Audit Policies Under the Sentinel Effect: Deterrence-Driven Algorithms

Lina Bouayad (), Balaji Padmanabhan () and Kaushal Chari ()
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Lina Bouayad: Department of Information Systems and Business Analytics, College of Business, Florida International University, Miami, Florida 33199;
Balaji Padmanabhan: Department of Information Systems & Decision Sciences, Muma College of Business, University of South Florida, Tampa, Florida 33620;
Kaushal Chari: Department of Information Systems & Decision Sciences, Muma College of Business, University of South Florida, Tampa, Florida 33620; Lubar School of Business, University of Wisconsin–Milwaukee, Milwaukee, Wisconsin 53202

Information Systems Research, 2019, vol. 30, issue 2, 466-485

Abstract: Fraud, waste, and abuse are significant problems in major industries such as healthcare, particularly when third-party payers such as Medicare are involved. Auditors looking for fraudulent activities use scoring models to select practitioners or claims that are likely to be fraudulent. In addition to the direct benefits of the audit effect , which evokes a response by auditing fraudulent individuals, the sentinel effect provides second-order benefits. Yet current auditing algorithms do not take the sentinel effect into account. In this paper, we present an algorithm that supports a deterrence-driven audit approach in the presence of audit and sentinel effects. Our results indicate that a significant reduction in healthcare excess costs can be achieved, while maintaining fairness, when auditing policies take sentinel effects into account.The online appendix is available at https://doi.org/10.1287/isre.2019.0841 .

Keywords: audit; deterrence; medical fraud; network diffusion; game theory; agent-based simulation (search for similar items in EconPapers)
Date: 2019
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