Government Funds: An ATM For Thieves

1. Government Funds: An ATM For Thieves Association of Government Accountants Inland Empire Chapter February 10, 2010

2. “There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.” Benjamin Franklin

3. Government Funds: An ATM For Thieves? • Headlines • Federal Offices of Inspector General – A Progress Report to the President

4. Federal Offices of Inspector General • $18.6 billion in potential dollar savings • $14.2 billion for audit recommendations • $4.4 billion for investigative recoveries • 6,600 indictments • 6,900 prosecutions • 5,000 suspensions or debarments • 338,000 hotline complaints processed

5. Objectives • Attitude & Awareness • Some Reasons We Miss Fraud • Proactive Strategies

6. Attitude & Awareness

7. “Women More Likely To Embezzle” • More than 60% of embezzlement cases involved women. • Men embezzled nearly twice as much as women. • Two-thirds committed by accounting and finance workers. • Over 40% caused by people between ages of 40 and 49.

8. “Women More Likely To Embezzle” • Average loss more than $1 million. • Average scheme lasted 4 ½ years before detected. • Primary motivating factor was gambling. • Most embezzlers had no prior criminal history.

9. “Women More Likely To Embezzle” • California and Florida experienced greatest losses • Private largest loss -- $31 million. • Government / nonprofit largest loss -- $8.5 million.

10. “The Fraud Triangle” Motive Opportunity Rationalization

11. Motives Increase in Down Economy • Unbearable financial pressure – a need for money. • “Unbearable” is different for different people: • “I’d really like to have that new convertible.” • “I’m way over my head in debt and I can’t bear the humiliation of declaring bankruptcy.” • “I like to gamble, I keep losing, but I know my luck will change soon.” • “If I don’t come up with $15,000 for the operation, my loved one will die.”

12. Would you commit a felony to pay for needed surgery for your child? Yes – 97 percent

13. Would you commit a felony to pay for needed surgery for your spouse? Yes – 42 percent

14. Opportunities Increase in Down Economy • Every internal control weakness creates an opportunity for fraud to occur. • Segregation of duties continues to be the number one enemy. • Collusion can overcome almost all controls and can impede most generally accepted auditing procedures and techniques.

15. Rationalization Easier in Down Economy • “I deserve it – I’m underpaid.” • “I worked overtime but didn’t paid for it.” • “I should have been promoted by now.” • “I’m not hurting anyone.” • “Everyone else is doing it.” • “I’m just borrowing the funds.”

16. “Why does the government write checks first and ask questions later?” -- U.S. Senator

17. “Pay and Chase” • Most organizations focus on providing financial assistance and services, and paying vendors. • Place little priority on proactively ensuring that adequate controls are in place to reduce fraud. • Organizations tend to “pay and chase” fraudsters. • Most organizations rely on reactive measures to address fraud.

18. “Pay and Chase”

19. Recovery Act • Repaving airport runway that serves 18 flights a week • Build underground wildlife road crossing for turtles in Florida • Purchase freezer for fish sperm • Steam clean bird droppings from a building

20. Recovery Act • Repair roof of fast-food franchise on a military base • Repair and rehabilitate the White House’s East Wing • Provide loans to a ski resort, gas station, and luxury spa and inn • Refinance a Rite Aid

21. “Tracking Your Taxes” • $19.6 billion • 10,160 projects in 12 appropriations bills • 142 anonymous projects: $6.4 billion • $88 million: C-40 aircraft • $70 million: C-37B aircraft

22. “Tracking Your Taxes” • $12 million: monitor sea turtles and monk seals • $5.0 million: supercomputer to help study planets and fruit flies • $4.5 million: wood utilization research • $2.2 million: Center for Grape Genetics • $1.8 million: honey bee lab

23. “Tracking Your Taxes” • $1.6 million: mobile music lab • $1.0 million: a trolley museum • $866,000: stabilize fly control • $800,000: oyster rehabilitation

25. “TANF” Program • TANF (Temporary Assistance for Needy Families) • Provide cash assistance, job training and family counseling for Native Americans throughout Riverside and Los Angeles Counties • 2002 – 2008: $123 million (federal/state funds)

26. “TANF” Program • Purchased 45 cars • $55,000 in undocumented credit card expenditures • Leased apartment for personal residence • No competitive bidding • $5 million in adjusting entries

