Deterrence-Driven Algorithms for Audit Under the Sentinel Effect

47 Pages Posted: 22 Apr 2017

See all articles by Lina Bouayad

Lina Bouayad

University of South Florida - College of Business Administration

Balaji Padmanabhan

University of South Florida - College of Business Administration

Kaushal Chari

University of South Florida - College of Business Administration

Date Written: April 20, 2017

Abstract

Fraud, waste and abuse are significant problems in major industries such as healthcare and manufacturing, particularly when third party payers such as Medicare are involved. Current practices for auditing fraudulent activity are based on scoring models used to select practitioners or claims that are likely to be fraudulent. These models ignore the “sentinel effect” that arises from the behavior modifications of other individuals who are aware of the audit. In addition to the direct benefits of auditing fraudulent individuals known as the audit effect, second order benefits are accrued due to this sentinel effect. Yet, current auditing algorithms do not take the sentinel effect into account. In this paper, we present deterrence-driven audit policies in the presence of audit and sentinel effects, and evaluate our algorithm using an analytical model and agent-based simulation. Our results indicate that significant reduction in healthcare costs can be achieved, while maintaining fairness, when auditing policies take sentinel effects into account.

Keywords: auditing; deterrence; medical fraud; network diffusion; game theory; agentbased simulation

Suggested Citation

Bouayad, Lina and Padmanabhan, Balaji and Chari, Kaushal, Deterrence-Driven Algorithms for Audit Under the Sentinel Effect (April 20, 2017). Available at SSRN: https://ssrn.com/abstract=2956026 or http://dx.doi.org/10.2139/ssrn.2956026

Lina Bouayad (Contact Author)

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Balaji Padmanabhan

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Kaushal Chari

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

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