U.S. ARMY CRIMINAL
INVESTIGATION COMMAND
701ST MILITARY POLICE
GROUP ( CID)
What
is
FRAUD?
DEFINITIONS:

Fraud

Fraud Profile
A deliberate deception practiced so
as to secure unfair or unlawful
gain (Webster’s II Dictionary).
A material representation of fact
which is false
and known to be false
False
Representation
Motivation
Fraud
Profile
Opportunity
Rationalization
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
REMEDIES:

Criminal Actions

Civil Actions

Contractual Actions

Administrative Actions
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
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.
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
REMEDIES
PERSONNEL ACTIONS:

Termination or Reassignment of Federal Employees

Revocation of a Contracting Officer’s Warrant

Recoupment of Funds Lost
TOPICS:

Contract Fraud

International Merchant Purchase Authorization Card
(IMPAC) Fraud

Operational Issues
• Time Card Fraud
• Concessions/Ticket Booths
• Illegal Dumping
Contract Fraud
Indicators
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.

Contract Phases:






Determination of need
Presolicitation phase
Solicitation phase
Contract Award
Contract Negotiation
Contract Performance
FRAUD INDICATORS
IN THE
PROCUREMENT
PROCESS
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.
FRAUD IN THE IDENTIFICATION
OF THE GOVERNMENT’S 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.

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.
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)
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.

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
FRAUD IN THE DEVELOPMENT
OF SPECS/SOW

INDICATORS (cont’d)
• 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
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

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.

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.

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.

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.

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.

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.

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
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.
Defective Pricing
Truth 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.
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.
FRAUD AND DEFECTIVE
PRICING

Defective pricing example identified by
GAO:
• Contract found to be overpriced by $1M
due to company’s failure to disclose lower
prices on 7 material items
– As negotiation concluded, material estimating
department provided firm’s negotiator an
update showing substantially lower prices for 3
items
– Negotiator did not disclose lower price to
Contracting Officer
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
Fraud and Defective Pricing

Additional indicators (cont’d)
• 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
FRAUD AND DEFECTIVE
PRICING

Additional indicators (cont’d)
• 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
FRAUD AND DEFECTIVE
PRICING

Additional indicators (cont’d)
• 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
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
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
• Contractor’s knowing failure to update also
appears to be evidence of intent to defraud
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

CONTRACT FRAUD
CASE 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 prime’s 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
CONTRACT FRAUD
CASE 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 vendor’s 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
vendor’s 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.
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.
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 Government’s only
readily available remedy was disallowance.
THE MOST FREQUENTLY
VIOLATED STATUES (cont’d)
• 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
Bribery
Jurisdiction 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
Bribery
Bribery Investigations
Whoever 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).
Bribery
People offer and accept bribes for a variety of
different reasons.



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To Secure competitive information
Cover up errors
Financial need or cover up
To influence decision making
Secure economic advantage (tax deduction, etc.)
Bribery
Common Methods of Bribery Payments


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Cash
Gifts (Vacations, Scholarships, Appliances,
etc.)
Privileges (use of auto, clubs, discounts, etc.)
Opportunities (employment, rigging contests,
etc.)
Other (Credit, Loans, Free Samples,
Contributions)
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.
THE MOST FREQUENTLY
VIOLATED STATUES (cont’d)
• 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.
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.
THE MOST FREQUENTLY
VIOLATED STATUES (cont’d)
• 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.
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.
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.
ANTITRUST VIOLATIONS

Indicators (cont’d)
• 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.
ANTITRUST VIOLATIONS

Indicators (cont’d)
• 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.
INDICATORS OF FRAUD
During 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)
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.

PRODUCT SUBSTITUTION

Product substitution possibilities are
greater when the Government relies on
the contractor’s integrity to ensure that
the Government receives supplies or
services that are in conformance with
the contract requirements i.e., Standard
Inspections
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.
Product Substitution
Cases 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
Product Substitution
Indicators of Product Substitution






Switching Products after Inspection
False Test Data
Failure to Test
Buy American Act Violations
Misrepresentation to avoid Inspection
Substandard Raw Materials
CONTRACT FRAUD
CASE 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.
CONTRACT FRAUD
CASE 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.
CONTRACT FRAUD
CASE 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.
CONTRACT FRAUD
CASE 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.
CONTRACT FRAUD
CASE 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.
CONTRACT FRAUD
CASE 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 xrays. 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 xrays 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.
Contract Fraud
Points 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!
IMPAC Cards
IMPAC Card Fraud:

Merchant or Vendor

Cardholders
IMPAC Card Fraud Indicators
CARDHOLDER

unauthorized use of credit card (i.e.
personal purchases)

exceeding purchasing limits ($2,500)

splitting purchases to remain below
$2,500 limit
IMPAC Card Fraud Indicators
MERCHANT or VENDOR

unauthorized purchases on the card

conspiring with cardholders to make
purchases that appear legitimate
through submitting receipts, etc.
IMPAC Card Fraud
Points 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 government’s 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!
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.
Operational Issues
Operational Issues:

Time Card Fraud

Concessions/Ticket Booths

Timber Harvesting

Illegal Dumping
Time Card Fraud
Operational Issues
Time 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.
Concession/Ticket Booths
Operational Issues
Concessions 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.
Don’t 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.
Case Study
Concession 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
Illegal Dumping
Operational Issues
Illegal Dumping:
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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
Operational Issues
Illegal Dumping:
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If you are overseeing a government contract
that requires demolition or disposal of debris
be thinking about where the material is going.
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Make sure that the contractor is not disposing
of it illegally on government property and
avoiding contract responsibilities for disposal.
Operational Issues
Illegal Dumping:
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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
Operational Issues
Illegal Dumping:
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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
Operational Issues
Illegal Dumping:
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What factors contribute to the problem?
• Physical Characteristics
• unsecured properties
• poorly lit access roads
• remote locations
Operational Issues
Illegal Dumping:
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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
Operational Issues
Illegal Dumping/Case Study:
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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 C&I 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).
SUMMARY FOR
DETECTING FRAUD
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)
REASONS FOR FAILING
TO 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
-Don’t want to find fraud (It couldn’t happen here!)
Questions
?
Who We Are
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Syracuse Fraud RA
Tel: (315) 449SA Pete Seguin ext:
1609
SA Mark Parah ext:
1509
SA Don Patterson
ext: 0782
Fax: (315) 449-1610