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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.
How Fraudsters Stole Money from Venmo Users

How Fraudsters Stole Money from Venmo Users

In yet another example of the creativity of fraudsters exploiting security flaws in commonly used services, the Federal Trade Commission recently announced a settlement with Venmo, the popular money exchange service. The charges, filed in 2016, include some surprisingly basic security flaws in Venmo, which boasts of “bank-grade security”.

One major problem was found in Venmo’s cash reconciliation process. It would notify users that money had been deposited in their accounts when, in reality, many of the transactions were still under review. This allowed fraudsters to “purchase” and receive products before their payments were validated. Sellers, assuming that cash had been received, would ship the product and then find themselves without an actual payment. One scammer used this technique over several years to steal over $125,000 before being discovered.

In addition to this security flaw, federal regulators also noted that Venmo neglected to notify users of username and password changes or when new devices were added to their accounts. This allowed hackers to hijack accounts without any warnings to the actual account owners.

While the FTC’s settlement does not include any cash damages, it is likely that Venmo will face a slew of upcoming lawsuits. Beyond this, Venmo’s issues are particularly concerning to consumers. We often assume a certain level of security and common-sense practices when we use well-known applications and services. Clearly, we should all be concerned about trusting our money and identities with any company—regardless of how safe it appears to be.
Ambulette Fraud

Ambulette Fraud

“Ambulette” is a term to describe the vans and cars that transport Medicaid patients to non-emergency appointments. Despite the presence of ambulettes, millions of Americans continue to miss medical appointments each year because of transportation problems. One possible answer to this problem? Rideshare companies like Uber and Lyft who sign agreements with hospitals and medical groups.

In my opinion, however, rideshare companies should proceed with caution. Fraud is rampant in Non-Emergency Medical Transportation (NEMT) and the under-the-table cash temptations may prove too strong for some drivers to ignore. Kickback schemes, billing for rides never actually given, illegal referrals, and providing rides to deceased patients are common NEMT fraud schemes.

The Centers for Medicare and Medicaid Services (CMS) recently gave a presentation on NEMT compliance and reporting requirements (which are the responsibility of the rideshare companies) and common fraud schemes. In one, a Medicare beneficiary drove patients to dialysis appointments but also provided the medical IDs to an ambulance company so they could bill as well. In another, a parent was jailed 30 days for billing Medicaid for trips for her child’s treatments. Although the parent was authorized to transport her child, the trips never actually took place.

It’s not easy for ridesharing companies to monitor their drivers’ behaviors, especially because of the flexible driver contracts and work hours. Combine this with NEMT fraud fines that often run into the hundreds of thousands of dollars and it is clear that rideshare companies may be opening themselves up to some serious problems.
A New Way to Rip Off the Taxpayer

A New Way to Rip Off the Taxpayer

I often mention how “impressed” I am by the ingenuity of fraudsters and their ability to find new and creative ways to steal money. And now, with the country starting to pay attention to the opioid crisis, comes word of one of these fraud innovations. This time, fraud (and to be fair, often just massive waste) is found in the escalating number of urine tests being performed to detect opioids and other drugs in patients.

Kaiser Health News, with help from the Mayo Clinic, found billing for urine screens and related tests quadrupled from 2011 to 2014 to $8.5 billion a year. The federal government paid providers more for drug urine screens than they paid for the four most common types of cancer screens combined. $8.5 billion is more than the annual budget of the Environmental Protection Agency!

It’s easy to see how this could happen. In the cases of 50 less-than-scrupulous doctors who operate their own labs, Medicare paid over $1 million for drug tests at their pain management practices. 31 of these received over 80 percent of their Medicare payments from urine tests—in other words, less than 20 percent was for patient care!

Other labs have hired sales team that employ high-pressure tactics, telling doctors to order more tests to lower patients’ risks and to protect their practices against law enforcement or medical licensing board investigations. One labs sales manager earned $700,000 in salary and commissions, and the company later had to pay $256 million to settle claims with the justice department.

While some of the data in this blog post is over two years old, opioid prescriptions (and deaths) continue to climb—the latter at about 20 percent per year. Despite the government’s enforcement efforts, I assume that the urine test cash grab is also accelerating. It’s also safe to assume that when this scheme is shut down, the fraudsters will find another way to rip us off.
Jackpotting Comes to the U.S.

Jackpotting Comes to the U.S.

We’ve written several times about skimmers, devices that thieves place into gas pumps, ATMs, and other machines to steal personal and financial information from unsuspecting patrons. Now, it seems that a form of skimming, called “jackpotting” is making its way from Europe and Asia to the states.

The aptly named jackpotting, like skimming, uses a device inserted into ATM machines to take control of the CPU and dispense large amounts of cash to the fraudsters. The thieves often dress as ATM technicians and use an endoscope to view the inside of the machine and attach their system to the ATM. They can then control the system remotely and dispense as many as 120 bills per minute to “jackpotting mules” who collect the money.

The Secret Service is now issuing warnings about the spread of jackpotting, and organized criminal gangs are targeting stand-alone ATMs in pharmacies, big box retailers and drive-thru ATMs. And, of course, thanks to the anonymity of the dark web, criminals can easily purchase the software and equipment necessary to pull off the schemes.

