Fraud Prevention

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Fraud Prevention Tools of The Trade

• Risk Management Agency
• Special Investigation Branch
• Senior Investigator
• Mark Price

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Background

• June 2000
• The Agricultural Risk Protection Act of 2000
  (ARPA)
• The Federal Crop Insurance Act (the Act)
• Section 515 Program Compliance and Integrity

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Background (Cont.)

• Section 515 Program Compliance and Integrity.
• Provided the Risk Management Agency (RMA) with a
  nationwide fact-finding network through a
  formalized alliance with the Farm Service Agency
  (FSA)
• Directed that RMA and FSA share insured producer
  data to identify and correct reporting
  inconsistencies between the programs
• Funded the use of data warehousing and data
  mining information analysis technologies

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Background (Cont.)

• Since June 2000, the principle focus of RMAs
  Compliance function has been implementing Section
  515 of the Act
• Section 515 required that RMA and FSA form an
  alliance and, along with the 17 insurance
  providers, work together to improve program
  compliance and integrity

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Implementation

• RMA efforts have been focused on
• Training FSA and RMA personnel on the new
  provisions of the Act and resulting procedures
• Developing the FSA/FCIC program consultation
  process through Insurance Services Regional
  Offices
• Establishing a process for FSA to assist RMA and
  the Insurance Providers in an annual claims audit
  role as part of RMAs quality-control process

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Implementation (Cont.)

• Developing procedures for referring potential
  crop insurance program errors, fraud,waste and
  abuse between FSA and RMA
• Integrating the data reconciliation process
  between FSA and RMA
• Initiating the data warehousing and data mining
  project

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Implementation (Cont.)

• Establishing a sanctions function to facilitate
  the imposition of penalties (such as fines,
  debarments and disqualifications)
• Establishing a Special Investigations Branch
  (SIB) to enable more focused and timely responses
  to high-profile cases that would strain the
  capabilities and resources of existing RMA
  Regional Compliance Offices (RCO)

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Claims Audit

• Legislative Requirement
• FSA will assist in auditing a statistically
  appropriate number of claims paid by insurance
  providers
• Milestones
• Procedure published in 4-RM Handbook, FCIC
  Program Integrity

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Data Mining and Warehousing

• LEGISLATIVE REQUIREMENTS
• Information technologies known as data mining and
  warehousing shall be used to administer and
  enforce Section 121 of ARPA
• Develop procedures to identify sales agents or
  loss adjusters who were associated with loss
  claims that were greater than 150 percent of the
  mean for the area
• IMPLEMENTATION
• Let contract to establish data warehouse.
• Data Mining project initiated
• Single step in a multi-step research project

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Data Mining and Warehousing

• RESULTS
• IMPLEMENTING PROCEDURES BASED ON ANALYSIS
• TARGETS ATTENTION OF COMPLIANCE
• EFFORTS
• REFERRALS TO
• RISK MANAGEMENT AGENCY
• INSURANCE PROVIDERS
• FARM SERVICE AGENCY

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RESULTS-Referrals

• Fiscal Year 2001 results
• Spot Check Referrals
• 1763 Referrals sent to FSA
• 4-RM Referrals
• Received 413 referrals from FSA on form AD-2007

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NRCO Data Mining Summary
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INDEMNITIES PAID TO INDIVIDUALS ON SPOT-CHECK LIST
1998-2000 AS OF 02/10/02
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
2001
2000
1999
1998
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Fiscal Year 2001

• The emphasis on prevention has produced promising
  early results.
• RMA and Insurance Providers have stopped close to
  15 million in improper payments from being made
  in Fiscal Year (FY) 2001, with many more payments
  still being investigated.
• USDA and the Department of Justice recovered
  close to 29 million.

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TOOLS OF THE TRADE

• CRIMINAL CODE
• 18USC, 1014 False Statements or Reports in
  connection with FCIC - 1M Up to 30 Years
• 18USC, 1001 False Statements Fines/Time

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TOOLS CONT.

• 18USC, 286 Conspiracy Fines/Time
• 18USC, 287 False Claims Fines/Time
• CIVIL ENFORCEMENT
• 31USC, 3801 False Claims
• Affirmative Civil Enforcement Treble Damages
  Plus Fine (5K-10k)
• 7USC, 1506 Civil Fines and Disqualification

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TOOLS CONT.

