UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                         Office of Inspector General
WHEN  GO
MONEY  GOES  BAD

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          UNITED STATES  ENVIRONMENTAL PROTECTION AGENCY
                               Office of Inspector General
                         "Catalyst for Improving the Environment"
WHO WE ARE
The Office of Inspector General is an independent office within EPA that helps the Agency protectthe
environment in a more efficient and cost effective manner. We consist of auditors, program analysts,
investigators, and others with extensive expertise.

WHAT  WE  DO
We perform audits, evaluations, and investigations of EPA and its contractors, grantees, and recipients
of other Federal funds to promote economy and efficiency, and to prevent and detect fraud, waste, and
abuse. We also maintain the DIG Hotline.

WHY WE DO IT
We strive to serve as a catalystfor improving the environment. By helping the Agency operate more
economically, effectively, and efficiently, we contribute to improved environmental quality and human
health. We strive to provide solutions to problems that ultimately result in making America a cleaner
and healthier place.

OUR  MISSION
Add value by promoting economy, efficiency, and effectiveness within EPA and the delivery of environ-
mental programs. Inspire public confidence  by preventing and detecting fraud, waste, and abuse in
Agency operations and protecting the integrity of EPA programs.
              "There is no kind of dishonesty into which otherwise good people more
                easily and frequently fall than that of defrauding the government."

                                       Benjamin Franklin

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WHEN    GOOD
 MONEY   GOES   BAD
 True Stories of Fraud in the EPA Superfund Program
Introduction
In an effort to provide you with tools to identify areas that may be of concern
or worth looking into, this booklet was designed to provide an overview of
general fraud indicators as well as highlight some specific indicators related
to fraud, which may occur in the Superfund Program. To put a face to what
is often seen as a victimless crime and to highlight the impact of fraud,
included are some real-world examples of Superfund fraud investigations
conducted by the U.S. Environmental Protection Agency, Office of Inspector
General, Office of Investigations.
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What Can  I  Do to Avoid Trouble ?
              • Report any irregularities early.
              • Correct any audit findings promptly.
              • Have a system of checks and balances.
              • Create and follow established procedures.

If you are a federal employee, you are duty bound to report Fraud, Waste, Abuse, and Corruption under the
Code of Federal Regulations (CFR).

"Employees Shall Disclose Waste, Fraud, Abuse, and Corruption to Appropriate Authorities" 5 CFR 2635.101(b)(l 1)

We are here to assist you. We want you to succeed.

General Fraud  Indicators

General fraud indictors are applicable to many areas and not exclusively tied to contracts. The list presented below
is not meant to be all-inclusive and should not limit the consideration of other factors. Remember—if it doesn't
pass the "smell" test, something may be amiss.

              Q Missing, weak, or inadequate internal controls
              Q Management override of key internal controls
              Q Lack of written policies and procedures
              Q Overly complex organizational structure
              Q High turnover rate
              Q Reassignment of personnel
              Q Termination of key personnel
              Q "Missing" files, reports, data, and invoices (both electronic and paper)
              Q Photocopies of documents where it is difficult to detect alterations
              Q Missing approval signatures
              Q Lack of separation of duties
              Q Discrepancies in handwriting
              Q Delays in production of requested documentation
    WHEN GOOD MONEY GOES BAD « TRUE STORIES FRAUD IN THE EPA SUPERFUND PROGRAM

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Bribery and  Kickback Schemes
Definition:
       Giving or receiving a thing of value for the sole purpose of influencing an official act or a business
       decision.

Indicators:
       • An overly friendly relationship between government employees and contractors and/or among
         contractors who may otherwise be considered competitors.
       • Excessive, new-found wealth may also be a clue that a bribe or kickback has been accepted.
       • Contracting employee has an undisclosed business.
                                                             FRAUD  CASE  STUDIES
Subcontractor Kickback Scheme
The president, a former project manager, and a former site
foreman of a subcontractor were sentenced in U.S. District
Court for the Eastern District of Pennsylvania  on a  con-
spiracy charge. The president of the subcontractor was
sentenced to 60 months of probation, the first 6 months
to  be served under house arrest, and  ordered to pay a
$5,000 fine. The former project manager was sentenced to
6 months in prison,followed bySyears supervised release,
and was ordered to pay a $32,382 fine. The former site fore-
man was sentenced to 60 months of probation and ordered
to pay a $32,382 fine.

