Fraud prevention

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  • 20 years for this.
  • Fraud prevention

    1. 1. Fraud and Abuse of Federal Grant Funds
    2. 2. Agenda <ul><ul><li>ED/OIG Organization and Mission </li></ul></ul><ul><ul><li>Awareness and Prevention: To define fraud in the context of grant administration. </li></ul></ul><ul><ul><li>Reporting Fraud : To provide guidance about reporting potentially fraudulent behavior. </li></ul></ul>
    3. 3. … to prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Education Department programs and operations. Inspector General Act of 1978
    4. 4. OIG Mission Statement To promote the efficiency, effectiveness, and integrity of the Department's programs and operations, we conduct independent and objective audits, investigations, inspections, and other activities.
    5. 5. ORGANIZATIONAL CHART Part of the Department BUT… Independent
    6. 6. What is Fraud? <ul><ul><li>Legal Definition </li></ul></ul><ul><ul><li>- An intentional distortion of the truth in an attempt to obtain something of value. Does not have to result in monetary loss. </li></ul></ul><ul><ul><li>Layman’s Definition </li></ul></ul><ul><ul><li>- Lying, cheating and/or stealing. </li></ul></ul>
    7. 7. Who Commits Fraud Involving Education Funds? <ul><ul><li>School Employees, Officials, Owners, Financial Managers, and Instructors </li></ul></ul><ul><ul><li>Lenders and lender servicers </li></ul></ul><ul><ul><li>Guarantee Agencies </li></ul></ul><ul><ul><li>Award Recipients </li></ul></ul><ul><ul><li>Grantees and Contractors </li></ul></ul><ul><ul><li>ED Employees </li></ul></ul><ul><ul><li>Others </li></ul></ul>
    8. 8. What is Fraud? <ul><li>Two types: </li></ul><ul><li>Civil Fraud </li></ul><ul><li>Criminal Fraud </li></ul>
    9. 9. CIVIL FRAUD <ul><li>False Claims Act - 31 U.S.C. § 3729 </li></ul><ul><li>Provides incentives to citizens to bring actions with reward of % of recovered $. </li></ul><ul><li>Standard of proof is “preponderance of the evidence,” or 51%, not “beyond a reasonable doubt.” </li></ul><ul><li>States and Local Governments can and have been prosecuted for fraud under the False Claims Act. </li></ul>
    10. 10. False Claims Act <ul><li>Sec. 3729. Any person who knowingly– </li></ul><ul><li>presents a false claim for government payment </li></ul><ul><li>makes a false record or statement to support a false claim </li></ul><ul><li>conspires to get a false claim paid </li></ul><ul><li>makes a false record or statement to decrease an obligation to pay money or property to the Government (known as a “reverse” false claim). </li></ul>
    11. 11. Examples <ul><li>Grant application with false information </li></ul><ul><li>Performance report with false data </li></ul><ul><li>Breach of a promise to comply in participation agreement </li></ul><ul><li>Award panel with falsified bids </li></ul><ul><li>Expenditure report that falsely indicates federal funds have been expended </li></ul>
    12. 12. Examples <ul><li>Application for Federal Assistance SF-424 </li></ul>
    13. 13. Examples <ul><li>Payment Request G5 </li></ul>
    14. 14. Examples
    15. 15. False Claims Act <ul><li>Knowing and Knowingly Defined .—A person– </li></ul><ul><li>(1) has actual knowledge of the information; or </li></ul><ul><li>(2) acts in deliberate ignorance of the truth or falsity of the information; or </li></ul><ul><li>(3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required </li></ul>
    16. 16. Vulnerabilities <ul><li>Example 1 </li></ul><ul><li>As a result of an ED/OIG investigation, Bowie State University agreed to repay to the Department $31,292 that a Bowie employee embezzled from a Preparing Tomorrow’s Teachers to Use Technology grant. </li></ul>
    17. 17. Vulnerabilities <ul><li>Example 2. </li></ul><ul><li>As a result of an ED/OIG investigation the District of Columbia Public Schools system (DCPS) agreed to a $1.75 million civil fraud settlement resolving allegations that it misused Migrant Education Program (MEP) funds. DCPS falsely certified its eligibility to receive federal funds under the MEP and that it had eligible migratory children residing in the District, when in fact there were no such children . </li></ul>
    18. 18. False Claims Act <ul><li>Is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person. </li></ul>
    19. 19. Vulnerabilities <ul><li>Example 3. </li></ul><ul><li>As a result of an ED/OIG investigation, the Puerto Rico Department of Education agreed to a $19 million civil fraud settlement for submitting false child counts between 2002 and 2005 that were based upon falsified student eligibility documents for the Migrant Education Program. </li></ul>
    20. 20. False Claims Act <ul><li>Damages are statutorily lowered to double damages if the entity self-discloses or makes a voluntary disclosure to the government. </li></ul>
    21. 21. Criminal Fraud <ul><li>Education program frauds generally involve a lie or some concealment. </li></ul><ul><li>Sometimes the cover-up generates more crimes than the underlying fraud itself, and can be the basis for prosecution. </li></ul>
