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Fraud Prevention & Tools of The Trade

Fraud Prevention & Tools of The Trade. Risk Management Agency Special Investigation Branch Senior Investigator Mark Price. Background. June 2000 The Agricultural Risk Protection Act of 2000 (ARPA) The Federal Crop Insurance Act (the Act) Section 515: Program Compliance and Integrity.

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Fraud Prevention & Tools of The Trade

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  1. Fraud Prevention& Tools of The Trade Risk Management Agency Special Investigation Branch Senior Investigator Mark Price

  2. Background • June 2000 • The Agricultural Risk Protection Act of 2000 (ARPA) • The Federal Crop Insurance Act (the Act) • Section 515: Program Compliance and Integrity

  3. Background (Cont.) • Section 515: Program Compliance and Integrity. • Provided the Risk Management Agency (RMA) with a nationwide fact-finding network through a formalized alliance with the Farm Service Agency (FSA) • Directed that RMA and FSA share insured producer data to identify and correct reporting inconsistencies between the programs • Funded the use of data warehousing and data mining information analysis technologies

  4. Background (Cont.) • Since June 2000, the principle focus of RMA’s Compliance function has been implementing Section 515 of the Act • Section 515 required that RMA and FSA form an alliance and, along with the 17 insurance providers, work together to improve program compliance and integrity

  5. Implementation RMA efforts have been focused on: • Training FSA and RMA personnel on the new provisions of the Act and resulting procedures • Developing the FSA/FCIC program consultation process through Insurance Services Regional Offices • Establishing a process for FSA to assist RMA and the Insurance Providers in an annual claims audit role as part of RMA’s quality-control process

  6. Implementation (Cont.) • Developing procedures for referring potential crop insurance program errors, fraud,waste and abuse between FSA and RMA • Integrating the data reconciliation process between FSA and RMA • Initiating the data warehousing and data mining project

  7. Implementation (Cont.) • Establishing a sanctions function to facilitate the imposition of penalties (such as fines, debarments and disqualifications) • Establishing a Special Investigations Branch (SIB) to enable more focused and timely responses to high-profile cases that would strain the capabilities and resources of existing RMA Regional Compliance Offices (RCO)

  8. Claims Audit Legislative Requirement • FSA will assist in auditing a statistically appropriate number of claims paid by insurance providers Milestones • Procedure published in 4-RM Handbook, FCIC Program Integrity

  9. Data Mining and Warehousing LEGISLATIVE REQUIREMENTS • Information technologies known as data mining and warehousing shall be used to administer and enforce Section 121 of ARPA • Develop procedures to identify sales agents or loss adjusters who were associated with loss claims that were greater than 150 percent of the mean for the area IMPLEMENTATION • Let contract to establish data warehouse. • Data Mining project initiated • Single step in a multi-step research project

  10. Data Mining and Warehousing • RESULTS • IMPLEMENTING PROCEDURES BASED ON ANALYSIS • TARGETS ATTENTION OF COMPLIANCE EFFORTS • REFERRALS TO: • RISK MANAGEMENT AGENCY • INSURANCE PROVIDERS • FARM SERVICE AGENCY

  11. RESULTS-Referrals Fiscal Year 2001 results • Spot Check Referrals • 1763 Referrals sent to FSA • 4-RM Referrals • Received 413 referrals from FSA on form AD-2007

  12. NRCO Data Mining Summary

  13. INDEMNITIES PAID TO INDIVIDUALS ON SPOT-CHECK LIST 1998-2000 AS OF 02/10/02 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 1998 1999 2000 2001

  14. Fiscal Year 2001 • The emphasis on prevention has produced promising early results. • RMA and Insurance Providers have stopped close to $15 million in improper payments from being made in Fiscal Year (FY) 2001, with many more payments still being investigated. • USDA and the Department of Justice recovered close to $29 million.

