GRANT FRAUD AWARENESS BRIEFING

1. U.S. Department of Justice Office of the Inspector General GRANT FRAUDAWARENESSBRIEFING

2. PRESENTER: Special Agent Jorge L. Tocuyo Miami Field Office DOJ/OIG Investigations Division Jorge.L.Tocuyo@usdoj.gov (954) 370-8300

3. PURPOSE OF THE BRIEFING • Educate about the role of the OIG. • Provide guidance with regard to identification, prevention, and reporting of fraud, waste and abuse in connection with grant programs.

4. U.S. Department of JusticeOffice of the Inspector General • The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama in February 2009. The ARRA is a direct response to our economic crisis. It is expected to jumpstart the economy as well as contribute to economic growth for many years.

5. U.S. Department of JusticeOffice of the Inspector General The ARRA has three immediate goals: • Create new jobs as well as save existing ones. • Spur economic activity and invest in long-term economic growth. • Foster unprecedented levels of accountability and transparency in government spending.

6. U.S. Department of JusticeOffice of the Inspector General The ARRA intends to achieve these goals by: • Providing tax cuts and benefits for millions of working families and businesses. • Providing additional funding for education and health care as well as entitlement programs (such as extending unemployment benefits). • Providing additional funding for federal contracts, grants and loans. • Requiring recipients of ARRA funds to report on the amount of monies spent,  the status of projects funded, the number of jobs created and/or saved, and other details, so that the public can track where the ARRA funds are going and how they are being spent.

7. U.S. Department of JusticeOffice of the Inspector General • The ARRA is also targeted at our infrastructure’s development and enhancement. It provides funding to expand the domestic renewable energy industry, construction and repair of roads and bridges, scientific research, and the expansion of broadband and wireless service.

8. U.S. Department of JusticeOffice of the Inspector General • The ARRA includes approximately $400 billion for grants/cooperative agreements. The Department of Justice (DOJ) received approximately $4 billion of these funds which will primarily be disbursed via grants to enhance state, local, and tribal law enforcement efforts, including the hiring of new police officers, to combat violence against women, and to fight Internet crimes against children.

9. U.S. Department of JusticeOffice of the Inspector General DOJ ARRA Funding Distribution • $2.7 billion to the Office of Justice Programs. • $1 billion to the Community Oriented Policing Services (COPS) program. • $225 million to the Office on Violence Against Women. • $10 million to the Bureau of Alcohol, Tobacco, Firearms and Explosives.

10. U.S. Department of JusticeOffice of the Inspector General • The Office of the Inspector General (OIG) conducts independent investigations, audits, inspections, and special reviews of DOJ personnel and programs to detect and deter waste, fraud, abuse, and misconduct, and to promote integrity, economy, efficiency, and effectiveness in DOJ operations. The oversight jurisdiction also includes DOJ contractors, and grantees. • The OIG reports to both the Attorney General and Congress.

11. OIG oversees... • FBI • DEA • Federal Bureau of Prisons • ATF • U.S. Attorney’s Office • U.S. Marshals Service

13. New York FO Boston AO New Jersey AO Williamsport Fraud Detection Office Miami FO Atlanta AO Tampa Tallahassee Chicago FO Detroit AO Lexington Washington, D.C. FO Dallas FO San Antonio AO Houston AO El Paso AO Denver FO Tucson AO Los Angeles FO San Francisco AO Seattle AO Investigations Division

14. What is Fraud? • There are a number of different definitions, but essentially it is… • Deliberate deception to secure an unfair gain • Deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. • Sham

15. Grant Fraud • Federal grant funds are awarded for a specific “public purpose” and grantees must use those funds as agreed and within established parameters, including the Office of Management and Budget Circulars and granting agency guidelines. • Unfortunately, fraud, waste, misuse, and/or misapplication of these funds can and does occur. These issues can range from poorly managed programs to the extremes of intentional criminal fraud schemes. • The consequences of grant fraud can include debarment from receiving future funding, administrative recoveries of funds, civil penalties and criminal prosecution– or a combination of all or some of these remedies. • The best strategy to mitigate these risks is to increase awareness of the common grant fraud schemes and encourage appropriate risk management efforts to prevent issues or detect them as early as possible so grant funded programs have every chance of success and taxpayer funds are used as efficiently and effectively as possible.

