16 May Money Obtained Fraudulently is Rarely Used for Good Purposes May 16, 2016By Jon Coss - Blog Manager innovative detection solutions, program integrity abuse, fraud, fraud detection, waste 1 People often ask me if I think we can make a difference fighting fraud by stopping down-on-their-luck Americans from grabbing a few extra bucks that they are not entitled to from government programs. In fact, many people ask if it’s even the right thing to do. After all, they explain, wouldn’t anyone do the same given the circumstances? This illustrates the common misperception that fraud is only perpetrated in small amounts by desperate people who are temporarily bending the rules. In fact, much of what we see takes place on a larger scale. And more importantly, the truth is that money obtained fraudulently is rarely used for good purposes. Examples include:During a “National Counter Terrorism-Awareness Week” in 2014, government officials explained that taxpayer money was being defrauded out of government programs (including student loans) to fund terrorism. In effect, we are helping to fund groups that want to do us harm. The Wall Street Journal reported on, in March 2016, the growing trend of street gangs funding activities through fraud. Fraud offers attractive forms of theft because “they are more lucrative, harder to detect and carry lighter prison sentences”. Considering that the government distributes over two trillion dollars per year in subsidies, and considering how fraudulently obtained money can be used, it is critical that we address the issue of fraud, waste, and abuse. So to answer the questions posed earlier: Yes, I do believe we are doing the right thing, and Yes, I do believe we can make a difference. Related Posts Ugly Case of Health Care Fraud A few weeks ago, I published a blog post titled “Money Obtained Fraudulently is Rarely Used for Good Purposes”. In it, I made the argument that government fraud is a serious, and at times very ugly problem. Now I no longer have to make that argument because the United States Justice Department is making the argument for me.Last week, the Justice Department announced the largest health care fraud case it’s ever prosecuted; one that defrauded over $1 billion over the past 14 years. The alleged perpetrators of the fraud are said to have leased private jets and chauffeured limousines. One even bought a $600,000 watch! Remember, this is your tax money we’re talking about. The system ran on a complex network of bribes and kickbacks.And if that’s not enough, here is one of the schemes they allegedly ran. They “treated” seemingly healthy, elderly people with medications they did not need in order to create addictions which would lead to further treatments. Pure evil. Unfortunately, fraudsters are most active where large amounts of money meet vulnerable populations. This is yet another example of that and more reason for us to do what we do. Nigerian Email Fraud In December, a 67-year-old Louisiana man was charged with 269 counts of money laundering for serving as a middle man in a Nigerian Internet scam. These scams, which everyone with an email account has encountered, promise large sums of money from inheritance or from a “prince” trying to leave the country in exchange for your financial information. Typically, they then require you to send money to release the funds and the operation continues to run into obstacles for which more money is required.When I receive these emails, I’m always struck by just how ridiculous the stories are. They are so obviously fake that only the most naïve would lend them any credence. Given the sophistication of some of the fraudsters we combat at Pondera, I’ve always wondered why these clearly unsophisticated scammers can’t put out more believable emails.After a bit of research on the subject, it turns out I’m the unsophisticated one. In fact, Microsoft Researcher Cormac Herley wrote a thought-provoking paper on the Nigerian Scams that concludes in part “By sending an email that repels all but the most gullible, the scammer gets the most promising marks to self-select, and tilts the true to false positive ratio in his favor.” So, like any good salesperson would do, the scammers are essentially feeding only the best leads into their pipeline and eliminating the poor leads early in the process so they don’t waste time pursuing them.Pretty brilliant actually, if you’re in to despicable crimes. And the results show it. The FBI’s Crime Complaint Center says that over the past five years it has received an average of 280,000 complaints and, more importantly, it estimates that victims have lost over $4.6 billion in that time. In the most extreme cases, victims were lured to Nigeria, held against their will, and extorted for additional money.If you’re interested in reading more about this, check out Mr. Herley’s paper at the link