U.S. ARMY CRIMINAL INVESTIGATION COMMAND

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U.S. ARMY CRIMINAL INVESTIGATION COMMAND

• 701ST MILITARY POLICE GROUP ( CID)

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What is FRAUD?
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DEFINITIONS

• Fraud
• Fraud Profile

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FRAUD
A deliberate deception practiced so as to secure
unfair or unlawful gain (Websters II
Dictionary).

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FRAUD
A material representation of fact
which is false
and known to be false
False Representation
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FraudProfile

• Motivation

Opportunity
Rationalization
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Types of fraud crimes

• BRIBERY
• CONFLICT OF INTEREST
• FALSE CLAIMS
• FRAUDULENT PROCUREMENT ACTIONS
• FRAUDULENT PROPERTY DISPOSAL ACTIONS
• FORGERY (INVOLVING LOSS OF FUNDS OR SYSTEMS TO
  THE GOVERNMENT)
• PERJURY/FALSE SWEARING/FALSE OFFICIAL STMT
• ORGANIZED CURRENCY MANIPULATION/MONEY LAUNDERING

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REMEDIES

• Criminal Actions
• Civil Actions
• Contractual Actions
• Administrative Actions

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REMEDIES CONTRACT ACTIONS

• Termination for Default
• Termination for Default and Exemplary Damages
• Termination for Convenience
• Recision of Contract
• Contract Warranties
• Withholding of Payments to Contractor
• Offset Payments Due from Other Contracts
• Price Reduction

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REMEDIES CONTRACT ACTIONS (cont.)

• Refusal to Accept Non-Conforming Goods
• Revocations of Acceptance
• Denial of Claims Submitted by Contractors.
• Findings of Non-Responsibility
• Disallowance of Contractual Costs
• Removal of Contractor from Solicitation List.

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REMEDIES ADMINISTRATIVE ACTIONS

• Recoupment of Funds Lost
• Suspension of Company and Contractor Employees
• Debarment of Company and Contractor Employees
• Change in Contracting Forms and Procedures
• Change in Contract Administration and Payment
  Controls

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REMEDIES PERSONNEL ACTIONS

• Termination or Reassignment of Federal Employees
• Revocation of a Contracting Officers Warrant
• Recoupment of Funds Lost

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TOPICS

• Contract Fraud
• International Merchant Purchase Authorization
  Card (IMPAC) Fraud
• Operational Issues
• Time Card Fraud
• Concessions/Ticket Booths
• Illegal Dumping

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Contract FraudIndicators
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CRIMES INVOLVED IN CONTRACT FRAUD

• When the Government and its programs have been
  defrauded or corrupted, Federal investigators and
  prosecutors will usually find one or more
  statutes that have been violated.
• It the responsibility of the courts to develop
  conclusive evidence that shows that the statute
  that has been violated.

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Contract Phases

• Determination of need
• Presolicitation phase
• Solicitation phase
• Contract Award
• Contract Negotiation
• Contract Performance

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FRAUD INDICATORSIN THE PROCUREMENT PROCESS
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Fraud Indicators

• LEARNING OBJECTIVES
• 1. Recognize indicators of fraud in the
  procurement process.
• 2. Identify phases in the procurement process
  where fraud is most likely to occur.

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FRAUD IN THE IDENTIFICATION OF THE GOVERNMENTS
NEED

• Fraud may result from decisions to purchase
  supplies or services in excess of those actually
  needed, not needed at all, or waste and abuse.
• Further potential for fraud is created when the
  needs assessment is not adequately or accurately
  identified or developed.

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General Fraud Indicators

• With respect to fraud in defining requirements,
  general fraud indicators include, but are not
  limited to
• requiring excessively high stock levels and
  inventory requirements to justify the
  continuation of purchasing activity from a
  specific contractor/supplier.
• unsupported/unjustified sole source requirements.
  

