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Data System Helps CalRecycle Track Recycling Fraud

Some estimates have pegged the fraud in the California Redemption Value program at anywhere from $50 million to $200 million annually in losses for CalRecycle over the years.

Some people call it “canning” — the practice of digging through trash cans and Dumpsters for redeemable aluminum cans and bottles. For homeless people and others living in poverty in California, a day of canning may buy a healthy lunch or dinner once each can is redeemed at a recycling center for its five-cent California Redemption Value — known as the CRV.

Such in-state recycling doesn’t pose a threat to California’s recycling program, CalRecycle. With in-state recycling redemption, the beverages are purchased in California so the five-cent redemption value is collected in-state and then paid in-state.

But when cans and bottles are collected en masse by people hired in other states — then trucked into California to collect CRV that hasn’t been paid into CalRecycle’s coffers — that’s a problem for CalRecycle. A big problem. Some estimates have pegged the fraud at anywhere from $50 million to $200 million annually in losses for CalRecycle over the years.

According to Department of Justice figures, a 52-foot semi-truck can transport 5,000 to 8,000 pounds of aluminum cans into California with a value of $10,000-$16,000 per delivery.

Earlier this year, four recycling centers in Bakersfield and Oildale shut down amid an investigation alleging that a semi-truck originating from Phoenix was illegally transporting redeemable containers into California to collect the California Redemption Value (CRV). The recycling fee is added at the cash register to the price of beverages sold in California, so out-of-state containers aren’t eligible for the CRV.

Between January and June 2013, 3.77 billion aluminum cans were sold in California while 4.03 billion cans were redeemed, according to CalRecycle figures. This indicates that fraud is still happening.

CalRecycle announced new rules for 2014 reducing the volume of CRV cans and bottles a person can redeem at recycling centers.

The new per-person, per-day limits are 100 pounds of aluminum or plastic of CRV eligible containers, and 1,000 pounds of CRV glass. The limits previously were 500 pounds of aluminum or plastic, and 2,500 pounds of glass. CalRecycle research indicates more than 99 percent of all transactions are for less than 80 pounds of aluminum.

The efforts to combat fraud don’t stop there

. About three years ago, CalRecycle — officially known as the Department of Resources Recycling and Recovery — hired Sacramento-based firm M Corp to help develop a system to tackle recycling fraud.

Working closely with CalRecycle’s fraud team, M Corp, which specializes in legacy modernization and analytics, helped to develop a risk analysis tracking system to run with CalRecycle’s existing data program created in 2007 — the Division of Recycling’s Integrated Information System (DORIIS), a Web-based tool where dealers, distributors and processors can log in for the latest information and file electronic reports.

M Corp’s DRAM — Disbursement Risk Assessment Model — is programmed in SAS and analyzes years of shipping patterns of the more than 3,000 recycling centers in California. Alex Castro, partner at M Corp, is hesitant to divulge the patterns and activities the system is designed to track, but explains that the analyses — which are run on a weekly basis — use a “propensity model” and clustering methodology.

The analyses flag centers that display anomalous activity. Such “flags” cue auditors that they might want to visit those centers and run a thorough review. Audits of centers can go down to the granular level of tearing apart huge slabs of crushed recycled cans to check to see if the cans bear the CA CVR logo.

“The system tells them, ‘Here is your top 10 list of people to go look at,’” says Castro. “They (CalRecycle) are trying to make sure they can focus their fraud resources in the right places,” Castro adds. “The system is sort of a push-button solution to run on a weekly basis. … We helped to maximize what their resources can do.”

Mark Oldfield, communications director for CalRecycle, says the analytics program developed in tandem with M Corp is just one portion of CalRecycle’s overall fraud detection program, but it is an important one.

“DORIIS can now detect anomalies, outliers — things that might be red-flagged as out-of-compliance activities,” explains Oldfield. “It allows us to stop illegal payments before they go out the door.”

The use of a risk-assessment strategy to direct auditing resources helps in catching “bad actors” before they commit more fraud. Occasionally, large recycling centers where huge volumes of out-of-state cans are redeemed are in collusion with the haulers who bring in the swag. The offending centers turn a blind eye to the fact that the cans being recycled don’t bear the CRV stamp.

Honing in on the bad actors moves Cal-Recycle from a “pay and chase” model to a “flag and don’t pay it out” model. That means investigators aren’t pursuing centers where fraudulent payments already have been paid, but are honing in on the sketchy centers before payment is made.

Similar systems are used to detect Medi-Cal fraud and prescription drug fraud rings, according to Castro.

Oldfield says it’s difficult for CalRecycle to estimate how much the DRAM system has helped reduce fraud. Anecdotally, he says, it appears the DRAM system is helping quite a bit.

“We don’t know how effective it will be long-term until we get more data,” he says.

Other changes have been enacted to combat recycling fraud, such as new laws that require truckers carrying more than 25 pounds of aluminum or plastic or 250 pounds of glass into California to stop at an agricultural center and declare what their purpose is and the source and destination of the material. It’s not illegal to bring the material into the state, but illegal to redeem it here. Fraudulent reporting can be prosecuted.

Castro says he is proud of the role his company played in enhancing CalRecycle’s fraud detection efforts.

“I feel like we made a difference,” he says.

This story was originally publisshed by TechWire, a sister publication to Government Technology that covers IT in California state and local government.

Pamela Martineau is a freelance writer based in Portland, Maine. She moved to Portland in 2019 after a 30-year stint living and working in California. A UC Berkeley graduate, Pamela worked at numerous daily newspapers including The Sacramento Bee. As a freelance writer, she has written about health care, education, technology, climate change, and water issues. She has two adult sons and a mischievous cocker spaniel.
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