below:https://www.microsoft.com/en-us/research/wp-content/uploads/2016/02/WhyFromNigeria.pdf Hurricane Harvey Brings Out the Best and the Worst in People As the residents of Houston and surrounding areas continue to struggle with the devastation caused by Hurricane Harvey, history shows us that problems will continue long after the homes and businesses have been repaired. Every large natural disaster in this country follows the same pattern: destruction brought on by the disaster, followed by looting and price gouging, followed by huge amounts of fraud committed in the chase for assistance money.In Texas, all three seem to be occurring at once. We’ve all seen the heartbreaking images and videos of families who have lost everything, unfortunately including those who lost their lives. We’ve also seen the inspiring stories of ordinary people that risk their lives to help a neighbor, a stranger, or a lost family pet.Now, of course, the looting stories are beginning to circulate. In this case, it appears that law enforcement is doing all that it can to protect life and property, including announcing mandatory jail time for all thieves and burglars. However, the scammers are wasting no time setting up Facebook pages and sending out tweets with links to “relief organizations” that are actually designed to steal money from those who want to help.I have no doubt that this fraud activity will only increase. Consider these examples following previous disasters:- Dozens of people were convicted of using fraudulent psychiatric claims following 9/11 to steal up to $50,000 per year in Social Security disability payments.- A New Jersey man was one of hundreds to receive relief funding (in his case $171,099) after falsely claiming his primary residence was a home damaged by Hurricane Sandy.- An Alabama woman filed 28 claims for disaster assistance in 5 states following Hurricane Katrina.Unfortunately, fraud thrives at the intersection of vulnerable populations and large amounts of money. And Hurricane Harvey creates this intersection by displacing so many families, by invoking a government response, and by tapping into the giving spirit of caring Americans.Even more unfortunate is the fact that most of the fraud will go undetected and unprosecuted. Consider that the vast majority of the 22,000 cases of potential fraud passed to the government's Katrina task force were never prosecuted. And it is likely that FEMA collected less than 5% of the estimated billion dollars of fraud following the Hurricane. Only by increased enforcement and stricter sentencing will we be able to break this heinous pattern. And, to me at least, this is a pattern worth breaking. Two Interesting Cases of SNAP Fraud It has been an interesting few weeks for the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp program, with two high profile busts. Both cases illustrate common schemes used to defraud the SNAP program, which distributed over $70 billion in food-purchasing assistance last year to 44 million Americans.In Georgia, two convenience store owners used stolen identities to apply for SNAP benefits which were then loaded onto EBT cards (similar to credit cards) and mailed to addresses they controlled. Once received, they swiped the cards at their own convenience stores and pocketed over $800,000 before being caught. The U.S. Attorney assigned to the case said, “They used the SNAP system as an ATM for their personal gain, diverting critical benefits that help those who need assistance in our communities.”Then, in Delaware, seven case workers at the Department of Health and Social Services were indicted for creating 100 fake accounts and cashing $959,000 in benefits. After creating the accounts, the case workers had the EBT cards mailed to state service centers where they simply intercepted them and used the cards themselves. Their scheme was detected when a supervisor noticed incomplete application data for one of the cards.The Georgia case illustrates just how easy it can be (at least for a time) to use stolen identities to defraud government programs. Even if the suspects hadn't owned the convenience stores, it would not have been difficult for them to find one that would pay them a discounted price in cash for their cards.The Delaware case is one we commonly see across states and programs where unscrupulous employees use their knowledge of the system to defraud their own government agency. Large amounts of money, combined with loose supervision, often prove too tempting for those with questionable morals.A quick check of the government’s fraud reporting website, paymentaccuracy.gov, reveals that improper payment rates for SNAP are still not posted because of reporting problems. I look forward to updated numbers when they are available because even a small number like the 3.2% reported rate for 2014 translates to over $2.2 billion per year