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General Fraud Indicators

• declaring items which are serviceable as excess
  or selling them as surplus while continuing to
  purchase similar/same items.
• purchasing supplies or services in response to
  aggressive marketing efforts by contractors
  rather than in response to a bonafide need.
• continuously purchasing from a selected source
  versus rotating sources (i.e., Blanket Purchase
  Agreements)

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FRAUD IN THE DEVELOPMENT OF SPECS/SOW

• Specifications and statements of work (SOW) are
  the basis for accepting and selecting sources.
• Clear specs/SOW make it clear what the
  Governments is entitled to and agreed to in the
  contract.
• Poorly written specs/SOW afford the contractor an
  opportunity to file unsupported claims/costs
  against the Govt.

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FRAUD IN THE DEVELOPMENT OF SPECS/SOW

• INDICATORS
• defining the specs/sow to specifically fit a
  single contractor
• advance or selective release of Govt information
  to a single contractor
• issuing specs/sow developed by a single
  contractor
• designing pre-qualification standards to exclude
  otherwise qualified contractors

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FRAUD IN THE DEVELOPMENT OF SPECS/SOW

• INDICATORS (contd)
• splitting requirements to circumvent acquisition
  thresholds
• accepting supplies/services that are not
  consistent with the specifications or SOW
• specifications are vague - poorly defined
• specifications are not consistent with similar
  type requirements

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FRAUD INDICATORS IN THE PRE-SOLICITATION PHASE

• Unsupported or falsified sole source
  justifications
• Utilizing unjustified restrictive specifications
  which limit competition
• Providing preferential information or treatment
  of contractor personnel by Government personnel

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FRAUD INDICATORS IN THE SOLICITATION PHASE

• Restricting procurement to exclude a qualified
  contractor.
• Unjustified/limited response time for the
  submission of bids or proposals.
• Revealing information to one contractor and not
  another.
• Failure to adequately publicize requirements
  pursuant to FAR Part 5.

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FRAUD INDICATORS IN THE SOLICITATION PHASE

• Improper communication or social contact with
  contractors.
• Government personnel or their families acquiring
  stock or holding a financial interest in a
  contractor or subcontractor in excess of the
  5,000.
• Discussing potential employment opportunities
  with a contractor or subcontractor.

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FRAUD INDICATORS IN THE SOLICITATION PHASE

• Providing special assistance to a contractor or
  subcontractor in preparing their proposal.
• Failure to amend a solicitation to include
  necessary changes.

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FRAUD INDICATORS IN THE SUBMISSION OF BIDS OR
PROPOSALS

• Improper acceptance of a late bid or proposal.
• Falsification of documents or certifications.
• Allowing changes to a bid or proposal after
  offerors are made aware of bid prices.
• Collusion or bid rigging.

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FRAUD INDICATORS IN THE EVALUATION OF BIDS OR
PROPOSALS

• Deliberately misplacing or loosing a bid or
  proposal.
• Improperly disqualifying a bid or proposal.
• Accepting a nonresponsive bid.
• Unauthorized release of information to a
  contractor during the evaluation phase.
• Favoritism towards a particular offeror.
• Conducting a biased evaluation.

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FRAUD INDICATORS IN THE AWARD OF A CONTRACT

• Providing information to a potential contractor
  that allows an unfair competitive advantage.
• Improper release of information (i.e., price,
  technical proposal, proprietary information)
• Failure to rely upon certified cost or pricing
  data submitted with the proposal.

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THE MOST FREQUENTLY VIOLATED STATUES

• Include
• 18 U.S.C. 1001 - FALSE STATEMENTS -
• falsifying, concealing or covering up material
  facts by any trick, scheme or device.
• Making false, fictitious or fraudulent statements
  or representations
• making or using false documents or writings
• 18 U.S.C.287 - FALSE CLAIMS-
• making any false, fictitious or fraudulent claim
  against the Government

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Defective Pricing

• Defective pricing occurs when a contractor
  does not provide accurate, complete, and current
  cost or pricing data to the government on
  negotiated contracts which exceed 500,000.00 for
  the DoD and 100,000.00 for all other agencies.