16. Grant Process Application Budget Assurances Grant Conditions Eligibility Performance Draw downs Monitoring Gov’t Management Financial Certifications INTEGRITY BASED SYSTEM

17. Indicators of Fraud, Waste & Misuse of grant funds can be due to a variety of causes and are rarely a simple “Black and White” issue– we must follow-up on all such concerns. Gross Negligence Criminal Fraud Mistakes

18. U.S. Department of JusticeOffice of the Inspector General • The key to preventing, detecting, and stopping fraud is: • Professional skepticism. • Communication.

19. Common Grant Fraud Schemes Most fraud, waste, and misuse schemes fall within one or more categories below: • Conflicts of Interest • “Lying” or Failing to Properly Support the Use of Funds • Theft

20. Conflicts of Interest • Grantees are required to use federal funds in the best interest of their program and these decisions must be free of undisclosed personal or organizational conflicts of interest– both in appearance and fact. • The typical issues in this area include: • Less than Arms-Length Transactions: purchasing goods or services or hiring an individual from a related party such as a family member or a business associated with an employee of a grantee. • Sub grant award decisions and vendor selections must be accomplished using a fair and transparent process free of undue influence. Most procurements require full & open competition. • Consultants can play an important role in programs, however, their use requires a fair selection process, reasonable pay rates, and specific verifiable work product.

21. Case Example • Background: a police officer was assigned to upgrade department computers using federal grant funds • Fraud Indicators: circumvention of the established procurement process; vendor complaints • Scheme Identified: officer stole $106,429 by directing contracts to bogus companies that he had established • Result: 240 month prison sentence

22. “Lying” or Failing to Properly Support • A grant agreement is essentially a legally binding contract and grantees are obligated to use their grant funds as outlined in the agreement and to act with integrity when applying for and reporting their actual use of funds. Grantees are also obligated to properly track the use of funds and maintain adequate supporting documentation. • The typical issues in this area include: • Unilaterally redirecting the use of funds in a manner different than outlined in the grant agreement. • Failing to adequately account for, track or support transactions such as personnel costs, contracts, indirect cost rates, matching funds, program income, or other sources of revenue. • Grantee’s must accurately represent their eligibility for funding and cannot provide false or misleading information in their application or subsequent narrative progress or financial status reports.

23. Certification Statement • By signing this application, I certify (1) to the statements contained in the list of certifications and (2) that the statements herein are true, complete and accurate to the best of my knowledge. I also provide the required assurances and agree to comply with any resulting terms if I accept an award. I am aware that any false, fictitious, or fraudulent statements or claims may subject me to criminal, civil, or administrative penalties.

24. Case Example • Background: a grantee received federal grant funding for specific purposes • Fraud Indicators: an inability to provide sufficient and verifiable supporting documentation concerning the actual use of those funds • Result: grantee agreed to pay the federal government over $300,000 to settle civil fraud allegations

25. Theft • Theft is the most common issue in almost all organizations– including those that receive federal grant funding. • People that embezzle funds can be extremely creative and appear very trustworthy– precisely why they can do so much damage to an organization and remain undetected for extended periods of time. • Poor or no internal controls equals virtually inevitable theft. A lack of appropriate separation of duties is one of the most common weaknesses. • Checks routinely written to employees as “reimbursement” of expenses and the use of ATM / Debit / Gift / Credit Cards must be carefully controlled and require robust oversight.

26. Case Example • Background: a non-profit received $2.7 M. in federal funds to assist underprivileged children • Fraud Indicators: unsuccessful program • Scheme Identified: funds diverted to pay for wedding reception, church construction, plasma TV, personal credit card bills; estimated loss of $450,000 • Result: 36 & 66 month prison sentences; restitution

27. Ways to Mitigate Risks • Examine your operations to determine your fraud vulnerabilities. • Implement specific fraud prevention strategies including educating others about the risks– the more people are aware of the issues, the more they can help prevent problems or detect them as early as possible. • Maintain a well designed and tested system of internal controls. • Ensureall financial or other certifications and progress reports are adequately supported with appropriate documentation and evidence.

