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Pondera FraudCast

Welcome to the Pondera FraudCast, a weekly blog where we post information on fraud trends, lessons learned from client engagements, and observations from our investigators in the field. We hope you’ll check back often to stay current with our efforts to combat fraud, waste, and abuse in large government programs.

Cigarette Fraud

Cigarette Fraud

Last week we wrote about charges being brought against a group of alleged fraudsters in California that were trucking thousands of cans and bottles into California to collect the state’s recycling refunds. This week, just so no one feels left out, we’re bringing you a story from the East Coast that deals with cigarette fraud. That’s right… cigarette fraud.

As you probably already know, the price of cigarettes varies dramatically from state to state because of the taxes imposed by each state government. For example, in Virginia, where the state has an excise tax of only $0.17 per pack, the average price for a pack of cigarettes is $5.25. New York, on the other hand, adds taxes of $4.35 per pack helping to drive the average price per pack to $12.85. That’s a difference per pack of $7.60.

So what does an enterprising fraudster do? Buy cigarettes in Virginia and sell them in New York of course. This is illegal but it apparently didn’t prevent a 26 year old man from driving through Pennsylvania with 7,750 packs of cigarettes purchased in Virginia. That’s over 150,000 individual cigarettes so likely not just for his personal use. That might explain why the Pennsylvania state trooper who pulled him over said the driver was “very nervous, shaking and avoiding eye contact with me at all cost.”

The man is now free on bail but facing felony charges. I guess you never know what’s in the truck you pass on the freeway. Last week it was aluminum cans and plastic bottles. This week it’s thousands of cartons of cigarettes. Next week?
How to Steal $80 million Five Cents at a Time

How to Steal $80 million Five Cents at a Time

Last week, in the realm of “are there any government programs fraudsters won’t steal from”, California officials announced charges against five people who were ripping off the state’s recycling program.

Four defendants are accused of accepting recyclable cans from other states, faking the paperwork, and then billing the state for refunds on the 5- or 10-cent “deposits” that Californians pay when they buy beverages in the state. Of course, Californians can redeem the cans themselves, but I’m just guessing that not many do.

Incredibly, the total amount of the containers added up to $80.3 million. And, even more incredibly, this is not an isolated case. In 2015, for example, a California jury indicted another group of fraudsters for trucking over 200 million bottles and cans into California to collect $14 million in refunds.

A quick check of the California Attorney General’s website reveals that the state does indeed have a Recycle Fraud Program with the objective to “detect and stop existing fraud by organized criminal groups against the recycling fund and to deter future fraud through the successful prosecution of criminal activity.”

In many ways, this simply serves as more proof that even the most well-intentioned programs are subject to fraud and criminal abuse. When even 10-cent transactions are targeted, it should concern everyone about what’s occurring in larger government programs.

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Pondera leverages advanced prediction algorithms and the power of cloud computing to combat fraud, waste, and abuse in government programs.



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