# Presentation: 497912

## GRANT FRAUD 

**GRANT FRAUD**

**BARBARA HARRIMAN**
**OFFICE OF INVESTIGATIONS**
**OFFICE OF INSPECTOR GENERAL**

## OIG

**OIG**

- Investigations

- Audits

- Information Technology

- Evaluations

- Legal Counsel

## Slide 3

## FRAUD

-    Fraud is the intentional, unlawful acquisition of monetary benefit by perpetuating wrongful acts affecting government programs and operations, including contracts and grants.

## POSSIBLE PROBLEM INDICATORS:

**One person in control**
**No separation of duties**
**Persons living beyond means**
**Missing or incomplete internal controls**
**No prior audit**
**Unusual behavior**
**Recent money problems**
**Lack of internal controls**
**Lack of regulations / operating procedures**
**Lack of oversight to enforce regulations**
**Altered / suspect records**

## Myths About Fraud

- Only certain types of people will commit fraud.
- Most fraud goes undetected.
- Fraud is usually well concealed.

## How Do We Find Out About Fraud?

- Accident
- Co-workers
- Public
- Auditors
- 20% of fraud is discovered by auditors!

**Notes:**
Stephen Albrecht, former President, National Association of Certified Fraud Examiners, who is also an accounting professor at Brigham Young University, conducted a study that revealed that half of all frauds are discovered by accident, a third from co-worker complaints, and the rest by auditors.

## Profile of Perpetrators of Fraud

**Profile of Perpetrators ****of Fraud**

- Older
- 60% Male, 40% Female
- Church Attendance
- Stable family
- Good Mental Health
- High Self-esteem

**Notes:**
The oldest perpetrators (over 60) caused median losses of 27 times greater than those of the youngest fraudsters (below 25), older people generally occupy more senior positions with greater access to assets.

The trend of more males committing fraud may be attributed the “glass ceiling” phenomenon, where males generally occupy higher positions and as such may have more opportunity. We find that the individual is older and that approximately 40 percent are women.  

The individuals who are involved in fraud are more likely to be in a stable family situation, have children, be well educated, and often have strong religious convictions.  

These individuals are more likely to be in better psychological health and have a better self-esteem.  

Does this profile sound like anyone we know? Sounds like me!

## CAREFULLY REVIEW THE FOLLOWING SLIDES...

## Slide 10

## Slide 11

## GOOD INVOICE / BAD INVOICE

## OTHER POSSIBLE FRAUD SCHEMES

- Inflating enrollment and attendance records
- Theft of Time and Materials
- Fees for non-existent consulting services
- Issuing of checks payable to friends or relatives
- Submitting invoices to be paid for personal expenses

**Notes:**
On the day of an audit, students and teachers were transported from one Head Start Center to another to make the appearance that more students were actually enrolled.

An anonymous caller complained that a consultant received an Internal Revenue Service Form 1099 in the amount of $1,000 for services he had not performed for a community action council. The investigation disclosed agreements for at least ten consultants who either did not exist or existed and had previously provided services to the grantee in the past, but did not provide services during the period in question. Be aware of payments for consulting services!

The director of a Community Service Block Grant program administered a program to assist low-income recipients with one time rent payments. An informant at the Agency complained that the director chose to personally mail out the recipients’ checks. The informant became suspicious when she noticed that one of the recipients was a former chief of police. The informant became more suspicious when she discovered that another group of checks made payable to various recipients had been cashed at a liquor store near the Agency even though the other recipients had listed several addresses in towns several miles away from the Agency.  

## SCHEMES (cont’d)

- Diverting funds to bogus companies
- Store fronts, shell companies
- Submitting false claims in travel vouchers/cost reports
- Using credit cards for personal use
- Kickbacks

**Notes:**
A Center director created a bogus contract for his wife to provide cleaning services for the Head Start Center at a cost of $4,000 a month.

Be aware of not following normal contracting procedures. If a bid is required for any project which cost over $500, but no such bid process occurred, how would you document such. What types of questions would you ask?

An executive director and a comptroller/financial officer allegedly funneled several checks totaling approximately $371,351 to a tire service company between July 1999 and February 2000. These expenses were allegedly to pay for a renovation project, but no renovations took place. 

An executive Director and a chief financial officer used American Express cards in the company name which they used to charge personal expenses, which was claimed as operating cost.

An executive director and the president of the board of directors, set up a scheme whereby when the executive director retired he received $150,000 payment and the president of the board of directors received a kickback. In addition, they allegedly required anyone doing business with the organization to pay a kickback.

## SCHEMES (cont’d)

- Creating Fictitious Records
- Forgery
- Double Billing
- Diverting Funds

## CASE #1

*BACKGROUND...*
- Chief Financial Officer for Head Start Grantee
- Received $13 million a year
- Co-defendant
- Operated shell realty company

## ALLEGATIONS

- CFO funneled $1.1 million from Head Start facility renovation projects --- to self
- Pay personal bills
- Entertained mistress
- Paid for relatives college tuitions

## HOW

- Circumventing internal controls
- Sole check writer _and_ only person to reconcile bank account

## RESULT 

- 51 months confinement
- 3 years supervised release
- Restitution

## Slide 20

## CASE #2

*BACKGROUND*
- Chief of Family Services
- Diverted $ from program designed to benefit :
- Foster care children
- Adopted children

## ALLEGATIONS

- $35,000 for travel to Israel
- $18,000 in consulting services provided by herself
- $2,700 in catering expenses
- $15,000 in building renovations in Israel

## CHARGES

- False claims
- Conspiracy
- Obstruction of Justice
- Impeding a federal investigation
- Attempt to conceal facts that she paid herself federal funds

## RESULT

- 6 months of home confinement
- 100 hours of community service
- 2 years probation
- $250,000 criminal fine
- $274,000 in restitution
- Debarment...

## DEBARMENT

- Preclude dishonest and incompetent parties from receiving Federal funds for a specific period, usually three years.

## DEBARMENT

***SOME REASONS FOR DEBARMENT****:*
- Commission of fraud or criminal offense in obtaining, attempting to obtain, or performing a public contract or subcontract.
- Commission of embezzlement, theft, forgery, or bribery; falsifying or destroying records; making false statements; or receiving stolen property.

## DEBARMENT (cont’d)

- Knowingly doing business with a suspended or debarred, ineligible, or voluntarily excluded party.
- Commission of any other offense indicating lack of business integrity that seriously affects the integrity of an agency program.

## “If it walks like a duck and sounds like a duck...”(or grant fraud!)

## 1-800-HHS-TIPS (1-800-447-8477)			orHHSTips@oig.hhs.govGSA Website : http://www.arnet.gov.epls

**HHS-OIG HOTLINE**

**Grant Coordinator – Doris McGuire  ****	****	****	****	****     (202) 401-2823**

## QUESTIONS?