Air Force Office of Special Investigations Eyes of

Air Force Office of Special Investigations Eyes of the Eagle AFOSI FRAUD INDICATORS SA Michael S. Douglas AFOSI 3 FIS Randolph AFB, TX 652 -8726

Overview Fraud Investigative Philosophy & Priorities Fraud Schemes & Indicators Suspicion of Fraud Case Examples Eyes of the Eagle

Fraud Investigative Philosophy Eyes of the Eagle

Fraud Investigative Philosophy n Identify, Neutralize, And Prevent Fraud Threats To Air Force Procurement And Financial Systems By: n Conducting Operations. Professional Investigations And n Identifying & Reporting Systemic Weaknesses And Internal Control Deficiencies. n Teaming With Customers To Jointly Detect And Deter Fraud. Eyes of the Eagle

FRAUD INVESTIGATIVE PRIORITIES Eyes of the Eagle

Fraud Investigative Priorities (OVERVIEW) n Product Substitution, Defective, Unapproved And Counterfeit Parts n Public Corruption (Bribery, Kickbacks, Embezzlement, etc. ) n Bid Rigging, Anti-Trust, False Statements/Claims n Mischarging n Environmental Crimes n Defective Pricing n Other (Pay And Allowance, MWR, AAFES) Eyes of the Eagle

FRAUD SCHEMES & INDICATORS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. PRODUCT SUBSTITUTION “KNOWING SUBMISSION BY THE CONTRACTOR TO THE GOVERNMENT OF GOODS THAT DO NOT CONFORM TO THE CONTRACT SPECIFICATIONS” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. PRODUCT SUBSTITUTION n EXAMPLES n. REPRESENTING OLD PARTS AS NEW n. REPRESENTING FOREIGN PARTS AS DOMESTIC n. FALSELY CERTIFYING TEST RESULTS n. REPRESENTING LOWER QUALITY GOODS AS HIGHER QUALITY Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. PRODUCT SUBSTITUTION n INDICATORS n. EARLY/UNEXPECTED FAILURE n. HIGHER MAINTENANCE RATE n. FAILURE TO PROVIDE CERTIFICATIONS n. MISSING/ALTERED DOCUMENTATION n. REQUESTS TO MODIFY SPECIFICATIONS OR REQUIREMENTS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. CORRUPTION “WHEN SOMEONE IN A POSITION OF RESPONSIBILITY, WRONGFULLY OR UNLAWFULLY USES HIS POSITION TO PROCURE SOME BENEFIT FOR HIMSELF OR ANOTHER PERSON” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. CORRUPTION n. EXAMPLES n. BRIBERY n. GRATUITIES n. KICKBACKS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. CORRUPTION n INDICATORS n. UNREPORTED POOR PERFORMANCE n. SOCIALIZING OUTSIDE WORK ENVIRONMENT n. UNEXPLAINED INCREASE IN BUSINESS WITH ONE CONTRACTOR n. LIVING BEYOND ONE’S MEANS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. ANTI-TRUST VIOLATIONS “VIOLATIONS OF SHERMAN ACT WHICH PROHIBITS ANY AGREEMENT AMONG COMPETITORS UNREASONABLY LIMITING COMPETITION” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. ANTI-TRUST n PRICE FIXING n BID RIGGING n. BID SUPPRESSION n. COMPLEMENTARY BIDS n. BID ROTATION n MARKET ALLOCATION Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. ANTI-TRUST n INDICATORS n. LIMITED NUMBER OF COMPETITORS IN INDUSTRY n. FEWER THAN NORMAL COMPETITORS SUBMIT BIDS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. ANTI-TRUST n INDICATORS n. ONE VENDOR IS ALWAYS WINNING BIDDER n. UNEXPLAINED GAP BETWEEN WINNING BID AND ALL OTHERS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. Anti-Trust (MORE INDICATORS) n. PATTERN OF WINNING (AREA, PRODUCT/SERVICE, SEQUENCE) n“SILENT” VENTURE AGREEMENTS n. WINNER SUBCONTRACTS TO COMPETITORS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. Anti-Trust (MORE INDICATORS) n“OUR COMPANY DOESN’T SELL IN THAT AREA!” n. SURPRISE OVER COMPETITORS BID Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. COST MISCHARGING “FALSE DESCRIPTION OR ACCOUNTING TREATMENT OF COSTS, TYPICALLY LABOR COSTS, BY GOVERNMENT CONTRACTORS” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. COST MISCHARGING n EXAMPLES n. COSTS FROM OVERRUN FIXED PRICE CONTRACT TO COST REIMBURSEMENT CONTRACT n. INFLATING ACTUAL COSTS n. LABOR CATEGORY MISCHARGING n. CHARGING UNALLOWABLE COSTS TO OVERHEAD Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. COST MISCHARGING n INDICATORS n. CLAIMS MISSING SUPPORTING DOCUMENTATION n. ALTERED SUPPORTING DOCUMENTATION n. COMPLAINTS OF NON-PAYMENT n. INCREASED CHARGES TO COST TYPE CONTRACTS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. DEFECTIVE PRICING “FAILURE TO PROVIDE COMPLETE AND CURRENT PRICING DATA TO THE GOVERNMENT DURING PRE-AWARD NEGOTIONS FOR CONTRACTS OVER $500, 000” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. DEFECTIVE PRICING n EXAMPLES n. FALSIFYING VENDOR INVOICES n. PROPOSING INFLATED OR FICTITIOUS LABOR COSTS n. SUBMITTING HIGHER COSTS WHEN PLANNING TO PURCHASE AT LOWER COST Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. DEFECTIVE PRICING n INDICATORS n. DELAY IN RELEASING DATA TO GOVERNMENT n. FAILURE TO UPDATE COST & PRICING DATA Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. DEFECTIVE PRICING n INDICATORS n. FAILURE TO DISCLOSE “PREFERRED CUSTOMER” AGREEMENTS n. ALTERED SUPPORTING DOCUMENTS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. OTHER (PAY & ALLOWANCE, MWR, AAFES) n EXAMPLES n INDICATORS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. EMBEZZLEMENT “THEFT OF FUNDS THROUGH MANIPULATION OF RECORDS BY THE CUSTODIAN OF THOSE FUNDS. ” Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. EMBEZZLEMENT n EXAMPLES n. FICTITIOUS INVOICES n. FICTITIOUS EMPLOYEES n. REFUND SCHEMES Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. EMBEZZLEMENT n INDICATORS n. LIFESTYLE n. MISSING OR ALTERED DOCUMENTATION n. CUSTOMER COMPLAINTS Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n FEDERAL EMPLOYEE COMPENSATION ACT (FECA) FRAUD Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. FECA FRAUD n EXAMPLES n. FAKING AN INJURY n. FAKING SEVERITY OF INJURY n. UNREPORTED INCOME Eyes of the Eagle