27. “TANF” Program • $3 million charged to “participate services” – only $450,000 of services had supporting documentation • Tribal Chair person awarded $64,000 consulting contract • 25% increase in salaries • $20,000 pay raise within 90 days of hiring • No job descriptions or performance reviews

28. Stockton Family Indicted for Food Stamp Fraud • Supplemental Nutrition Assistance Program (“SNAP”) – no more booklet of tear-out coupons, now use plastic cards. • Family used its small convenience store, Smoke Shop & Snack, as a front to purchase food stamps at 50 cents on the dollar – committing more than $2 million in food stamp fraud. • Store’s food stamp redemptions far exceeded its food sales. • In 2008 (three quarters), store reported $6,818 in food sales; however, redeemed $718,056 in food stamp benefits.

29. University Staffer Charged With Stealing $409K • John Runowicz, 47, an administrator for New York University. • Responsible for managing chemistry lab resources, including budgetarymatters, expense reimbursements, and supply requests. • Submitted requests for petty cash by attaching discarded liquor store receipts to reimbursement request forms. Claimed expenses were for departmental purchases and “other functions.” • Scheme involved more than 13,000 receipts from September 2003 until January 2009.

30. Unnecessary Dental Services Performed • FORBA Holdings LLC, a dental management company that provides business management and administrative services to 69 clinics nationwide know as “Small Smiles Centers.” • Agreed to pay $24 million to resolve fraud allegations. • Submitted Medicaid claims for wide range of dental services provided to low-income children that were either medically unnecessary or did not meet professional standards. • Dental services included performing baby root canals, placing crowns, administering anesthesia, performing extractions, and providing filings.

38. Physical Therapist Pleads Guilty • Jessica Vigil, a licensed physical therapist, created fictitious therapy files, appearing to document physical and occupational therapy services provided to Medicare beneficiaries, but no services were provided. • Vigil was paid between $80 and $100 by the owners of the home health company for each form she signed – paid more than $127,000. • Signed documents used to justify $2.4 million in home health claims. • Vigil either never saw the patients or the home health services were medically unnecessary.

39. DME Company Owners Sentenced to Prison • Husband/wife billed Medicare $950,000 and were paid $600,000 for medically unnecessary power wheelchairs and wheelchair accessories. • Beneficiaries were promised vitamins, diabetic shoes and other items they never received in return for providing their Medicare numbers. • Many beneficiaries did not know they were getting a power wheelchair until it was delivered. • All of beneficiaries didn’t need or use the wheelchairs.

40. “The Electric Wheelchair” • $5,000 • Billed at least 1,000 times ($5 million) for same wheelchair

42. Defense Dept. • $640 toilet seat cover • $435 hammer • $409 sink • $350 ball bearing • $76 screw • $1,000,000 flat washer

43. “The $1,000,000 Flat Washer” • Small hardware components, plumbing fixtures, and electronic equipment • Company submitted electronic bids via computer • Invoices – cost of the items plus shipping costs

44. “The $1,000,000 Flat Washer”

45. “The $1,000,000 Flat Washer” Shipping ItemsValueCosts Flat Washer (2) $ .19 $998,798 Cotter Pins (10) $ 1.99 $499,569 Elbow Pipe (1) $ 8.75 $445,640 Machine Thread Plug (1) $10.99 $492,096 Machine Screw (6) $ 9.99 $403,436 Split Washer (1) $ .89 $293,451

46. Iraq / Katrina Fraud and Waste

47. Iraq Fraud and Waste • In a 13-month period, the Federal Reserve Bank in New York sent nearly $12 billion in cash – mainly in $100 bills – to Iraq. • The Federal Reserve packed 281 million individual bills – including more than 107 million $100 bills – onto wooden pallets. • The cash weighed more than 363 tons and was flown to Baghdad on C-130 cargo planes. • One shipment totaled $2.4 billion – the largest shipment of cash in the bank’s history.

50. Iraq Fraud and Waste • Cash payments were made from the back of a pickup truck, and cash was stored in unguarded sacks in Iraqi ministry offices. • One contractor received a $2 million payment in a duffel bag stuffed with shrink-wrapped bundles of currency. • One official was given $6.75 million in cash, and was ordered to spend it in one week before the interim Iraqi government took control of Iraqi funds.