While still in its infancy here in the states-- in a recent week there were six attacks that stole just over $1 million-- jackpotting is quickly establishing itself as one more fraud tactic that businesses and citizens will have to watch out for. The good news in this case is that the ATMs, when hacked, appear as out-of-order to consumers. At least we won’t insert our cards and we won’t lose our data. The bad news is that institutional losses often get passed to us in the form of higher fees and more complex processes. As usual, we all pay in the end.
Skimmer Fraud

Skimmer Fraud

I read with great interest a recent article about card skimmers that were found at “The Stop and Shop” gas station where I often fill up my tank. While they were discovered relatively quickly, more than a dozen customers were scammed. Several of them had their entire bank accounts wiped out.

Skimmers, for those of you that are not aware, are malicious card readers that take data from your credit or debit card’s magnetic stripe. The data is stored on a drive where it is stolen, requiring the fraudsters to return to pick up the data files. They can then clone your card or just steal directly from your accounts. What makes them so effective is that the skimmers don’t interfere in the actual transaction, making you think that you’re just filling up your tank like you have hundreds of times before.

Turns out that skimmers are growing both in popularity and sophistication. Through the first half of last year alone, skimmer use grew 21% which was on top of high growth rates the year before. In Florida, authorities found 315 skimmers during this time period, triple the number found in the same period the previous year. Considering that 29 million people use credit or debit cards to pay for gas every day, this is certainly a rich target market for fraudsters.

To take advantage of this opportunity, fraudsters continue to improve the skimming devices. They are now almost undetectable by the average citizen. So what do we do to keep our information safe? Authorities suggest visually scanning the card readers for anything unusual, tugging on the reader to see if it is loose, and checking for forced entry into the pump itself. There are even smartphone applications that use Bluetooth to help discover skimmers. Of course, you can also simply pay the attendant for your gas.

This is just one more case of honest people being inconvenienced, at best, or ripped off, at worst, by tech-savvy fraudsters. And because the use of skimmers is sure to increase over the next several years, we all may want to think twice about “paying at the pump”.
Student Loan Fraud

Student Loan Fraud

Anyone who has recently attended college or has a family member in college likely has some familiarity with student loans. In fact, 40 million Americans currently have student loans totaling an astounding $1.2 trillion dollars. Many of those who have applied for loans have been victimized by methods such as “advanced fee scams” that promise the best rate for an upfront service fee, or the ever-present loan elimination scams.

With easy access to stolen identities, fraudsters are now targeting the more lucrative loans themselves. Using stolen IDs, they enroll in classes which they, of course, never attend. Loans are made by the government, payments are not, and the unsuspecting “owner” of the loan goes into default when the fraudsters don’t make their payments.

In Grand Rapids, Michigan, a man was indicted last month for this exact scheme. He faces up to 20 years in prison for allegedly using stolen IDs to steal $150,000 in loans and grant aid. A quick check of the government’s paymentaccuracy.org website shows that he is not alone. Between the William D. Ford Federal Direct Loan Program and the Federal Pell Grant Program, $6.1 billion was improperly paid in 2016 alone.

While many of the improper payments are made to people who simply do not qualify based on income, an increasing number of loans are being made to outright fraudsters. Some estimates place the number of known fraud ring participants as high as 85,000 people. This victimizes the taxpayer, of course, but even more directly the person whose identity is stolen. It can take months or even years to clean up your credit. That’s one lesson I hope I never need to learn.
Ebola Relief Fraud

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.
Disturbing Reports of Dentists Committing Medicaid Fraud

Disturbing Reports of Dentists Committing Medicaid Fraud

A recent spate of high profile arrests of dentists is drawing attention to an often-overlooked segment of Medicaid fraud. Some unscrupulous dentists are exploiting gaps between what private insurers reimburse versus what Medicaid will pay for. Others are just brazenly breaking the law to rip off state Medicaid programs.

Consider these recent charges brought against dentists:

An Anchorage, AK dentist was charged with 10 felonies. His “care” included performing a tooth extraction while videotaping himself on a hoverboard. Naturally, he had to text the video to friends. He is also accused of giving expensive, and unnecessary, IV sedations to Medicaid patients and then performing unneeded procedures on his passed-out patients. Since private insurance rarely pays for IV sedation, he only performed this fraud scheme on his Medicaid patients.

A Fairfield, CT dentist who saw mostly elderly and indigent patients is accused of ripping off more than $900,000 from Medicaid by billing for services that he never performed. One hint that he may have not been acting honestly: he billed for both a cavity filling and denture procedure on the same tooth!

An Atlanta dentist was sentenced to 18 months in prison earlier this year for defrauding nearly $1,000,000 from Medicaid. Her unique talent included the ability to perform dental procedures in Atlanta while she was traveling out of the country.

Unfortunately, these cases simply support our premise that fraud will exist anywhere substantial amounts of money are exchanged in complex billing and regulatory environments. These, and other similar cases, serve as a warning that we must monitor literally every medical specialty reimbursed by Medicaid.

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