Economic Crime Institute

1. Economic Crime Institute Fraud in Bailouts and TARP

2. Fraud in Bailouts and TARP • Ken Jones • Director – Fraud Risk Management, KPMG • Retired - Deputy Chief, US Postal Inspection Service • Peter Goldmann • White Collar Crime Fighter; • Author, Fraud in the Markets

3. Topics • Recent Changes Impacting Fraud Against the Government • Contractor Self-reporting • Steps to Prevent, Detect and Respond against Government Fraud • Examples, Suggestions and Thoughts from Mr. Goldmann • Open Discussion

4. Improper Payments Information Act (IPIA) of 2002 • The Improper Payments Information Act (IPIA) of 2002, • requires annual estimates of improper payments • helped frame the issue and the magnitude of the problem • The ensuing efforts to improve the tracking of improper payments and subsequent findings of significant and growing levels of estimated improper payments in turn led to the Presidential Executive Order.

5. Federal Requirements for Reducing Improper PaymentsExecutive Order – Reducing IP and Eliminating Waste in Federal Programs (11/20/09) Purpose of the Executive Order to Reduce Improper Payments Comprehensive set of policies, including transparency and public scrutiny Identifying and eliminating the highest improper payments Accountability for reducing improper payments Federal, State and Local Coordination 4

6. Improper Payments Executive Order Highlights Establish aSenate Confirmed Accountable Officialfor each Agency that has High Priority Programs Focus on Improving ability to identify and recover improper payments and to coordinate at the Federal, State and Local level. Establish an Internet-based public reporting of improper payments Establish and report on reduction targets Establish working groups to recommend improving the ability to detect / recovery IP through single audit reporting, State and Local coordination, Data Sharing, enhancing eligibility verification, prepayment scrutiny, forensic accounting and auditing 5

7. The Improper Payments Act of 2010 improper payments act 2010 Signed by President Obama July 22, 2010 Bill aims to help achieve goal of reducing wasteful payments by $50 billion by 2012

8. Recent Changes Impacting Procurement Fraud • A Brief History of the False Claims Act: • The False Claims Act dates back to the Civil War when, in 1863, President Abraham Lincoln and the Congress enacted this law to combat “defense procurement fraud.” • Unscrupulous defense contractors were billing the Union Army for: • dead mules, • boots with soles that had been glued on, rather than stitched (and were coming apart in the rain and mud), • gunpowder that had been salted down with sawdust.

9. Fraud Enforcement and Recovery Act (FERA) of 2009 Signed into law by President Obama in May of 2009 • Increased law enforcement personnel/budget for fraud investigations • Expanded the provisions of the False Claims Act

10. Fraud Enforcement and Recovery Act (FERA) of 2009 • Increased Funding for False Claim Act Investigations $470 million Over 2 years To DOJ, SEC, U. S. Secret Service and others

11. FERA enhancements to the False Claims Act • FERA expanded liability to virtually every recipient of federal funding (contractors, sub-contractors, any recipient) • FERA expanded the protection of whistle blowers (not just employees, but contractors, competitors, etc.) • FERA allows whistle blowers access to information gained from government subpoenas • FERA expands the statute of limitations for FCA actions, specifying that government complaints "relate back" to earlier whistleblower complaints. Earlier FCA Provisions Still in Effect: • Qui Tam Relators • Treble Damages

12. “Defense” Contractor Disclosure Program and Overpayments • Close the Contractor Fraud Loophole Act: • Requires timely notification by Federal contractors • Must report all violations of Federal criminal law or overpayments • Contracts in amount >$5M and more than 120 days in duration Flow down to subcontracts

13. FAR Rule • Requires all contractors to: “timely disclose to the Govt., in connection with the award, performance, or closeout of a govt. contract or a subcontract awarded there under, credible evidence of a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in 18 USC or a violation of the civil False Claims Act . . . [and] remit [any] significant overpayment amount.”

14. Defense Stakeholders Defense Criminal Investigative Organizations • AFOSI • CID • DCIS • NCIS DOJ Criminal Division (Fraud Section) DOJ Civil Division (Commercial Litigation) US Attorney Office SIGAR • DoD OIG • DCMA • Services General Counsel • Services Suspension & Debarment Authority • Contracting Officer • Affected Military Department • DCAA • Defense Agencies

15. Contract Overpayments and Reverse False Claims • FERA defines “obligation” for the first time: “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor- licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”

16. Suspension & Debarment • FAR 3.1003(a)(3) Relating to the payment clauses, “A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment, other than payments resulting from contract financing payments

17. Increased Attention - Fraud WILL be Uncovered • Government Agency Focus on Improper Payments • Contractor Disclosure and Overpayment Requirements • Increased Funding for Law Enforcement • More People Can Become Whistleblowers • Expanded Protection for Whistleblowers • Qui Tam Relators (Whistleblowers) • 15% to 25% of rewards from cases that are accepted by the Department of Justice • 25% - 30% If the Department of Justice does not go forward with a case. A whistleblower can go forward on his own, in some cases with the assistance of a qui tam attorney.

18. GAO Recommended Model for Anti-Fraud Programs and Controls

19. Fraud Risk Management

20. Prevention • Fraud and misconduct risk assessment • Code of conduct and related standards • Employee and third-party due diligence • Communication and training • Process-specific fraud risk controls • Proactive forensic data analysis

21. Detection • Hotlines and whistleblower mechanisms • Auditing and monitoring • Retrospective forensic data analysis

22. Response • Internal and external investigations • Established investigative protocols • Enforcement and accountability protocols • Disclosure protocols • Remedial action protocols

23. Conclusions • Changes in the law, funds to investigative agencies, encouraging whistle-blowers, etc. will certainly increase the number of Frauds Against the Government, which are identified. • Government agencies will make every attempt to internally reduce fraud and other improper payments.