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Defective PricingTruth In Negotiation Act (TINA)

• The cost and pricing data provision provide,
  in part, that a prime contractor shall be
  required to submit cost or pricing data, and
  shall be required to certify that, to the best of
  his knowledge and belief, the data submitted is
  accurate, complete, and current under certain
  restrictions.

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FRAUD AND DEFECTIVE PRICING

• Government cannot pursue both fraud and defective
  pricing remedies for same overpricing issue
• Legal counsel and/or investigative service can
  provide advice on proper course of action and
  required evidence.

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FRAUD AND DEFECTIVE PRICING

• Defective pricing example identified by GAO
• Contract found to be overpriced by 1M due to
  companys failure to disclose lower prices on 7
  material items
• As negotiation concluded, material estimating
  department provided firms negotiator an update
  showing substantially lower prices for 3 items
• Negotiator did not disclose lower price to
  Contracting Officer

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FRAUD AND DEFECTIVE PRICING

• Repetitive findings of defective pricing in same
  firm may be strong indicator of fraud
• Additional indicators
• Failure to correct known system deficiencies
• Failure to update cost or pricing data with
  knowledge that past activity showed decrease in
  prices

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Fraud and Defective Pricing

• Additional indicators (contd)
• Specific undisclosed knowledge of significant
  cost issues that reduce proposed costs
• Reflected in price revisions of major
  subcontract, settlement of union negotiations
  resulting in lower increases on labor rates than
  projected

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FRAUD AND DEFECTIVE PRICING

• Additional indicators (contd)
• Utilization of unqualified personnel to develop
  cost or pricing data used in estimating process
• Indications of falsification or alternation of
  supporting data
• Distortion of overhead accounts or base
  information by transfer of charges or accounts
  that have material impact on Government contracts

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FRAUD AND DEFECTIVE PRICING

• Additional indicators (contd)
• Failure to make complete disclosure of known data
  by responsible contractor personnel
• Protracted delay in release of data to the
  Government to preclude possible price reductions
• Employment of people known to have previously
  perpetuated fraud against the Government

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FRAUD AND DEFECTIVE PRICING

• Contracting officers and specialists as well as
  auditor and investigators should be aware of
  indicators
• Establishment of intent should be function of
  trained criminal investigators, auditors,
  contracting officials
• no assumptions should be made that defective
  pricing results from unintentional conduct

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FRAUD AND DEFECTIVE PRICING

• Example where legal counsel should be consulted
• Government may be entitled to penalty amounts
  equal to overpayment because contractor knowingly
  failed to update cost or pricing data
• Contractors knowing failure to update also
  appears to be evidence of intent to defraud

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FRAUD AND DEFECTIVE PRICING

• The intent of the contractor is critical in
  defective pricing cases and should be documented
• Deliberate concealment, or even misrepresentation
  of single significant cost element could
  constitute a prosecutable crime

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CONTRACT FRAUDCASE STUDY

• A communications system contractor was awarded a
  sole source Army contract for antennae and dual
  capacity servo control units to be used in the
  Jam Resistant Secure Communications System.
  Contractor received multiple vendor quotes for
  the material, which was included in purchasing
  records. During a review by the QAR it was
  discovered that the contractor always bought from
  the lowest priced vendor, even though it had
  proposed the highest quote to the government. The
  contractor also failed to disclose to the
  government its intent during contract
  negotiations to use a sub-contractor for the
  servo units, at a substantially lower cost then
  presented to the government. The sub-contractors
  cost proposal reflected a per unit cost of
  16,000.00, but the primes cost was 54,000.00.
  
