States Use Biometrics to Reduce Welfare Fraud


States Use Biometrics to Reduce Welfare Fraud

Todd Lowe, Vice President of Identification Systems for National Registry

By Dennis McCafferty

Staff Writer

If there's a body part that can be electronically scanned - a finger, a hand or the human eye - then it's likely that a company is plugging that technology in the ever-booming world of biometrics. The industry is expected to generate $4 billion in revenue in the next five to 10 years, experts say.

A number of biometrics companies think the next big market in state and local governments will be welfare fraud prevention. With phony printed identification, welfare fraud can result in multiple benefits being paid to one person.

Government leaders are paying attention to success stories in New York state and Los Angeles County. Anaheim, Calif.-based Printrak International Inc. has saved Los Angeles County $55 million in fraud prevention through fingerprint identification since the program was launched eight years ago, according to a county official's estimates. Tacoma, Wash.-based North American Morpho Systems Inc. has saved the state of New York an estimated $314 million in fraud-related welfare losses since April 1995.

Because translating biometric technologies to welfare systems is relatively new, industry leaders say it's virtually unexplored terrain with much opportunity to grow.

"It's going to happen,'' said William Rogers, editor of Biometric Digest, a monthly newsletter based in St. Louis. "It's not a question of if. It's a question of when. There's much interest in this technology from the state and local governments, and welfare is key to their interest. That's where the fraud is and the technology is needed.''

After piloting the technology, the state of New Jersey just extended its contract with The National Registry Inc., based in Tampa, Fla., to provide finger-image verification for the state's general assistance program. The one-year agreement is valued at $320,000.

"Prior to biometrics, you simply presented something like a Social Security card or a driver's license,'' said Todd Lowe, vice president of identification systems for National Registry. "It allowed for duplicate enrollments of fraud. With finger imaging, you eliminate duplicate enrollments.''

With one third of National Registry's business coming from state and local government markets, the company is seeking to provide the same technology for welfare systems in Pennsylvania and Arizona, where state officials are seeking bids.

The company is gambling heavily that its technology will take off. For the financial year that ended Dec. 31, 1996, it posted net losses of $7.34 million, or 26 cents a share. That's up from $5.07 million in net losses, or 22 cents a share, in the previous year. The increase in losses was attributed to product development and marketing of the company's new finger-imaging scanners and software products.

Printrak has reported a rosier financial picture. Sticking with fingerprint identification, the company increased its net income by 141 percent to $4.4 million in the budget year ended March 31. With the success in Los Angeles, Printrak is eyeing welfare fraud as a potentially lucrative market to expand beyond its mainly law-enforcement client base.

"We see welfare fraud as the main thing,'' said Mike Lyons, product marketing director at Printrak. "The technology is available and very cost-effective to prevent this kind of fraud. ... It hasn't really blossomed yet either. There are a few states using it and that's about it. It hasn't gotten enough airplay. The market isn't old enough to see results.''

Similarly attempting to use its New York state success case as a springboard, North American Morpho Systems is looking to provide its finger-imaging technology to reduce welfare fraud for the state of California, which is now undergoing the bidding process. In a $300,000 pilot project announced late last year, the company agreed to provide the technology to the Texas Department of Human Services to prevent fraud in food stamp and Aid to Families with Dependent Children programs.

"We see a need for [biometrics] as people are getting their Social Security numbers stolen,'' said Sandra Salzer, a spokesperson for Morpho Systems, a 350-employee company owned by Sagem Group in Paris. "This is affecting people's lives. A biometric image is probably the way things are going to be for people. It simply makes sense. No one can steal your fingerprints.''

For biometrics entrepreneurs, a tricky selling point to welfare and other nonlaw enforcement markets is that of appearance: Asking applicants to have their fingerprints scanned may make them feel like criminals. That's one reason why a small company such as IriScan Inc., based in Mt. Laurel, N.J., thinks it may have a competitive edge. True to its name, its biometric technology is based upon scanning the human eye.

"There's a clear difference between social services cases vs. forensics and criminals,'' said John Siedlarz, president and CEO of IriScan, a four-year-old company with 11 employees. "We're concerned about those differences being blurred. We think using iris-scanning technology can overcome that. Why be treated like a criminal if you want to complete a business transaction?''

Another advantage? An iris scan code uses 266 points of comparison, vs. 60 in a fingerprint, Siedlarz said. That's four times more accurate.

Not all biometrics companies are eager to stake claim in the state welfare market. For starters, technology complications could be significant if identification techniques and databases are inconsistent or incompatible with other states.

"There are a lot of people talking about welfare, but it doesn't generate a lot of excitement with us,'' said Bill Wilson, president of Recognition Systems Inc. of Campbell, Calif., a division of Harrow Industries in Grand Rapids, Mich.

Instead, Recognition Systems has installed its hand identification technology to monitor meal plans at the University of Georgia and to "clock'' in employees for the New York and New Jersey port authorities. In Atlanta, it installed 140 hand readers to control access to the Olympic village during last year's Games. The company has 12,000 ongoing programs, and state and local governments account for a steady 15 percent of business.

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