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FRAUD AWARENESS BRIEFING

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investigations into fraud, waste, and abuse within the EPA. ... Al Capone. Stop Work Order. Compliance. Agreement. Suspension & Debarment. Civil Penalties ... – PowerPoint PPT presentation

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Title: FRAUD AWARENESS BRIEFING


1
FRAUD AWARENESS BRIEFING
OIG Overview Investigations Types of
Cases Grant Fraud Contract Fraud Referral
Considerations Investigation outcomes
2
OIG OVERVIEW
  • Authority Inspector General Act of 1978, as
    amended,
  • allows for the IG to conduct audits and
  • investigations into fraud, waste, and abuse
    within the EPA.

Overall Goal To provide audit, evaluation,
investigative, and
advisory services resulting in improved
environmental quality and human
health.
3
The World of EPA Grants and Contracts
  • GRANTS
  • 3.8 Billion
  • 10,000 per year
  • 7,200 EPA Project Officers
  • 98 Specialists (100-150 Grants Each)
  • CONTRACTS
  • 1.5 Billion
  • 829 Active Contracts (Above 5M)
  • 5,487 Contract Representatives
  • 111 Contracting Officers

4
DEFINITION OF FRAUD
  • A Representation
  • About a Material Point
  • Which is False
  • Intentionally
  • Which is believed and Acted Upon
  • To the Victims Damage

5
  • Grant Fraud
  • Most complaints concern Grant recipients in these
  • three areas
  • Office of Water
  • SRF program concerns 33 of all
  • AA investigations
  • Tribal Programs
  • Office of Air

6
  • Grant Fraud
  • TOP CASE TYPES
  • False Statements (Applications, Financial /
  • Progress Reports)
  • 2. Embezzlement (State Officials, bookkeepers)
  • 3. Wire Fraud (draw downs)
  • 4. False Claims (at project level / construction
    /
  • sub contract)
  • 5. Kickbacks and Bribery

7
FRAUD INDICATORS
  • Fraud indicators are clues that may warrant
    further review of a specific area or activity.
    Some of the indicators of fraud include
  • One person in control,
  • No separation of duties,
  • Lack of internal controls,
  • No prior audits,
  • High turnover of personnel

8
FRAUD INDICATORS (cont.)
  • Unexplained entries in records,
  • Unusually large amounts of payments for cash,
  • Inadequate or missing documentation,
  • Altered records,
  • Non-serial number transactions,
  • Inventories and financial records not
    reconciled,
  • Unauthorized transactions.

9
Grant Fraud Big Picture Continuum
Intentional Ignorance
Blissfully Unaware
Criminal Intent
Stop Work Order
Compliance Agreement
Repayment
Suspension Debarment
Civil Penalties
High Risk Grantee
Termination
Reimbursement
Criminal Prosecution
10
Types of Grant
Fraud Generally some ruse or artifice to
perpetrate the grant fraud and minimize detection
while giving it the appearance of legitimacy
  • Payroll Padding
  • Ghost Employees
  • Salaries given to relatives of friends who are
    not working on grant
  • Double/Excessive Billing
  • False Travel Vouchers

11
Types of Grant Fraud (cont.)
  • Plagiarism of Research/Work
  • Lobbying
  • Submitting False Data
  • Collusion between the grantee recipient and the
    government representative
  • Not doing any of the funded work and grantee
    fugitates with the funds
  • Conflict of interest concerning arms length
    transactions
  • Providing services to non-eligible recipients
  • Payment of Personal Expenses

12
INVESTIGATIVE LEADS
  • 33 percent originate from grant specialists and
    project officers
  • Project Officer Reviews
  • Progress Reports
  • Desk Reviews
  • On-site Reviews
  • Other Law Enforcement Agencies
  • Hotline
  • Former or current employees

13
CASE EXAMPLE
  • Two Senior Government Employees
  • Separate Federal Employers
  • Used Official Positions for Personal Gain
  • Investigative Timeframe 2003-2005