    22. 22. Criminal Fraud <ul><ul><li>Fraud schemes include: </li></ul></ul><ul><ul><li>Embezzlement </li></ul></ul><ul><ul><li>Bribery </li></ul></ul><ul><ul><li>Contract-related fraud </li></ul></ul><ul><ul><li>Kickbacks </li></ul></ul><ul><ul><li>Extortion (acting under color of official right) </li></ul></ul><ul><ul><li>Obstruction of justice </li></ul></ul><ul><ul><li>Obstruction of Federal audit </li></ul></ul><ul><ul><li>Destruction of records </li></ul></ul>
    23. 23. Criminal Fraud <ul><li>Fraud Statutes </li></ul><ul><li>18 U.S.C. § 286/287 False Claims </li></ul><ul><li>18 U.S.C. § 371 Conspiracy </li></ul><ul><li>18 U.S.C. § 641 Theft of Public Funds </li></ul><ul><li>18 U.S.C. § 666 Theft/Bribery </li></ul><ul><li>18 U.S.C. § 1001 False Statements </li></ul><ul><li>18 U.S.C. § 1341/43 Mail & Wire Fraud </li></ul><ul><li>18 U.S.C. § 1516 Obstruction of Audit </li></ul><ul><li>18 U.S.C. § 1519 Alteration of Records </li></ul><ul><li>18 U.S.C. § 1951 Extortion </li></ul>
    24. 24. Criminal Fraud <ul><li>Failure to report fraud can be a crime. </li></ul><ul><li>18 U.S.C. § 4, Misprision of Felony </li></ul><ul><ul><li>Whoever , having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both. </li></ul></ul>
    25. 25. Criminal Fraud <ul><li>18 U.S.C. §1516. Obstruction of Federal audit </li></ul><ul><ul><li>Influencing, obstructing, or impeding a Federal auditor in performance of official duties relating to a person, entity, or program receiving in excess of $100,000, directly or indirectly, from the U.S. in any 1 year period…shall be fined or imprisoned not more than 5 years, or both. </li></ul></ul>
    26. 26. Criminal Fraud <ul><li>18 U.S.C. §1519. Destruction, alteration, or falsification of records </li></ul><ul><ul><li>-- alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or in relation to or contemplation of any such matter . </li></ul></ul>
    27. 27. OMB Circulars <ul><li>OMB Circular 21 – Cost Principles for Educational Institutions </li></ul><ul><li>OMB Circular 87 – Cost Principles for State, Local and Tribal Governments </li></ul><ul><li>OMB Circular 102 – Grants and Cooperative Agreements with State and Local Governments </li></ul><ul><li>OMB Circular 122 – Cost Principles for Non-Profit Organizations </li></ul><ul><li>OMB Circular 133 – Audits of States, Local Governments, and Non-Profit Organizations </li></ul>
    28. 28. OMB Circulars <ul><li>These circulars set forth how Federal funds can be spent. </li></ul><ul><li>If an entity fails to adhere to these regulations, there may be False Claims Act implications and potential criminal fraud. </li></ul>
    29. 29. OMB Circular 122 <ul><li>To be allowable under an award, costs must meet the following general criteria: </li></ul><ul><ul><li>Be reasonable for the performance of the award and be allocable to the award </li></ul></ul>
    30. 30. OMB Circular 122 <ul><ul><li>Conform to any limitations or exclusions as to types or amount of cost items. </li></ul></ul><ul><ul><li>Be consistent with policies and procedures that apply to both Federally financed and other activities of the organization. </li></ul></ul><ul><ul><li>Be accorded consistent treatment. </li></ul></ul>
    31. 31. OMB Circular 122 <ul><ul><li>Be determined in accordance with generally accepted accounting principles (GAAP). </li></ul></ul><ul><ul><li>Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. </li></ul></ul><ul><ul><li>Be adequately documented. </li></ul></ul>
    32. 32. OMB Circular 122 <ul><li>Reasonable costs. A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the costs. </li></ul>
    33. 33. OMB Circular 122 <ul><li>In determining the reasonableness of a given cost, consideration shall be given to: </li></ul><ul><ul><li>Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization or the performance of the award. </li></ul></ul><ul><ul><li>Significant deviations from the established practices of the organization which may unjustifiably increase the award costs. </li></ul></ul>
    34. 34. OMB Circular 122 <ul><li>Examples of Unallowable Costs </li></ul><ul><li>Alcoholic beverages </li></ul><ul><li>Bad debts </li></ul><ul><ul><li>Includes losses arising from uncollectable accounts and other claims, and related collection and legal costs </li></ul></ul><ul><li>Donations and contributions </li></ul><ul><li>Entertainment costs </li></ul><ul><ul><li>tickets to shows or sports events, meals, lodging, rentals, transportation, gratuities </li></ul></ul><ul><li>Fines and penalties. </li></ul><ul><ul><li>unallowable except when incurred as a result of compliance with specific provisions of an award or instructions in writing from the awarding agency </li></ul></ul>
    35. 35. OMB Circular 122 <ul><li>Memberships, subscriptions, and professional activity costs </li></ul><ul><ul><li>Costs of membership in civic or community organization are allowable with prior approval by Federal agency </li></ul></ul><ul><li>Selling and marketing </li></ul><ul><ul><li>allowable as direct costs with prior approval by awarding agencies when necessary for performance of Federal programs </li></ul></ul><ul><li>Goods or services for personal use </li></ul><ul><ul><li>regardless of whether cost is reported as taxable income to employees </li></ul></ul><ul><li>Housing and personal living expenses </li></ul><ul><ul><li>allowable as direct costs when necessary for performance of award and approved by awarding agency </li></ul></ul>
