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FRAUD SCHEMES & INDICATORS

FRAUD SCHEMES & INDICATORS. AFOSI Economic & Environmental Crimes Course. DUTY AGENT CALL.

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FRAUD SCHEMES & INDICATORS

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  1. FRAUD SCHEMES & INDICATORS AFOSI Economic & Environmental Crimes Course

  2. DUTY AGENT CALL • “I need to report a third tier sub-contractor who manipulated their solicited cost & pricing data certification to a USAF prime, on a VEC order, resulting in COP #34, which was priced under a cost plus line item (clin 000130) on a completed firm fixed-incentive (FAR Part 12) KC-135 sustainment contract awarded by an AFMC DEPOT”

  3. Probable Responses • Hold on, I’ll let you talk to the Det Co!! • The Fraud guy/girl isn’t here right now-call back tomorrow! • Can you write it all down and mail it to the FBI • Did I say this was OSI, I’m sorry this is really the base gym!! • Whats wrong with that????

  4. OVERVIEW • AFOSI Fraud Priorities • Schemes & Indicators • Most Common Schemes • Types of Schemes • Examples • Indicators

  5. AFOSI Fraud Priorities • Product Substitution • Corruption • Anti-trust • Cost mischarging • Environmental matters • Defective pricing • Other (Pay/Allowance, MWR, AAFES)

  6. Fraud Schemes & Indicators • Scheme: a plan devised to deceive and/or make an illegal gain • May be highly organized or simple • Recurring (not a one-time event) • Indicator: A condition that points out an irregularity in a procedure • Not necessarily a crime!

  7. The Most Common Schemes • Cost mischarging • Product substitution • Defective pricing • Public Corruption • Bribery, Gratuities, Conflict of Interest • Antitrust violations

  8. Pre-Award Anti-Trust Violations Defective Pricing Corruption Post-Award Corruption Cost Mischarging Product Substitution Fraud Schemes in the Contracting Process

  9. Anti-Trust Violations • Violations of Sherman Act, which prohibits any agreement among competitors unreasonably limiting competition • “Collusion”

  10. Anti-Trust Violations • Price Fixing • Agreement among competitors to: • Adhere to published prices • Raise prices by a specified amount • Establish, adhere to, or eliminate discounts

  11. Anti-Trust Violations • Bid suppression or reduction • One or several competitors: • Refrain from bidding, or • Withdraw a previously submitted bid so that the competitor’s bid will be accepted

  12. Anti-Trust Violations • Complementary bidding • Competitors submit token bids that are: • Too high to be accepted, or • On special terms that would not be acceptable to the gov’t

  13. Anti-Trust Violations • Bid rotation • All competitors participating in the scheme submit bids, but by agreement take turns being the low bidder

  14. Anti-Trust Violations • Market division • Competitors agree to bid on a designated portion of the market. • Geographic areas • Types of Customers • Types of Contracts

  15. Anti-Trust Violations INDICATORS • Limited number of competitors in industry • Fewer than normal competitors submit bids • One vendor is always winning bidder • Unexplained gap between winning bid and all others

  16. Anti-Trust Violations MORE INDICATORS • Pattern of winning (area, product or service, sequence) • Winner subcontracts to competitors • “Our company doesn’t sell in that area” • Surprise over competitors bid

  17. Defective Pricing • Occurs when contractor fails to provide accurate, complete, and current cost or pricing data to the government • Applies to negotiated contracts over $500K

  18. Defective Pricing EXAMPLES • Falsifying vendor invoices • Proposing inflated or fictitious labor costs • Submitting higher costs when planning to purchase at lower cost • Reclassifying reimbursable expenses

  19. Defective Pricing INDICATORS • Delay in releasing data to gov’t • Failure to update cost & pricing data • Failure to disclose “preferred customer” agreements • Altered supporting documents

  20. Corruption • When someone in a position of responsibility wrongfully or unlawfully uses his position to procure some benefit for himself or another person

  21. Corruption - Bribery • The giving or offering of anything of value to influence official actions and the acceptance of such items by government officials • The crime is complete on making the offer to a government employee • Quid pro quo

  22. Corruption - Gratuities • Distinguished from bribery by lack of quid pro quo • Generally given to assist in enhancing the “relationship” between the offerer and the government employee • Attempts to create a “more favorable atmosphere”

  23. Corruption - Conflicts of Interest • Taking official actions that deal with businesses in which a government employee or their immediate family have a direct financial interest

  24. Corruption EXAMPLES • Gov’t inspectors receiving “perks” to “look the other way” • Gov’t contracting officials giving contractors “insider information” • Gov’t contracting officials manipulating bid/award process • Gov’t officials accepting gifts & failing to report them under ethics regulations

  25. Corruption INDICATORS • Unreported poor performance • Socializing outside work environment • Unexplained increase in business w/one contractor • Living beyond one’s means

  26. Cost Mischarging • Most common abuse found within the procurement process • Occurs when contractor charges the government costs which are not allowable, not reasonable, or which cannot be directly or indirectly allocated to the contract

  27. Cost Mischarging EXAMPLES • Costs from overrun fixed price contract to cost reimbursement contract • Inflating actual costs • Labor category mischarging • Charging unallowable costs to overhead

  28. Cost Mischarging INDICATORS • Claims missing supporting documentation • Altered supporting documentation • Complaints of non-payment • Increased charges to cost type contracts

  29. Product Substitution • Knowing submission by the contractor to the government of goods that do not conform to the contract specifications

  30. Product Substitution EXAMPLES • Delivery of look-alike goods from non-specification materials • Providing foreign made products where domestic products required • False certification of test results • Substituting old parts for new

  31. Product Substitution INDICATORS • Early/unexpected failure • Higher maintenance rate • Failure to provide certifications • Missing/altered documentation • Requests to modify specs or requirements

  32. Embezzlement • Theft of funds through manipulation of records by the custodian of those funds.

  33. Embezzlement EXAMPLES • Fictitious invoices • Fictitious employees • Refund schemes

  34. Embezzlement INDICATORS • Lifestyle • Missing or altered documentation • Customer complaints

  35. Other Fraud Matters EXAMPLES • BAH Fraud • Underringing at Commissary/BX • Refunding INDICATORS • AFOSI Fraud Indicators handbook

  36. SUMMARY • AFOSI Fraud Priorities • Schemes & Indicators • Most Common Schemes • Types of Schemes • Examples • Indicators

  37. “There is no kind of dishonesty into which otherwise good people more easily fall than that of defrauding the government.” Benjamin Franklin

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