in improper payments. Ebola Relief Fraud As a country, we have become accustomed to reading stories about fraud in healthcare, financial services, and government programs. It doesn’t make it right, but it’s certainly not new. Now though, news comes from the American Red Cross that $5 million of Ebola relief funds were fraudulently disbursed on overpriced supplies, fake customs bills, and even non-existent aid workers. These scams will be familiar to regular readers of this blog as they are similar to scams run against domestic subsidy programs. But Ebola relief efforts?Between 2014 and 2016, Ebola raged through parts of Africa, claiming over 10,000 lives in Liberia, Sierra Leone, and Guinea. In response, the Red Cross collected and distributed over $100 million in aid, while doctors, nurses, and other volunteers risked their lives to save those suffering or at risk from the disease. Into this tragedy, naturally, came the fraudsters who recognized an ideal opportunity given the large amounts of aid money and the necessarily lax controls over disbursements.Now the Red Cross finds itself having to apologize to donors who realize that 5% of their contributions were stolen. While I don’t know all the details about the Red Cross’s financial controls, I can only imagine how difficult a task it was to make sure money was distributed quickly to only well-intentioned people and organizations.If anything, I believe this is one more reason for strong enforcement of criminal fraud after it has been committed. Trying to prevent fraud by adding bureaucracy and controls to the funds distribution process would likely add to delays during an emergency. Rigorous investigations and strong prosecutions, on the other hand, could act as a deterrent to future fraud. If not, at least it would prevent these fraudsters from plying their “trade” during other disasters. Identity Theft: Steal Once, Use Often A recent arrest in New York City illustrates a common fraud method that Pondera has been talking about for years: falsifying an identity (of an individual or business) and using it across multiple states, or in this particular case, across multiple subsidy programs within a state.In February of this year, the New York State Attorney announced the arrest of several individuals allegedly involved with a fraudulent medical supply company. The company’s owner operated under a false social security number and billed the State Medicaid system for an expensive nutritional formula required by patients with feeding tubes. In actuality, when they delivered the service at all, they dispensed lower-priced Pediasure to dramatically increase their profits—apparently ignoring the health consequences to the patient.But, as is often the case with bad actors, they didn’t stop there. In addition to their fraudulently obtained Medicaid profits, the fraudsters also used their fake socials and claimed income of less than $800 per month in order to qualify for Welfare payments. This despite the fact their medical “business” incomes were over $180,000 per year. It would not surprise me to learn that these same people were operating in other subsidy programs or in neighboring states.This is a disturbing, but somewhat logical, pattern that we see again and again. When someone goes to the trouble of creating a fake identity or business, they use it to generate as much income as possible. They “fly below the radar” of each individual program (or state) to avoid detection, but the fraud can be very lucrative in aggregate.The obvious solution to this is increased cooperation and data sharing across programs within a state and across states. The federal government has made significant efforts to support data sharing including the List of Excluded Individuals and Entities (LEIE), the Death Master File, and the Prisoner Update Processing System (PUPS) which can help identify claims that are fraudulently made by ineligible, deceased, or incarcerated identities.Our hope is that these efforts expand, including at the state level, where multiple agencies cooperate to identify cross-program fraud schemes. It is not enough to detect and then stop individual incidents of fraud. Many of these incidents are too small, when viewed as discrete occurrences, to warrant prosecution. Knowing this, enterprising fraudsters “sprinkle” their claims across multiple jurisdictions to avoid attention.Unfortunately, as was the case in New York, even these smaller, distributed fraud efforts can have an impact on patient health. The good news is that New York detected and put an end to this incident. But we all know there are thousands of similar cases each year. Comment (1) [Pingback] Pingback from ponderasolutions.com Pondera FraudCast | Ugly Case of Health Care Fraudhttp://ponderasolutions.com/Blog/TabId/204/PostId/19/ugly-case-of-health-care-fraud.aspx last year Comments are closed.