14
Lawrence Fradkin, GS-15 U.S. EPA 20-year Federal
Employee Highly Educated Environmental
Scientist EPAs Technology Transfer Coordinator
Project Officer for Multi-year EPA Grants Duty
Station Cincinnati, OH No Prior Criminal
History Michael Sullivan, GS-15 U.S.N. Head of
Naval Technology Development Projects Office
Technology Transfer Program Expert PhD
Education Duty Station Pt. Mugu, CA No Prior
Criminal History
15
ALLEGATION 2003 Complaint from EPA
Grantee Fradkin earned additional income as
part- time college professor Used EPA Grantee
employees to teach classes he was personally paid
for EPA Grants were billed for the teaching as
allowable expenses
16
Initial Evidence of Criminal Activity Interviews
at Cincinnati State Tech and Community College
(CSTCC) Subpoena served at University of
Cincinnati (UC) Interviews of Grantee employees
Interview of Fradkin (August 2003) Review of
Fradkins OGE Form 450s (94 -02) -No
disclosure of outside income
17
Key Witness in the Case Mr. Black
Disclosures of First Interview (November 2003)
Fradkin used official influence to obtain job
for him with an EPA Grantee during 2001
Position was at National Technology Transfer
Center (NTTC), Wheeling Jesuit Univ. Fradkin
demanded Black teach courses at CSTCC, pay him
10,000 annually, perform menial labor
18
New Shift to Conspiracy/Kickbacks Black provides
(October 2002) audio tape of Fradkin threats gtgtgt
Incriminates Fradkin Also discloses plan by
Fradkin to defraud EPA by Having NTTC award a
160,000 contract under their EPA Grant to
develop an EPA Scientist Database Influence the
contract award to the University of the Pacific
(UOP) and set up a front company as a
sub Covertly complete the work for the sub on
EPA time and split the payments received by the
sub Planned to use Black and/or Blacks brother
for the scheme
19
Interview of Fradkins Secretary Fradkins
connection with UOP revealed Professor
friend (Formerly at UC) NTTC submits proposal
to use UOP as a contractor under the NTTC Grant
(160,000) Professor listed as principal POC,
EPA Approves Database work previously
performed by Fradkin Secretary tasked with
creating name templates Also tasked with
shipments to PO Box in CA
20
The Scheme A closer look
EPA Project Manager
UniversityHire my Other Friend!
11,000 Kickback
30,000 Kickback
Direction!
Offer!
Hire My Friend
Influence!
Offer!
Subcontract with The University
Contractor
21
The Scheme Part 2
Here is the EPA database
2
30,000 Kickback
EPA Project Manager
Here Is my Database
1
The University Scheme!
60,000 Payment
Bill to EPA!
Contractor
5
3
4
22
Proof in the Pudding
Mr. Blacks Cooperation Revealed Fradkin used
his official EPA influence to employ
Black Blacks employer was an EPA grantee Black
was coerced to re-pay Fradkin for the job An
audio tape of Fradkins arrangement with
Black Information on additional crimes planned by
Fradkin These findings established a violation
of 18 U.S.C 201

23
The Results
Fradkin Pleads Guilty to 3-Count Information
Sentenced to 18 months in Federal
Prison 60,000 fine gtgtgt Returned to
EPA Debarred from Federal Procurement
Matters Administrative Action Lost Retainer as
Adjunct Professor Sullivan Pleads Guilty to
1-Count Information Sentenced to 12 months
Probation (House Arrest) 30,000 fine Retired
from Federal Service before case
concluded Conspiracy with Fradkin impacted EPA
but not Navy

24
TYPES OF CONTRACT FRAUD
Generally some ruse or artifice to perpetrate the
fraud and minimize detection while giving it the
appearance of legitimacy
  • Cost Mischarging
  • Product Substitution
  • Bid rigging
  • Front Companies and Leasing Scams
  • Bribery

25
Cost Mischarging(is a lot like a Box of
Chocolates)
Shell Companies
Cross Charging
Ghost Employees
Cost Not Incurred
Unallowable
Inflated Rates
26
PRODUCT SUBSTITUTION
27
Bid-Rigging Definition Bid rigging is a
particular form of collusive price-fixing
behavior by which firms coordinate their bids on
procurement or project contracts. There are two
common forms of bid rigging. 1) Firms agree to
submit common bids, thus eliminating price
competition. 2) Firms agree on which firm will be
the lowest bidder and rotate in such a way that
each firm wins an agreed upon number or value of
contracts. Since most (but not all) contracts
open to bidding involve governments, it is they
who are most often the target of bid rigging. Bid
rigging is one of the most widely prosecuted
forms of collusion.
28
Front Companies and Leasing Scams
Equipment Owned by XYZ Inc.
LEASE
Lease costs are billed as legitimate - when the
expenses should otherwise be depreciated
EPA Contract
XYZ Inc
29
BRIBERY
  • Bribes come in many forms
  • Often it is something of value sport tickets,
    free hotel/resort accommodations
  • If it doesnt pass the smell test, contact your
    local investigative unit
  • NEVER TURN DOWN, AN OFFERTHEY WILL FIND SOMEONE
    ELSE WHO WONTINSTEAD STALL FOR TIME!