    36. 36. OMB Circular 122 <ul><li>Were the costs approved by ED in advance, and was that adequately documented in the grant file? </li></ul>
    37. 37. OMB Circulars <ul><li>OMB Circulars 21, 87 and 122 are similar in their definitions of unallowable costs and cost principles </li></ul><ul><li>School officials should monitor grant expenditures to ensure that unallowable expenses are not charged to the government either through direct or indirect cost </li></ul>
    38. 38. Vulnerabilities <ul><li>Example 4. </li></ul><ul><li>As a result of an ED/OIG investigation, f ive officials of the Metro Technical Institute (MTI), including the owner, admissions director, and registrar, were convicted for their roles in a student financial assistance fraud scheme. The school’s owner directed staff to falsify eligibility, attendance, and grade records to illegally obtain student financial assistance funds and to obstruct a scheduled Department program review. All officials involved were ordered to pay over $557,000 in restitution. Sentences ranged from 12 months and one day in prison for the former owner, to community service and/or probation for the other officials. </li></ul>
    39. 39. Vulnerabilities <ul><li>Example 5. </li></ul><ul><li>An ED/OIG audit of Valencia Community College (VCC) determined that VCC did not administer the matching requirement for its GEAR-UP grant in accordance with statutory, regulatory and administrative requirements. 6 of 7 partnerships did not contribute $1.6 million of the required non-federal match, and VCC claimed $4.1 million in unallowable matching costs by using commercial rental rates instead of actual depreciation costs or use allowance as required by Federal cost principles (OMB Circular). </li></ul>
    40. 40. Vulnerabilities <ul><li>Example 6. </li></ul><ul><li>As a result of an ED/OIG investigation, three officials of the Harrison Career Institute pled guilty to one count of conspiracy to destroy, alter, or falsify records in Federal investigations. We determined that the former President, along with the school’s Director of Internal Audit and Director of Financial Aid, fraudulently altered student financial aid records to appear compliant with federal regulations. This was an ongoing conspiracy to prevent the school’s independent auditor and the Department’s Program Reviewers from detecting widespread deficiencies in the school’s processing of federal student aid. </li></ul>
    41. 41. Vulnerabilities <ul><li>Example 7. </li></ul><ul><li>As a result of an ED/OIG investigation ,a former Dallas Independent School District (DISD) secretary was convicted for theft for using DISD credit cards issued to her for numerous personal purchases totaling approximately $56,000 over a two period for clothing, cosmetics, house wares and groceries. Another DISD secretary also pled guilty to theft for charging over $100,000 in personal purchases to DISD. </li></ul>
    42. 42. Vulnerabilities <ul><li>Example 8. </li></ul><ul><li>As a result of an ED/OIG investigation, the former Executive Director for the District of Columbia’s Office of Charter School Oversight was sentenced for paying herself and steering no-bid contracts to family members and friends totaling $649,000.00 in federal and local DC funds belonging to the Office of Charter School Oversight. </li></ul>
    43. 43. Additional Materials <ul><li>Improving the Grant Management Process (DOJ-OIG, 2/09) </li></ul><ul><ul><li>http://www.justice.gov/oig/special/s0903/final.pdf </li></ul></ul><ul><li>A Guide to Grant Oversight and Best Practices for Combating Grant Fraud (DOJ-OIG, 2/09) </li></ul><ul><ul><li>http://www.justice.gov/oig/special/s0902a/index.htm </li></ul></ul>
    44. 44. Who is Responsible for Reporting Fraud? <ul><ul><li>Everyone who deals with the DoED funding has a responsibility to help control fraud. </li></ul></ul>
    45. 45. Why Report Fraud? <ul><ul><li>Ethical responsibility </li></ul></ul><ul><ul><li>To deter others from committing fraud and abuse </li></ul></ul><ul><ul><li>To protect the integrity of the Federal, State and Local programs </li></ul></ul><ul><ul><li>To avoid being part of the fraudulent/criminal activities </li></ul></ul><ul><ul><li>To reduce financial exposure under the False Claims Act </li></ul></ul>
    46. 46. Report Fraud <ul><li>Contact the OIG Special Agent in Charge in your geographic area as shown at the following link: http://www2.ed.gov/about/offices/list/oig/oigaddress.html. </li></ul><ul><li>Or, you can contact the OIG Hotline </li></ul>
    47. 47. OFFICE OF INSPECTOR GENERAL HOTLINE <ul><li>1-800-MISUSED </li></ul><ul><li>E-MAIL: [email_address] </li></ul><ul><li>FAX: 202-245-7047 </li></ul>

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