• RESULTS Contractor pd 2,053,000.00 in
  restitution, 2,053,000.00 in punitive damages
  and 200,000.00 in Investigative costs. The
  servos cost was determined to be 15,000.00

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CONTRACT FRAUDCASE STUDY

• A contractor had a series of prime and
  sub-contracts with DoD for the development,
  production and sale of aircraft instrumentation,
  radar equipment and other material hardware. The
  contractor engaged in the following schemes to
  defraud the government
• -quoted one vendors prices in estimating cost,
  but never purchased from that vendor.
• -Solicited vendors to quote inflated prices,
  with the quotes being used to justify the
  contractors prices.
• - Solicited and received rebates and kickbacks
  from vendors.
• - Obtained blank forms, then filled in inflated
  prices and forged vendors signatures
• - Sought and received quotes for unit prices of
  items, bought the items in bulk, receiving
  discounts, then billed at single unit price.
• RESULTS Contractor fined 3 million and ordered
  to pay 5.7 million in restitution.

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Cost Mischarging

• Cost mischarging occurs whenever the
  contractor charges the Government for costs which
  are not allowable, or which cannot be directly or
  indirectly allocated to the contract. Most
  mischarging occurs in Cost-Type contracts.

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Cost Mischarging

• Cost mischarging is one of the most common abuses
  found in the procurement system.
• Congressional hearing found that many contractors
  know that even if unallowable costs are detected,
  the Governments only readily available remedy
  was disallowance.

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THE MOST FREQUENTLY VIOLATED STATUES (contd)

• 18 U.S.C.1341 - MAIL FRAUD AND 18 U.S.C. 1343 -
  WIRE FRAUD
• it is illegal to engage in any scheme to defraud
  in which the mail or wire communications are
  utilized
• 18 U.S.C.201-209 - BRIBERY, GRATUTIES AND
  CONFLICTS OF INTEREST
• prohibits anyone from offering or giving a bribe
  to a Federal employee or agent and the employee
  or agent from accepting a bribe or gratuity. Also
  prohibits conflict of interest during and after
  Federal employment

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BriberyJurisdiction Guidelines Statutes

• A DoD / DOJ MOU requires FBI coordination on
  significant bribery allegations
• Title 18 USC 201 (b)(1) - Offering a Bribe
• Title 18 USC 201 (b)(2) - Seeking or Accepting a
  Bribe

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BriberyBribery InvestigationsWhoever directly
of indirectly gives, offers or promises anything
of value to an official or gives anything of
value to any other person or entity with the
intent to influence such official to commit or
aid in committing any fraud in the United States
or to induce such official to do or omit to do
any action violation of their lawful duty is
guilty of the crime of bribery (18 USC 201).
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BriberyPeople offer and accept bribes for a
variety of different reasons.

• To Secure competitive information
• Cover up errors
• Financial need or cover up
• To influence decision making
• Secure economic advantage (tax deduction, etc.)

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BriberyCommon Methods of Bribery Payments

• Cash
• Gifts (Vacations, Scholarships, Appliances, etc.)
• Privileges (use of auto, clubs, discounts, etc.)
• Opportunities (employment, rigging contests,
  etc.)
• Other (Credit, Loans, Free Samples, Contributions)

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Contract Fraud Case Study

• January 2000 -- A four-count indictment was
  returned against an individual charging him with
  bribery in connection with his employment as a
  chemist with the U.S. Army Corps of Engineers
  (USACE). This individual reviewed laboratory test
  results provided by companies having contracts
  and subcontracts with the USACE relating to the
  removal of hazardous materials from DoD
  facilities. On or about December 31, 1998, he
  allegedly solicited a bribe from a USACE
  subcontractor, telling the subcontractor he would
  help them obtain additional subcontracts and in
  exchange for a percentage of the value of the
  subcontracts, and would guarantee smooth
  processing of the subcontractor's work. During
  February and April 1999, he allegedly solicited
  bribes from a second subcontractor in exchange
  for assistance in obtaining additional
  subcontracts. In October 1999, he allegedly was
  paid 18,300 by the second subcontractor for
  assistance in obtaining the specific subcontract.
  The USACE placed this individual on
  administrative leave pending outcome of the
  investigation.