FRAUD SCHEMES & INDICATORS n. FECA FRAUD n INDICATORS n. HISTORY OF POOR PERFORMANCE n. DELAYED REPORTING n. NO WITNESS n. NO LEAVE BALANCE n. CLOSE TO RETIREMENT Eyes of the Eagle

WHAT TO DO WHEN YOU SUSPECT FRAUD Eyes of the Eagle

What to Do When You Suspect Fraud n. Contact AFOSI And Have Them Inquire On Your Behalf. n. Evidence Of Fraud n. Dimension Of Problem n. Legal Requirements Eyes of the Eagle

What to Do When You Suspect Fraud n. AFOSI/SJA Will Develop Your Remedies Plan. n. Criminal/Civil n. Administrative Eyes of the Eagle

What to Do When You Suspect Fraud n. Follow Up With Suspension Or Debarment. Eyes of the Eagle

EXAMPLES OF FRAUD CASES Eyes of the Eagle

Product Substitution/False Claims The Hunt Corporation Was Awarded A Contract To Build For Lease 828 Housing Units At Ellsworth AFB. Houses Were Condemned And Families Forced To Moved Out. AFOSI Initiated An Investigation And Discovered False Claims/Product Substitution. Ultimately Air Force Recovered $30 Million. Eyes of the Eagle

False Statements A U. S. Government Contractor Was Required To Provide Test Certifications To The DOD for Parts It Supplied For Use In the Breach Mechanism of a 105 mm Cannon. The Proof Test Certifications Provided By The Contractor Contained False Representations Because The Proof Tests Had Not Been Performed. Contractor Was Convicted of Making False Statements. (NOTE: The Contractor Was Prohibited From Introducing Evidence In Court Indicating The Parts Would Have Passed The Required Proof Tests If They Were Conducted. ) Eyes of the Eagle

False Claims A USAF Contractor Altered Subcontractor Invoices To Show Inflated Prices on Purchases Made From a Subcontractor. The Inflated Prices Were Then Charged To The Air Force Resulting In A Monetary Loss Of Over $1 Million. The Company Paid A Total of $3 Million In Fines, Penalties And Restitution. The Executive Vice President Was Sentenced To Five Consecutive Two Year Prison Terms. Eyes of the Eagle

Bribery A Base Laundry, Dry Cleaning And Clothing Repair Contractor Offered a Quality Assurance Inspector (QAI) A Bribe In Return For Approval of Monthly Service Costs To The Air Force. The QAI Notified AFOSI And Cooperated In An Undercover Investigation During Which The Contractor Provided Money, Food, Hotel Accommodations, Liquor And Other Gifts To The QAI. The Contractor Was Found Guilty Of False Statements And Bribery And Was Sentenced To Three Years in Jail, Three Years Probation And Fined $3, 000. Eyes of the Eagle

Quote for the Day “THERE IS NO KIND OF DISHONESTY INTO WHICH OTHERWISE GOOD PEOPLE MORE EASILY FALL THAN THAT OF DEFRAUDING THE GOVERNMENT. ” BENJAMIN FRANKLIN Eyes of the Eagle

Review Fraud Investigative Philosophy & Priorities Fraud Schemes & Indicators Suspicion of Fraud Case Examples Eyes of the Eagle

QUESTIONS THOUGHTS IDEAS! Eyes of the Eagle