30
CASE EXAMPLE
31
DOD PROCUREMENT SCANDAL
  • Boeing obtained a 27 billion contract from the
    Pentagon to lease unneeded 767s that refuel
    fighter planes in mid-air. Boeing then hired
    Darleen Druyan (Principal Deputy Assistant
    Secretary for Acquisition) the procurement
    official who gave the contract to the company
    shortly after the deal was consummated. Druyan
    pled guilty to conspiring to defraud the federal
    government and further she admitted doing a
    variety of favors for Boeing. In the tanker
    negotiations, she admitted that she agreed to a
    higher price for the aircraft than she believed
    was appropriate. This was as a parting gift to
    Boeing, she told government prosecutors. She also
    provided to Boeing proprietary information from
    another aircraft manufacturer. She also sought
    jobs her daughter and future son-in-law. She was
    sentenced to 9 months in prison for Bribery and
    Conflict of interest

32
BRIBERY IN ACTION
An EPA contractor wants to win an upcoming
EPA/GSA contract to build a laboratory Facility.
Information is provided to EPA OIG that the
contractor is Seeking a source of inside
information.
An undercover informant approaches the contractor
indicating he has Inside information.
The contractor offers 10,000 for the information
The contractor makes arrangements for an exchange
to take place. He sends The company Vice
President with a briefcase with 10,000 in cash
to Meet the informant in a restaurant parking
lot.
The exchange takes place, and the Vice President
is arrested and charged.
33
KICKBACK FRAUD IN ACTION
EPA Superfund Cleanup Site
Prime Contractor awards 2.6 Million Firm Fixed
Price Subcontract
Project Manager and Subcontractor CONSPIRE!
Project Manager approves Change Orders for work
not covered in original subcontract
Project Manager receives 10 of Change Order
invoices in exchange for expedited payments
and no problems!
1.38 Million in Change Orders are approved by
Project Manager to cover work not covered in
original subcontract
129,531 in Kickbacks paid Over 13 months
34
THE SCHEME
Expedited approval for prompt payment
Prime Contractor Headquarters
2
Subcontractor Invoice paid
Prime Contractor Field Project Manager
3
10 Kickback
4
Change Orders Submitted
1
Subcontractor
35
The Scheme A closer look
Prime Contractor Field Project Manager
PM provides subcontractor with Phony Invoices for
purported sale of equipment in amount of
Kickback!
Cohorts! 50 split of the Kickback for helping
with the paperwork
Cooked the books to hide the Kickbacks as
deductible business expenditures!
Subcontractor
36
ROLES RESPONSIBILITIES OF CONTRACTING
OFFICERS / STAFF
There is a fine line between Fraud and
Mismanagement Intent.
In a general crime, we often know that the crime
occurred. The objective is to prove Who did
it. In procurement fraud we often know who did
it and what they Did. The objective is to
prove whether or not it is a crime.
37
ROLES RESPONSIBILITIES OF CONTRACTING
OFFICERS / STAFF
Administrative and procedural problems can be
handled administratively and procedurally. The
agency can take corrective action in the course
of a contract to protect its interests not
everything requires a federal Investigation, but
concerns of criminal activity must be referred.
Not all referrals result in an investigation or
audit.
You do not need to evaluate any defenses or
prove intent before a referral. You may explore
explanations in the normal course of business and
within the realm of his/her responsibilities.
Agent Of Government
38
REFERRAL FACTORS
Anyone can make a referral. Just pick up the
phone. No Official referral or Concurrence
is necessary. Referrals do not need to be a
sure thing or thoroughly investigated
beforehand. Anyone may call and discuss concerns
or beliefs without commitment Most of the best
investigations have started from simple referrals
by concerned citizens and government
employees just doing their job.
39
WHEN TO MAKE A REFERRAL
Clear indication of fraud, waste, or
abuse. Clear violation of law. Unclear
Misrepresentations, lies, or changing
stories. Unclear Pattern or practice of
production or performance delays, obstruction,
denials, or excuses. Unclear Intuition that
something may not be right. Unclear Just
doesnt pass the smell test.
40
LENGTH OF INVESTIGATIONS
To be determined Investigations follow the fact
pattern. Their course is not pre-determined. Wo
rked in close coordination with Department of
Justice Variable factors Cooperation
Scope and Complexity Criminal, Civil, and/or
Administrative Proceedings Pursuit and use of
investigative techniques
Allegation
Major Fraud
41
SUMMARY OF DOS AND DONTS
Do discuss your concerns with OIG. Dont feel
compelled to prove case or intent Do seek
answers to your questions in the normal course of
business Dont tip off subjects of actual or
pending investigation Do cooperate with OIG and
expect to be contacted and involved Dont stop
your normal course of business unless
otherwise Directed
42
Then what happens?
  • Investigations are time consuming
  • You may not hear from us, that does not mean we
    are not working
  • There are a variety of outcomesthese can occur
    in tandem
  • Criminal
  • Civil
  • Administrative
  • Suspension and Debarment

43
Contact Information
  • LawrenceValett
  • Director Financial Fraud Directorate
  • (202) 566-0815
  • Leonard O. Newmark
  • Special Agent
  • (202) 566-0868
  • OIG Hotline
  • 888-546-8740
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