Grant Fraud. Leslie Les Hollie Assistant Inspector General For Investigations

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1 Grant Fraud Leslie Les Hollie Assistant Inspector General For Investigations US Dept of Health and Human Service Office of Inspector General Office of Investigations Washington, DC HRSA: May 16, 2017 Not the Face of OIG 6 1

2 Reducing the Anxiety HHS OIG Authority The IG Act of 1978, (Public Law ), provides four primary criteria: an independent and objective OIG direct /unrestricted access to agency records & information subpoena authority for information and documents outside the agency semiannual reporting to Congress 4 2

3 OIG FY Criminal Actions 294 Civil Actions $4 Billion Investigative Receivables 3,000 plus Exclusions 11/14/ Sources of OIG Referrals LIMITED OFFICAL USE ONLY 6 3

4 Fundamental Concepts Internal Controls Achievement of objectives Process of ongoing tasks and activities Affected by people and their actions Provides reasonable assurance, not absolute assurance Adaptable to entity structure 11/14/ Types of Controls Preventative vs. Detective Controls Preventative Controls Segregation of Duties Proper Supervision Security of Assets Proper Authorization for Purchases Exception Reports Reconciliations Annual Physical Inventory Counts Comparing Invoices to Purchase Orders 11/14/

5 Types of Controls Hard Controls Policies Procedures Systems Hard Controls Policies Procedures Systems Soft Controls Tone at the top Ethical climate Transparency Morale Trust Soft Controls Tone at the top Ethical climate Transparency Morale Trust 11/14/ Benefits of Internal Controls Provides reasonable assurance regarding the achievement of objectives Helps protect assets and reduce possibility of fraud Increases financial reliability and integrity Ensures compliance with laws and statutory regulations 11/14/

6 Control Limitations Limitations which may hinder the effectiveness of an otherwise adequate system of internal controls include: resource constraints inadequate skill, knowledge or ability degree of motivation by management and employees faulty judgments unintentional errors 11/14/ Lack of Internal Controls Fraud is defined by Black s Law Dictionary as a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. Consequently, fraud includes any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means. Poor internal controls creates opportunity for fraud 11/14/

7 Fraud, Waste, Abuse, Cont. 13 Fraud, Waste, and Abuse Most fraud, waste, and abuse typically falls into one or more of three general categories: Conflicts of Interest Theft Failing to Properly Support the Use of Funds 7

8 Scope Appropriate Operations Mistakes Fraud Scale Gross Negligence Fraud Fraud Indicators Communications from funding recipients One person in control No separation of duties Lack of internal controls No prior audits High turnover of personnel Conflict of Interest 8

9 Fraud Indicators 13 Fraud Indicators Unexplained entries on records Unusually large amount of payments for cash Inadequate or missing documentation Inventories and financial records not reconciled Unauthorized transactions 9

10 Fraud Indicators Money problems Allegations of fraudulent conduct Unusual Behavior Living Beyond Means Fraud Indicators Performance from funding recipients Poor performance Reporting Issues No reporting Tardiness Numerous / Repeated errors Missing documents No original documents 10

11 Fraud Indicators Performance from funding recipients Altered /Duplicate documents Budget Revisions Too many No revisions Pervasive accounting errors Personnel Fraud Schemes Hiring/contracting family members Issuing checks to friends/relatives/self Participating in decision making process when family members are involved 11

12 Fraud Schemes Submitting invoices for personal expenses Diverting funds to bogus/related companies Inflating labor costs/hours/enrollees Hiring or charging for ghost employees, contractors or consultants Falsifying research data (NIH) Fraud Schemes Falsifying grant applications or progress reports Fees for non-existent consulting services Using funds for unauthorized purposes Creating fictitious records Accepting kickbacks 11/14/

13 Fraud Schemes Redirecting the use of funds in a manner other 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 False representations in eligibility for funding ; providing false information in their application or subsequent progress or financial status reports Investigating Grant Fraud Criminal Violations False Statements False Claims Act (Criminal) Theft / Embezzlement Mail Fraud Wire Fraud Money Laundering Conspiracy Acts Affecting Personal Financial Interest Theft of Federal Program Funds 13

14 Investigating Grant Fraud Other Remedies to Consider Civil False Claims Act Administrative Suspension Excludes entity for months Debarment Excludes entity for 3-5 years Termination of Award Program Fraud Civil Remedies Act CMP (21 st Century Cures Act) Investigating Grant Fraud Grant fraud investigations are conducted in the same manner as all other investigations Interviews Investigative subpoenas Surveillance Document review Consensual monitoring Trash runs 14

15 Case Study MeHarry Medical College Former MeHarry Medical College Employee Pleads Guilty To Theft of Federal Program Funds 11/14/ Case Study MeHarry Medical College Between Aug 2009 and May 2103, McCain Davis devised and executed a scheme to defraud the U.S. Government by submitting false invoices, as an employee of MMC from companies that were not legitimate vendors nor was any service provided to MMC. The false invoices were often submitted under the names of companies set up by McCain Davis and she approved and submitted payment requests and directed payments to bank accounts under her control. 11/14/

16 Case Study MeHarry Medical College Carolyn McCain Davis pleaded guilty to embezzling funds from a federal program while employed at MMC as Grants Development Specialist. McCain Davis was responsible for approving invoices and processing payment request relating to MMCs employees and vendors. 11/14/ Case Study MeHarry Medical College McCain Davis also processed reimbursement payments to herself for expenses that were never incurred and intercepted re imbursement payments to other employees, forged the signatures of the payees and deposited those checks into bank accounts under her control or under the control of a close relative. She fraudulently obtained over $133,000 through the operation of this scheme. At sentencing she could face up to 10 years in prison and a $250,000 fine. 11/14/

17 Report Suspected Fraud, Waste or Abuse to HHS OIG HHS OIG Hotline HHS-TIPS ( ) Reporting suspected fraud to OIG Hotline Operations does not result in a prosecution the next day. A Hotline complaint is an allegation. Hotline complaints are treated with privacy and discretion. OI conducts independent investigations and hotline complaints can provide helpful information. 5/14/2017 DHHS OIG 21 Questions? 11/14/