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1© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Fraud in Bailouts and TARP
Economic Crime Institute
2© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC 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
6© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC 6
Improper Payments Executive Order Highlights
Establish a Senate Confirmed Accountable Official for 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
7© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
The Improper Payments Act of 2010
improper payments act 2010Signed by President Obama July 22, 2010
Bill aims to help achieve goal of reducing wasteful payments by $50 billion by 2012
8© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Increased Funding for False Claim Act Investigations
$470 million
Over 2 years
To DOJ, SEC, U. S. Secret Service and others
Fraud Enforcement and Recovery Act (FERA) of 2009
11© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
“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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Defense Stakeholders
DoD OIG
DCMA
Services General Counsel
Services Suspension & Debarment Authority
Contracting Officer
Affected Military Department
DCAA
Defense Agencies
Defense Criminal Investigative Organizations
AFOSI CID DCIS NCIS
DOJ Criminal Division (Fraud Section)
DOJ Civil Division (Commercial Litigation)
US Attorney OfficeSIGAR
15© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
GAO Recommended Model for Anti-Fraud Programs and Controls
19© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Fraud Risk Management
20© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Detection
Hotlines and whistleblower mechanisms
Auditing and monitoring
Retrospective forensic data analysis
22© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
Response
Internal and external investigations
Established investigative protocols
Enforcement and accountability protocols
Disclosure protocols
Remedial action protocols
23© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International, Cooperative a Swiss entity. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients. 30459WDC
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.