28. Ways to Mitigate Riskscont’d • Identify any potential conflicts of interest issues and disclose them to the granting agency for specific guidance and advice. • Follow a fair and transparent procurement process especially when utilizing consultants. Ensure the rate of pay is reasonable and justifiable and that the work product is well-defined and documented. • The government will conduct and supervise independent and objective audits relating to agency programs and operations.

29. Types of Audits Financial Audits provide an independent assessment of and reasonable assurance about reported financial condition, results, and use of resources. Performance Audits provide assurance or conclusions based on evaluation of evidence against criteria such as requirements, measures, or defined practices. These audits provide objective analyses so that those charged with governance can improve performance and operations, reduce costs, and contribute to public accountability. Audits of grant programs are performance audits.

30. OIG Audit Division • Audit factors: • Risk level of the grantee • Grant award amount • Geographical location • If requested by DOJ or granting office

31. Grant Program Audit Process • A standard letter is sent to the grantee or sub-grantee. • The objectives of the audit are clearly defined in the letter. • The scope of the audit is identified. • A list of the records required for the audit is enclosed.

32. The Audit Process • Auditors perform on-site work. • Auditors analyze data obtained during on-site work. • Identified fraud indicators may result in a referral for investigation. • An exit conference is held during which findings are discussed. • A draft report is issued along with a request for the auditee’s and DOJ granting agency’s written comments. • A final report is issued containing the written comments and the OIG’s analysis of the comments. • The DOJ granting agency works with the auditee to complete necessary corrective action.

33. Fraud Indicators • “Red Flag” indicators: -Lack of supporting documentation for expenses -Doing business with related parties (i.e. family and friends) -Issuing checks from grant funds to staff members -Bogus consultants, consulting contracts -Inflated cost for services and consultants -Commingling of funds -Lack of internal controls

34. If You Suspect Fraud, Waste, and Abuse • Document the activity you suspect to be fraudulent • Seek an explanation for the irregular activity, if possible • Make copies of all relevant documents, if possible • Report your concerns or suspicions to management and referral to OIG, as appropriate • Can report directly to OIG (remain confidential if desired)

35. ARRA Whistleblower Protection ARRA prohibits retaliation against a non-Federal employee, including state and local governments, contractors, subcontractors, grantees, or professional membership organizations, who discloses information that the employee reasonably believes constitutes evidence of: • gross mismanagement of an agency contract or grant relating to stimulus funds; • gross waste of stimulus funds; • substantial and specific danger to public health or safety related to implementation of stimulus funds; • Cont’d

36. ARRA Whistleblower Protection • abuse of authority related to implementation or use of stimulus funds; • violations of law, rule, or regulation related to an agency contract or grant relating to stimulus funds.

37. Report Suspected Fraud to the OIG • You may report waste, fraud, abuse, or misconduct to the OIG by mail: • Office of the Inspector GeneralU.S. Department of JusticeInvestigations Division950 Pennsylvania Avenue, N.W.Room 4706Washington, DC 20530 • E-mail: oig.hotline@usdoj.gov • Online: Reporting Form • Hotline: (contact information in English and Spanish): (800) 869-4499 • or Hotline Fax: (202) 616-9881 • Contact the DOJ-OIG office in your area

38. Online Complaint Form

39. U.S. Department of JusticeOffice of the Inspector General

40. U.S. Department of JusticeOffice of the Inspector General Thank you! SA Jorge L.Tocuyo Miami Field Office DOJ/OIG Investigations Division Jorge.L.Tocuyo@usdoj.gov (954) 370-8300 For additional information, including ways to report suspected fraud, waste, and abuse related to DOJ programs, please see www.usdoj.gov/oig. For a listing of all federal inspectors general, please see www.ignet.gov.