This blog is an excerpt from our recent Industry Perspective, “Better Income Estimation for the Public Sector: Ensuring Program Integrity within Entitlement Programs.” To download the full brief, click here.
Today, entitlement spending is the highest in United States history – and it shows no sign of slowing down. Entitlement programs help millions of people in need and communities in America. But what happens when that spending is fraudulently claimed?
In the US, agencies continue to aggressively battle improper payments in their entitlement programs. While error rates are generally getting better, improper payments are still a multibillion-dollar problem. There are still over $100 billion annually, and the programs are costly to administer. Additionally, according to a US Government Accountability Office Report in fiscal year 2014, the estimated amount of government-wide improper payments increased by nearly 20 percent – $19 billion – over the previous year, the largest increase seen in recent years.
The public sector has long tried to solve these complicated problems of fraud and improper payments using income verification tools and better eligibility testing. Simply put, many eligibility programs require administrators to verify if the applicant and their household meet the income thresholds set for the program.
But to verify an applicant’s information is a difficult and manual process. Accurate income data is cumbersome to locate and identify, and administrators are under great pressure to work through the backlog of applicants. For this reason, proper eligibility verification often takes too much time or is not done well, if it is done at all. With many entitlement programs driven by income thresholds, and income data being so hard to obtain and verify properly, improvement is clearly needed.
There is a way forward. Income estimation, using technology, data, analytics, and other tactics, is a solution for the public sector. Income estimation tools can fill gaps where they exist when eligibility decisions are based on income level. When income estimation is done properly and accurately for these entitlement programs, time is saved, costs are saved, and eligible citizens can get the support they need.
Fighting the Battle with New Tools
It’s important to understand income estimation as the application of data and analytics that better provides an accurate mathematical calculation of a person’s income level based on their credit data. This approach has the added benefit of calculating total income.
Think of it this way: consumers may at times have multiple sources of income – for instance they could have both a job and rental properties. During the application process, consumers can mistakenly report only their job income – which generates far less income than the rental properties. By not citing their rental property income in combination with their job income they become eligible for benefits – though this is of course fraudulent. It’s clear that in many cases, salary alone does not show the complete picture of a person’s income.
To help agencies identify that the applicant only provided a portion of their income, proper technology needs to be in place to determine what an applicant’s total estimated income actually is. When properly done, with the right total estimation tools, the ability to identify multiple sources of income, obtain the proper data and validate a person to be eligible, or not, becomes possible.
People with active credit can have an estimated income assessed fairly quickly. When actual salary data isn’t available, credit data makes the income estimation less manual and quicker to complete. This becomes a valuable tool when applications are taking too long to process due to inadequate income data available to the administrator.
Transunion, a global information solutions provider that provides income estimation technology, offers class credit data and analytics with the CreditVision Income Estimator. This is a model that estimates the Adjusted Gross Income reported on a Form 1040 US individual Income Tax Return.
By utilizing an all-encompassing algorithm to bring all the factors together, the TransUnion CreditVision Income Estimator helps agencies better evaluate eligibility across a large cross-section of the US population. This estimator covers all sources of income that a consumer might have, as well as including multiple people in the household, if taxes are filed jointly.
Ultimately, the multi-sourced income data gleaned from this tool, and its automated process optimization can help protect agencies from losing millions in fraudulent, unnecessary claims. Deep insights about citizens can be derived from a detailed-credit report, extended account and address history information and historically rooted algorithms. It shows firsthand how citizens change behavior over time – which puts government agencies ahead of the game.
Looking to the Future of Income Verification
With entitlement spending predicted to grow, and fraud along with it, it’s time to look to the future. Income verification is finally here, and it’s in the form of accurate data, saved money, and optimized benefits.
TransUnion has made it simple for government agencies to focus their efforts where it matters most. Utilizing an innovative analytical approach, agencies can receive more accurate income data, heightened reporting, alternative data analytics, status change triggers, and risk-based authentication that aid in battling improper payments within entitlement programs.
This endorsement for Transunion’s estimator does not take into account applicants with dormant credit or no credit. This estimator would be useful for a <3% of my client database and those clients are known in the community and easily investigated.
Having worked as both an unemployment claims interviewer and a welfare caseworker, the suggested use of credit reports for income verification is simply not practical. These reports are rarely without error and are not current for the past 30 days income (required for welfare benefits). A better choice are the online wage verification companies such as TALX. That being said, there is still the issue of having enough people to do the job. Even if it is unpopular with the tax payers, more ground level positions need to be created to do the income verification required. The cost saved in fraudulent benefits would be a wash and the jobs created would have reasonable pay and benefits as well as adding to the tax base.