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THE MOST FREQUENTLY VIOLATED STATUES (contd)

• 18 U.S.C. 1905 TRADE SECRETS ACT
• prohibits unauthorized release of any information
  a Federal employee receives confidentially in the
  course of employment.
• 18 U.S.C. THEFT, EMBEZZLEMENT OR DISTRUCTION OF
  PUBLIC MONEY PROPERTY OR RECORDS -
• prohibits the theft, embezzlement or destruction
  of any money, property or records of the U.S. or
  the receiving or concealing of such.

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Contract Fraud Case Study

• February 2000 --An individual was sentenced to 4
  months home detention, 3 years probation, and
  ordered to pay restitution of 25,000. He
  previously pled guilty to conversion of money by
  an employee of the United States. This person was
  formerly employed by the U.S. Army Corps of
  Engineers, Los Angeles District, as the resident
  engineer on the Santa Ana River Mainstem Project,
  a flood control project funded jointly by the
  Federal and local county governments. He used his
  authority to cause contractor payments of 25,000
  to be diverted to himself.

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THE MOST FREQUENTLY VIOLATED STATUES (contd)

• 41 U.S.C. 51, 54 - ANTI-KICKBACK ACT-
• prohibits the payment of any fee, compensation,
  gift or gratuity from a subcontractor to a prime
  contractor on any negotiated Government contract
• 15 U.S.C. 1 - SHERMAN ANTITRUST ACT -
• prohibits any agreement to restrain trade in
  interstate commerce and includes price fixing,
  bid rigging or bid rotation schemes.

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ANTITRUST VIOLATIONS

• COLLUSIVE BIDDING AND PRICE FIXING, BID RIGGING
• commonly these terms are used interchangeably.
• these terms describe many forms of illegal
  anti-competitive activities.
• the commonality is that they involve either
  formal or informal agreements among independent
  competitors which limit competition.

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ANTITRUST VIOLATIONS

• Indicators
• qualified bidders fail to submit bids or
  proposals.
• certain contractors continually bidding against
  one another and certain contractors do not.
• successful contractors repeatedly subcontract to
  companies that submit higher priced bids or
  proposals.

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ANTITRUST VIOLATIONS

• Indicators (contd)
• apparent pattern of low bids occurring in a
  specific geographic location.
• failure of an original bidder to rebid or an
  identical ranking of bids or proposals.
• appearance of identical calculations or spelling
  errors in two or more competitive bids or
  proposals.

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ANTITRUST VIOLATIONS

• Indicators (contd)
• competitors regularly socializes or holds
  meetings shortly before bid openings.
• bid or proposal prices drop whenever a new
  offeror submits a bid or proposal.
• assertions by employees or former employees that
  bid rigging practices exist.

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INDICATORS OF FRAUDDuring Contract Performance

• Contractor that is not using proper material
  as required in the contract (i.e. cutting
  corners)
• Not performing work requirements to proper
  standards in the contract (i.e. improper testing)
• Work not being done in accordance with contract
  (Statement of Work (SOW) requires two days of
  service and contractor works only one)

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PRODUCT SUBSTITUTION

• Refers to attempts by contractors or
  subcontractors to knowingly deliver supplies or
  services that do not conform to the contract
  requirements.
• Product substitution sometimes involve Government
  employees - a bribe or a gratuity accepted by a
  Government inspector for accepting a
  nonconforming supply or service.

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PRODUCT SUBSTITUTION

• Product substitution possibilities are greater
  when the Government relies on the contractors
  integrity to ensure that the Government receives
  supplies or services that are in conformance with
  the contract requirements i.e., Standard
  Inspections

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Product Substitution

• A report published by the DoD IG reflected
  that in 22 of 24 DoD product substitution
  investigations, the contractors intentionally and
  knowingly delivered or planned to deliver
  products that were not in conformance with
  contract requirements.

