thousand payments to come from wherever they’re coming from — but would require that notice of each payment be sent to a single, Big Brother-like computer.

The system would close the loop on these payments by checking for patterns that are suspicious. Say, someone gets multiple payments in a very short period. The monitoring computer would raise a red flag and officials could then check to make sure that the same person wasn’t being overpaid.

Another example: Big Brother sees an outsized payment to a business or many, many tiny ones to a different company. Both would also raise red flags and instigate additional levels of validation. Sometimes — maybe most of the time — the payments would be deemed legit. But every once in a while, the outcome is faulty and voila! Money is saved.

Even better, a closed loop system would look out for anomalies all day, every day, and would catch them before the payments go out. That’s when they are easiest to fix.

It’s a simple concept that, if applied properly, can free up precious time and resources for the things that really matter.

The system itself, of course, is not simple. It would require advanced algorithms complex enough to mine thousands of claims at the same time. Its task would be to find aberrant patterns that produce red flags.

But such systems, happily, do exist and they’ve been used by many government and corporate entities for many years. If only 1 percent of claims are pulled back because of this extra scrutiny — a percentage that is not uncommon is such closed loop efforts — that would mean millions of dollars for the people of the Gulf.

Everyone agrees that Feinberg’s priority is to get as much money to as many people as quickly as possible. At the same time, every penny of the $20 billion fund BP has committed to compensate those suffering the effects of this disaster ought to be administered with the utmost deliberation.

Many of us still harbor disturbing memories of false death claims after 9/11 and stories of people in New Orleans who bilked FEMA for multiple payments after Hurricane Katrina.

But such misappropriation can be prevented. What is truly needed is a “closed loop.”

Patrick Taylor is the president and CEO of the Atlanta-based Oversight Systems Inc.