  15. TOOLS OF THE TRADE • CRIMINAL CODE • 18USC, 1014 – False Statements or Reports in connection with FCIC - $1M Up to 30 Years • 18USC, 1001 – False Statements – Fines/Time

  16. TOOLS CONT. • 18USC, 286 – Conspiracy – Fines/Time • 18USC, 287 – False Claims – Fines/Time • CIVIL ENFORCEMENT • 31USC, 3801 – False Claims • Affirmative Civil Enforcement – Treble Damages Plus Fine ($5K-$10k) • 7USC, 1506 Civil Fines and Disqualification

  17. TOOLS CONT. • ADMINISTRATIVE REMEDIES • Civil Fines • Disqualification/Suspension of Producers • Debarment/Suspension of Agents, Adjusters, Company Employees

  18. CRIMINAL/CIVIL PROSECUTIONS Mother and Son – Plead Guilty to Crop Insurance Fraud In Minnesota Criminal Conviction: • Both defendants plead guilty to making false statements and conspiring with the processing facility to falsely report the amount of dry bean production and value $$ they received for the dry beans. • Both defendants were ordered to pay FCIC restitution totaling $100,330. • The son was sentenced to prison for 10 months and supervised release for three years.

  19. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Mother and Son – Plead Guilty to Crop Insurance Fraud (Cont.) Civil (Summary Judgment): • Under the terms of the civil settlement agreement the son agreed to pay an additional $12,670 and voluntarily disqualified himself from future participation in the MPCI program for a period of three years.

  20. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Crop Insurance Company Agreed to Pay Civil Damages and Penalties Civil Action: • Fraudulent MPCI claims were filed by a company loss adjuster on his father’s MPCI policy. The claims were processed and approved by claims managers at the company’s regional office in Fargo, ND. When the company became aware the claims were potentially fraudulent, they did not report the suspected fraud to the Risk Management Agency.

  21. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Crop Insurance Company Agreed to Pay Civil Damages and Penalties (Cont.) Civil Action: • The settlement agreement requires the company to pay treble damages and penalties of $323,616, implement a corporate compliance plan that establishes a Special Investigative Unit that is independent from the crop insurance claims division, regularly report suspected false claims data to RMA, and provide annual fraud-prevention training to all loss adjusters and SIU investigators.

  22. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Four Farmers Are Charged in Crop Insurance and Disaster Payment Case Criminal Indictment: • Three farmers in North Dakota and one in Minnesota were charged with illegally profiting from $1.8 million in crop insurance and disaster payments resulting from an alleged conspiracy. • Additional charges were filed against a Minnesota businessman, who was previously indicted in connection with the scheme.

  23. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Four Farmers Are Charged (Cont.) Criminal Indictment: • An employee of an Oslo, MN grain cooperative was accused of enticing farmers to sell wheat at a discounted price and allegedly providing false or incomplete information to allow farmers to obtain crop insurance and disaster aid payments. • A trucking company was also charged with conspiracy and money laundering.

  24. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Wimbledon, North Dakota Man Found Guilty For role in $14M Crop Insurance and Farm Program Fraud Scheme Criminal: • The North Dakota man, along with his other farm business entities were found guilty of 19 counts of fraud, racketeering, tax and conspiracy charges in federal court in Fargo, ND. • The jury ordered the defendant to forfeit $5.9M for money laundering, conspiracy to defraud federal agencies, false statements and filing false tax returns in connection with MPCI and FSA farm program payments.

  25. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Wimbledon, North Dakota Man Found Guilty (Cont.) Criminal: • According to the indictment, the man conspired with five other individuals to establish sham farming operations to avoid MPCI and FSA program requirements • The sham farming entities were not eligible for crop insurance benefits as they did not actually have an interest or share in the insured crop.

  26. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Wimbledon, North Dakota Man Found Guilty (Cont.) Criminal: • Production was also shifted between the sham farming operations in order to receive crop insurance indemnity payments. • Each fraud count carries penalties of up to 20 years in prison. Additional financial penalties will be imposed according to federal guidelines, after the pre-sentence investigation is complete.

  27. CRIMINAL/CIVIL PROSECUTIONS (CONT.) Wimbledon, North Dakota Man Found Guilty (Cont.) Administrative Action: • The defendant is a crop insurance agent in North Dakota. The North Dakota Insurance Department has served a Cease and Desist order and filed an administrative complaint to revoke the his agent’s license. • RMA has suspended the defendant thereby, excluding him from participating in the Federal Crop Insurance Program, as an insured, agent, owner of an agency selling crop insurance or any other capacity.

  28. ANTI-FRAUD TRAINING THE FIRST LINE OF DEFENSE • VIDEO • CLASSROOM TRAINING • TRAINERS/FACILITATORS • CD ROM • COMPUTER BASED/SELF-PACED MODULE • CURRICULUM • FRAUD INDICATORS • INTERVIEWING TECHNIQUES • OBTAINING INFORMATION

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