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Product SubstitutionCases of product
substitution include

• Inferior quality raw materials
• Materials not tested as required
• Providing inferior foreign made products when US
  made products were required
• Using untrained workers when skilled trained
  workers were required

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Product SubstitutionIndicators of Product
Substitution

• Switching Products after Inspection
• False Test Data
• Failure to Test
• Buy American Act Violations
• Misrepresentation to avoid Inspection
• Substandard Raw Materials

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CONTRACT FRAUDCASE STUDY

• A company located in Auburn, NY was awarded a
  contract, which required specific performance
  testing or igniters used in Military Aircraft.
  The company elected to alter the product by
  painting on a graphite and kerosene mixture to
  insure positive test results. Once discovered it
  was determined the altering of the product had
  shortened the life of the igniters by half.
  These igniters sole purpose was to ignite a
  stalled engine.
• RESULTS In lieu of criminal prosecution a civil
  settlement was reached in which the contractor
  agreed to pay 600,000.00 in damages. The
  contractor was also required to agree not to
  engage in certain practices underlying the fraud
  claims.

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CONTRACT FRAUDCASE STUDY

• A company out west falsely represented that the
  values it provided for the safety eject system
  for the F-4 Jet was manufactured by an approved
  source. Investigation revealed the values
  supplied by the company were manufactured using
  outdated specifications and could have resulted
  in serious injury or death. Further it was
  determine that the company also supplied
  defective nozzles for fire equipment that was
  determined to have a 70 failure rate. This
  resulted in a loss to the Government of
  433,254.00.
• RESULTS The president of the company entered a
  plea of not guilty. The jury found him guilty and
  sentenced him to 15 years confinement and ordered
  him to pay the 433,24.00 in restitution.

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CONTRACT FRAUDCASE STUDY

• A company was awarded numerous contracts for the
  production of .45 caliber pistol barrels, breach
  bolts for the M-60 and M-85 machine guns, and
  guidance fins for the Sidewinder missile, the
  primary air-to-air missile used by U.S. Fighter
  pilots. The contractor was suppose to heat treat
  the parts, test fire the parts, and perform
  magnetic particle inspections on each part
  following the test fires, to ensure that the
  parts were free of defects. Investigation
  determined the contractor failed to perform the
  required testing firing and magnetic particle
  inspections and did not properly heat treat the
  parts. Instead the Corporate Officer instructed
  that falsified test certifications reflecting the
  tests results confirmed to contract specs be
  submitted. This resulted in a loss to the
  Government of 500,000.00.
• Results The Corporate Officer plead guilty to
  conspiracy to defraud the government. He was
  sentenced to 6 months confinement, 4 1/12 years
  probation and the company was ordered to pay
  890,000.00 in restitution.

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CONTRACT FRAUDCASE STUDY

• A contractor located in Owego, NY submitted
  false statements and false claims, when they
  failed to perform required quality test for
  residual chlorides on vendor supplied dip brazed
  parts. These parts included circuit boards and
  AP-102 control boxes (traffic cops for
  helicopters).
• Results In lieu of criminal charges a civil
  settlement agreement was reached where the
  contractor paid 200,000.00 for failure to
  complete the required testing. Additionally, an
  extended warranty valued at 500,000.00 for
  repair and/or replacement for any parts which
  failed to function IAW the performance
  requirements as a result of the residual
  chloride.

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CONTRACT FRAUDCASE STUDY

• A contractor was awarded a 2.5 million Army
  contract for the manufacturing of artillery shell
  parts, specifically a steel column segment as
  part of a metallic and non-metallic hardware set,
  which is a component of the 155 mm howitzer
  shell. The contract required the components be of
  a specific hardness, so there was a built-in cost
  for the hardness. The contractor requested and
  obtained additional funding to allow for the
  needed heat treatment, which verifies the
  hardness. The contractor then elected to skip the
  heat treatment and instead obtained the parts
  from a vendor, who purported the parts in their
  Certificates of Conformance (COC) to meet the
  desired hardness.
• Results Contractor fined 70,000.00 and order
  to make restitution of 326,000.00. The President
  was sentenced to 3yrs confinement and fined
  5,000.00.

