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.
In their never-ending quest to circumvent the law, unscrupulous business owners are now adopting the use of so-called “zapper” software to avoid paying sales taxes. Zapper software automatically deletes a portion of cash sale transactions and then automatically reconciles the business’s back end finances to make it appear that the businesses paid the appropriate amount of taxes. This scheme reduces tax collections for governments and passes the burden to the vast majority of businesses who choose to act within the law.
Thanks to a crackdown by federal and local officials, recent arrests include $1 million in unreported sales at Cesar’s Restaurant in Lakeview, IL (home of the “killer margarita”) and $800,0000 at the Lao Sze Chaun restaurant in Milford, CT. However, a simple Google search will reveal that almost no city is immune to the zappers.
Zapper software is so popular that some businesses are now starting to offer it to their clients. In December, for example, a Canadian man pled guilty to selling zapper software to eight restaurants in the Seattle area leading to $3.5 million of taxes avoided. It is alleged that his company, which sells Point of Sale (POS) software, also sold the illegal zapper software through a subsidiary in China. After the sale of the software, they even offered to support their customers with their ongoing efforts to defraud the government.
Zapper software, while somewhat novel, is just another attempt to apply technology to skirt the law. And while law enforcement training and targeted audits will surely help detect some of these modern-age fraudsters, analytics that use peer comparisons, spike indicators, and other statistically rigorous detection methods can also help detect the problem early. Like the old saying goes, it takes fire to fight fire.
While I don’t think healthcare fraud is a particularly humorous subject, a recent case in Florida does lead to a few chuckles.
Earlier this year, a Northern Florida doctor pled guilty to falsely billing over $1.5 million to Medicare and TRICARE. The billings were submitted for a complex procedure that required the removal of skin and muscle. In reality, most of the procedures actually performed were for routine foot care, including toenail clippings.
So how did this fraudster get caught? It seems the authorities used basic peer comparison analytics to flag suspicious activities. In this doctor’s practice, half of his patients apparently needed the expensive foot procedure, placing him in the top 1% of all providers in the country for this service. This despite the fact that Ocala is only the 45th most populated city in, not even the nation, but the state of Florida with fewer than 60,000 citizens!
The doctor tried to cover his tracks by falsifying patient medical files to make it appear that he had actually performed the procedures, versus simply cutting toenails and performing other routine procedures. He now faces a maximum penalty of 10 years in prison and restitution of $1.5 million.