• ADMINISTRATIVE REMEDIES
• Civil Fines
• Disqualification/Suspension of Producers
• Debarment/Suspension of Agents, Adjusters,
  Company Employees

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CRIMINAL/CIVIL PROSECUTIONS

• Mother and Son Plead Guilty to Crop
• Insurance Fraud In Minnesota
• Criminal Conviction
• Both defendants plead guilty to making false
  statements and conspiring with the processing
  facility to falsely report the amount of dry bean
  production and value they received for the dry
  beans.
• Both defendants were ordered to pay FCIC
  restitution totaling 100,330.
• The son was sentenced to prison for 10 months and
  supervised release for three years.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Mother and Son Plead Guilty to Crop
• Insurance Fraud (Cont.)
• Civil (Summary Judgment)
• Under the terms of the civil settlement agreement
  the son agreed to pay an additional 12,670 and
  voluntarily disqualified himself from future
  participation in the MPCI program for a period of
  three years.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Crop Insurance Company Agreed to Pay Civil
• Damages and Penalties
• Civil Action
• Fraudulent MPCI claims were filed by a company
  loss adjuster on his fathers MPCI policy. The
  claims were processed and approved by claims
  managers at the companys regional office in
  Fargo, ND. When the company became aware the
  claims were potentially fraudulent, they did not
  report the suspected fraud to the Risk Management
  Agency.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Crop Insurance Company Agreed to Pay Civil
• Damages and Penalties (Cont.)
• Civil Action
• The settlement agreement requires the company to
  pay treble damages and penalties of 323,616,
  implement a corporate compliance plan that
  establishes a Special Investigative Unit that is
  independent from the crop insurance claims
  division, regularly report suspected false claims
  data to RMA, and provide annual fraud-prevention
  training to all loss adjusters and SIU
  investigators.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Four Farmers Are Charged in Crop Insurance
• and Disaster Payment Case
• Criminal Indictment
• Three farmers in North Dakota and one in
  Minnesota were charged with illegally profiting
  from 1.8 million in crop insurance and disaster
  payments resulting from an alleged conspiracy.
• Additional charges were filed against a Minnesota
  businessman, who was previously indicted in
  connection with the scheme.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Four Farmers Are Charged (Cont.)
• Criminal Indictment
• An employee of an Oslo, MN grain cooperative was
  accused of enticing farmers to sell wheat at a
  discounted price and allegedly providing false or
  incomplete information to allow farmers to obtain
  crop insurance and disaster aid payments.
• A trucking company was also charged with
  conspiracy and money laundering.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Wimbledon, North Dakota Man Found Guilty
• For role in 14M Crop Insurance and Farm
• Program Fraud Scheme
• Criminal
• The North Dakota man, along with his other farm
  business entities were found guilty of 19 counts
  of fraud, racketeering, tax and conspiracy
  charges in federal court in Fargo, ND.
• The jury ordered the defendant to forfeit 5.9M
  for money laundering, conspiracy to defraud
  federal agencies, false statements and filing
  false tax returns in connection with MPCI and FSA
  farm program payments.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Wimbledon, North Dakota Man Found Guilty
• (Cont.)
• Criminal
• According to the indictment, the man conspired
  with five other individuals to establish sham
  farming operations to avoid MPCI and FSA program
  requirements
• The sham farming entities were not eligible for
  crop insurance benefits as they did not actually
  have an interest or share in the insured crop.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Wimbledon, North Dakota Man Found Guilty
• (Cont.)
• Criminal
• Production was also shifted between the sham
  farming operations in order to receive crop
  insurance indemnity payments.
• Each fraud count carries penalties of up to 20
  years in prison. Additional financial penalties
  will be imposed according to federal guidelines,
  after the pre-sentence investigation is complete.

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CRIMINAL/CIVIL PROSECUTIONS (CONT.)

• Wimbledon, North Dakota Man Found Guilty
• (Cont.)
• Administrative Action
• The defendant is a crop insurance agent in North
  Dakota. The North Dakota Insurance Department has
  served a Cease and Desist order and filed an
  administrative complaint to revoke the his
  agents license.
• RMA has suspended the defendant thereby,
  excluding him from participating in the Federal
  Crop Insurance Program, as an insured, agent,
  owner of an agency selling crop insurance or any
  other capacity.

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ANTI-FRAUD TRAINING

• THE FIRST LINE OF DEFENSE
• VIDEO
• CLASSROOM TRAINING
• TRAINERS/FACILITATORS
• CD ROM
• COMPUTER BASED/SELF-PACED MODULE
• CURRICULUM
• FRAUD INDICATORS
• INTERVIEWING TECHNIQUES
• OBTAINING INFORMATION