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CONTRACT FRAUDCASE STUDY

• A contractor who manufactures castings primarily
  used in aerospace applications. The castings are
  tested for external defects, such as surface
  cracks, using magnetic particle or flourescent
  penetrant process. The castings are classified
  Class 1-4, with Class 1 being most critical and
  requires a 100 x-ray inspection. Any failure at
  100 then the part must be discarded. Class 2 and
  3 require sampling. Class 4 parts do not require
  x-rays. When the contractor tested 2 3 parts
  and they initially failed, they replaced
  defective parts and re-shot the x-rays. They
  continued this until the entire sample lot
  passed. Only passing x-rays were maintained. On
  occasion the contractor returned defective parts
  to the lot which were shipped to the customers,
  with false certifications, indicating the parts
  were properly tested.
• Results Contractor pled guilty to 3 felony
  count of mail fraud and paid 1.5 million in
  fines.

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Contract FraudPoints to Note

• Contractor oversight is key to getting the
  product that the government is purchasing.
• The more fraud indicators (inferior materials,
  not completing scope of work , etc.) under a
  particular contract the greater the likelihood
  that the contractor is committing fraud against
  the government.
• Report potential fraud immediately to your
  supervisory staff and your local CID office!

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IMPAC Cards
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IMPAC Card Fraud

• Merchant or Vendor
• Cardholders

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IMPAC Card Fraud IndicatorsCARDHOLDER

• unauthorized use of credit card (i.e. personal
  purchases)
• exceeding purchasing limits (2,500)
• splitting purchases to remain below 2,500 limit

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IMPAC Card Fraud IndicatorsMERCHANT or VENDOR

• unauthorized purchases on the card
• conspiring with cardholders to make purchases
  that appear legitimate through submitting
  receipts, etc.

78
IMPAC Card FraudPoints to Note

• With an increase in use of credit cards
  government-wide there are increased opportunities
  for credit card fraud to occur--particularly in
  more remote sites with little oversight.
• Difficult to identify these frauds which may
  appear invisible to the system.
• There are always ways around the system for those
  motivated to steal the governments resources
  (i.e. paper documents can be forged or
  falsified).
• No Agency is immune from FRAUD.
• Review monthly statements and report questionable
  activity immediately to your supervisory staff
  and your local CID office!

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IMPAC Card Fraud Case Study

• March 2000---An individual pled guilty to theft
  of Government funds. An investigation determined
  this individual, chairman of the Armed Forces
  Sports Office, Arlington, VA, falsely charged
  expenses to his Government I.M.P.A.C. credit card
  and accepted kickbacks totaling 16,303. He used
  false receipts and invoices issued to various
  vendors to obtain cash from his account.

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Operational Issues

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Operational Issues

• Time Card Fraud
• Concessions/Ticket Booths
• Timber Harvesting
• Illegal Dumping

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Time Card Fraud

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Operational IssuesTime Card Fraud

• Employees that clock in at the job site and leave
  for a large portion of the day only to return to
  clock out.
• Employees putting in for overtime when it was not
  worked.

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Concession/Ticket Booths

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Operational IssuesConcessions Contracts/Ticket
Booths

• Do a daily cash count of money received and
  compare to receipts or tickets issued--look for
  discrepancies.
• Is the same persons cash box/register
  consistently short?
• Some cash sales may not be punched on the
  register.
• Dont leave the cash box/register unattended.
• Keep cash locked and secured at all times.
• Since the government may get a portion of the
  proceeds the concessionaires may under-report
  sales to avoid payment to the government.

