Economic Crime Institute

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Fraud in Bailouts and TARP

Economic Crime Institute



Fraud in Bailouts and TARP

Ken Jones Director – Fraud Risk Management, KPMG Retired - Deputy Chief, US Postal Inspection Service

Peter GoldmannWhite Collar Crime Fighter; Author, Fraud in the Markets



Topics

Recent Changes Impacting Fraud Against the GovernmentContractor Self-reportingSteps to Prevent, Detect and Respond against Government FraudExamples, Suggestions and Thoughts from Mr. GoldmannOpen Discussion



Improper Payments Information Act (IPIA) of 2002

The Improper Payments Information Act (IPIA) of 2002, requires annual estimates of improper payments helped frame the issue and the magnitude of the problem

The ensuing efforts to improve the tracking of improper payments and subsequent findings of significant and growing levels of estimated improper payments in turn led to the Presidential Executive Order.


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Federal Requirements for Reducing Improper PaymentsExecutive Order – Reducing IP and Eliminating Waste in Federal Programs (11/20/09)

Purpose of the Executive Order to Reduce Improper Payments

Comprehensive set of policies, including transparency and public scrutiny

Identifying and eliminating the highest improper payments Accountability for reducing improper payments Federal, State and Local Coordination


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Improper Payments Executive Order Highlights Establish a Senate Confirmed Accountable Official for each

Agency that has High Priority Programs Focus on Improving ability to identify and recover improper

payments and to coordinate at the Federal, State and Local level. Establish an Internet-based public reporting of improper

payments Establish and report on reduction targets Establish working groups to recommend improving the ability to

detect / recovery IP through single audit reporting, State and Local coordination, Data Sharing, enhancing eligibility verification, prepayment scrutiny, forensic accounting and auditing



The Improper Payments Act of 2010

improper payments act 2010Signed by President Obama July 22, 2010

Bill aims to help achieve goal of reducing wasteful payments by $50 billion by 2012



Recent Changes Impacting Procurement Fraud

A Brief History of the False Claims Act:The False Claims Act dates back to the Civil War when, in 1863, President Abraham Lincoln and the Congress enacted this law to combat “defense procurement fraud.”Unscrupulous defense contractors were billing the Union Army for:

dead mules, boots with soles that had been glued on, rather than stitched (and

were coming apart in the rain and mud), gunpowder that had been salted down with sawdust.

http://www.warrenbensonlaw.com/false-claims/federal-false-claims/



Fraud Enforcement and Recovery Act (FERA) of 2009

Signed into law by President Obama in May of 2009 Increased law enforcement personnel/budget for fraud investigations Expanded the provisions of the False Claims Act



Increased Funding for False Claim Act Investigations

$470 million

Over 2 years

To DOJ, SEC, U. S. Secret Service and others

Fraud Enforcement and Recovery Act (FERA) of 2009



FERA enhancements to the False Claims Act

FERA expanded liability to virtually every recipient of federal funding (contractors, sub-contractors, any recipient)

FERA expanded the protection of whistle blowers (not just employees, but contractors, competitors, etc.)

FERA allows whistle blowers access to information gained from government subpoenas

FERA expands the statute of limitations for FCA actions, specifying that government complaints "relate back" to earlier whistleblower complaints.

Earlier FCA Provisions Still in Effect: Qui Tam Relators Treble Damages



“Defense” Contractor Disclosure Program and Overpayments

Close the Contractor Fraud Loophole Act:

Requires timely notification by Federal contractorsMust report all violations of Federal criminal law or

overpayments- Contracts in amount >$5M and more than 120 days in

duration

Flow down to subcontracts



FAR Rule

Requires all contractors to: “timely disclose to the Govt., in connection with the

award, performance, or closeout of a govt. contract or a subcontract awarded there under, credible evidence of a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in 18 USC or a violation of the civil False Claims Act . . . [and] remit [any] significant overpayment amount.”



Defense Stakeholders

DoD OIGDCMA Services General CounselServices Suspension &

Debarment AuthorityContracting OfficerAffected Military

DepartmentDCAADefense Agencies

Defense Criminal Investigative Organizations

AFOSI CID DCIS NCIS

DOJ Criminal Division (Fraud Section)

DOJ Civil Division (Commercial Litigation)

US Attorney OfficeSIGAR



Contract Overpayments and Reverse False Claims

FERA defines “obligation” for the first time: “an established duty, whether or not fixed, arising from

an express or implied contractual, grantor-grantee, or licensor- licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”



Suspension & Debarment

FAR 3.1003(a)(3) Relating to the payment clauses, “A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment, other than payments resulting from contract financing payments



Increased Attention - Fraud WILL be Uncovered

Government Agency Focus on Improper Payments Contractor Disclosure and Overpayment Requirements Increased Funding for Law Enforcement More People Can Become Whistleblowers Expanded Protection for Whistleblowers Qui Tam Relators (Whistleblowers)

- 15% to 25% of rewards from cases that are accepted by the Department of Justice

- 25% - 30% If the Department of Justice does not go forward with a case. A whistleblower can go forward on his own, in some cases with the assistance of a qui tam attorney.



GAO Recommended Model for Anti-Fraud Programs and Controls



Fraud Risk Management



Prevention

Fraud and misconduct risk assessment Code of conduct and related standards Employee and third-party due diligence Communication and training Process-specific fraud risk controls Proactive forensic data analysis



Detection

Hotlines and whistleblower mechanisms Auditing and monitoring Retrospective forensic data analysis



Response

Internal and external investigations Established investigative protocols Enforcement and accountability protocols Disclosure protocols Remedial action protocols



Conclusions

Changes in the law, funds to investigative agencies, encouraging whistle-blowers, etc. will certainly increase the number of Frauds Against the Government, which are identified.

Government agencies will make every attempt to internally reduce fraud and other improper payments.

Economic Crime Institute

Documents

Transcript of Economic Crime Institute