86
Case StudyConcession Contracts

• The sales manager of Loe's Highport, Inc.,
  Pottsboro, TX, was found guilty of defrauding the
  Government through schemes to conceal substantial
  amounts of income. Loe's Highport, Inc., leased
  land on Lake Texoma from the Tulsa District Corps
  of Engineers where they owned a commercial
  concession that included over 950 boat slips,
  nightclubs, retail stores, as well as boat sales
  and repair services. This U.S. Army Corps of
  Engineers (USACE) marina is the largest inland
  marina in the continental United States. Under
  terms of the lease contract, Loe's Highport,
  Inc., was required to pay the USACE a percentage
  of total receipts (gross income) from the
  business operations conducted on the premises.
  Between 1990 and 1995, Loe's Highport, Inc., and
  the corporate principals, conspired to
  under-report more than 18 million in boat sales
  and other gross income to the USACE. The
  under-reporting of income also resulted in the
  filing of false income tax returns on the part of
  these subjects. This individual is currently
  serving a 6½-year sentence in Federal prison and
  his conspirator is serving a 2-year sentence.
  They were also ordered to pay fines, restitution,
  penalties and forfeitures of approximately 13
  million.

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Illegal Dumping

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Operational IssuesIllegal Dumping

• Known as midnight dumping
• Disposal of waste in an unpermitted area
• May contain hazardous and/or nonhazardous
  materials
• Usually occurs in locations that are close enough
  to metropolitan areas but remote enough that the
  risks of being discovered are minimal
• Motive of the dumper is to avoid disposal fees or
  the time and effort of proper disposal

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Operational IssuesIllegal Dumping

• If you are overseeing a government contract that
  requires demolition or disposal of debris be
  thinking about where the material is going.
• Make sure that the contractor is not disposing of
  it illegally on government property and avoiding
  contract responsibilities for disposal.

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Operational IssuesIllegal Dumping

• Materials dumped typically include
• construction and demolition waste (such as
  drywall, roofing shingles, bricks, concrete,
  etc.)
• auto parts, scrap tires, abandoned autos
• furniture
• white goods (appliances)
• medical waste
• yard waste
• furniture
• household trash

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Operational IssuesIllegal Dumping

• Illegal Dumpers can include the following
• construction, demolition, remodeling, roofing, or
  landscaping contractors
• waste management companies or general hauling
  contractors
• automobile repair or tire shops
• scrap collectors
• operators of transfer stations or junkyards

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Operational IssuesIllegal Dumping

• What factors contribute to the problem?
• Physical Characteristics
• unsecured properties
• poorly lit access roads
• remote locations

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Operational IssuesIllegal Dumping

• If you observe an illegal dumper you should
• attempt to identify make, model, and license
  plate of vehicle
• get a physical description of the subject(s)
• make a note of phone numbers, business names on
  side of vehicle (if it is a commercial vehicle)
• report to supervisory staff and law enforcement
  channels
• attempt to not disturb the scene

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Operational IssuesIllegal Dumping/Case Study

• September 1997 -- In U.S. District Court for the
  District of Oregon in Portland, an individual
  pleaded guilty to two counts of criminally
  transporting and disposing of ignitable hazardous
  waste in violation of the Resource Conservation
  and Recovery Act. In 1994, he was hired by CI
  Coatings Inc., a paint company in Portland, to
  dispose of 21 drums of ignitable hazardous waste
  that had accumulated on site. The individual
  transported and illegally stored the drums at a
  residence near Junction City, Ore. A year later,
  he again transported and abandoned the drums at
  two sites -- one owned and managed by the Bureau
  of Land Management (BLM).

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SUMMARY FORDETECTING FRAUD
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DETECTING FRAUD
-Identify high risk areas (these may differ
depending on your work location or job
duties) -Maintain an attitude of professional
skepticism -Learn to distinguish situations
which may involve fraud (honest mistake vs.
potential fraud)
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REASONS FOR FAILINGTO DETECT FRAUD

• -Failure to review high risk areas because they
  are considered not material
• -Not aware of fraud indicators
• -Accepting, without verification, explanations of
  apparent problems
• -Dont want to find fraud (It couldnt happen
  here!)

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Questions

• ?

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Who We Are

• Syracuse Fraud RA
• Tel (315) 449-
• SA Pete Seguin ext 1609
• SA Mark Parah ext 1509
• SA Don Patterson ext 0782
• Fax [phone]