A contractor was awarded a contract by EPA to serve as
the prime contractor in the clean up of  the Berkley Prod-
ucts Superfund site in Denver, Pennsylvania.  The prime
contractor  awarded a subcontract for the construction
of  a landfill  cap at the Berkley Products site. The  proj-
ect manager for the prime  contractor was responsible
for overseeing the work performed by the subcontractor.
The project manager solicited kickbacks in the amount of
approximately $129,531 from the president of the subcon-
tractor, in exchange for his certifying that the work per-
formed by the subcontractor was completed in a satisfac-
tory manner. The project manager for the prime contractor,
in turn, kicked back approximately half of all money he re-
ceived to the former project manager for the subcontrac-
tor, who, in turn, provided half of that money to the former
site foreman of the subcontractor. They each received
$32,382 of the kickback money.  The project manager for
the prime contractor provided the subcontractor with pho-
ny invoices in the amount of the  kickbacks to disguise the
illegal payments. For his part in the scheme, the  project
manager was sentenced to 33 months in prison, followed
by 3 years supervised release, and was ordered to pay a
$64,766 fine and $30,536 in restitution.

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False Statements and False Claims
Definition:
        Any untrue statement or claim, knowingly made with the intent to mislead or defraud.

Indicators:
        • Discrepancies between reported facts and supporting documentation.
        • Inability or refusal to provide supporting documentation.
FRAUD  CASE  STUDIES
EPA Contract Laboratory Settles  Civil Suit for $2OO,OOO

While admitting no wrongdoing, an environmental laboratory located in Gary, North Carolina, entered into a $200,000
Civil Settlement Agreement with the U.S. Attorney's Office for the Eastern District of North Carolina to settle allegations
that the company submitted false claims to EPA.

The laboratory provided false analytical data to EPA under the Superfund Analytical Services Contract Laboratory
Program.  Specifically, the company failed to properly calibrate  gas chromatograph/mass spectrometer (GC/MS)
instruments used in the analysis of samples from EPA Superfund sites. Each invoice submitted to EPA that  contained
false analytical data resulted in a false claim.

The investigation determined that quality control standards were  routinely bypassed, and that improper calibration
procedures extended the "runtime" of the GC/MS instruments, therefore producing false analytical data. Some analysts
admitted that they had been  following this  procedure since as early as 1992. Three analysts involved in the improper
calibration practice were criminally charged and entered guilty pleas in U.S. District Court. All three analysts received
probation, fines or  restitution, and  community service,  and were subsequently debarred. Because  of missing data, it
was not possible to determine which samples were affected by improper calibration and, therefore, which Superfund
sites were potentially affected.
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                                                                FRAUD  CASE  STUDIES
Contractor Enters into $1  Million Settlement  Agreement
A contractor entered into a $1 million settlement agreement
related to  performing  cleanup activities at the Tar Creek
Superfund Site, Northern  Ottowa County, Oklahoma.

While making no admission of wrongdoing or liability, the
contractor entered into a  $1 million  settlement agreement
with the U.S. Department  of Justice, Civil Division, and the
U.S. Attorney's Office  for  the Northern District of Oklaho-
ma.

In its case, the government alleged that between 1996 and
2003, the contractor submitted false representations and
certifications in progress  reports submitted to the govern-
ment. The contractor  also improperly billed  costs during
its performance of a  U.S. Army Corps of Engineers  con-
tract funded by EPA to perform cleanup  activities at the
Tar Creek Superfund  Site.  These  false  representations
and claims resulted in  the government paying moreforthe
cleanup contract than was necessary.
Specifically, it was alleged that the contractor:
 •required truck drivers and others to falsely record, on
  truck tickets  and  other reports, more cubic  yardage,
  truck loads, and/or full loads than were actually hauled;
 •directed or caused truck drivers to give the  false ap-
  pearance that the trucks were being fully and efficiently
  utilized for their intended purpose;
 • paid full salary to workers who had  been injured on the
  job and therefore should have been paid worker's com-
  pensation benefits rather than wages; and
 • billed the governmentfortime and expenses associated
  with transporting injured workers to medical care.

The contractor also entered into a compliance agreement
with the EPA Suspension and Debarment Division. Ac-
cording to the agreement, the contractor must continue to
maintain its internal audit program, program efficiency and
cost accountability system, code of business conduct, and
ethics and compliance training program.

This investigation was conducted jointly with the Defense Criminal Inves-
tigative Service and the U.S. Army Criminal Investigation Command.
    WHEN  GOOD MONEY GOES BAD « TRUE STORIES FRAUD  IN THE EPA SUPERFUND PROGRAM

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FRAUD CASE  STUDIES
Printing Company Sentenced to Making False Statements
A Puerto Rican printing company was convicted of making
false statements to EPA and the Puerto Rico Environmental
Quality Board (EQB). The company was  sentenced to 4
years of probation, a  $750,000 fine, and an $800 special
assessment. In addition, the former  President and Chief
Executive Officer of the  firm was convicted  of negligent
discharge of a pollutant into waters of the United States
and sentenced to 3 years of probation, a $25,000 fine, and
a $25 special assessment.  These  judicial proceedings
occurred in the U.S. District Court for the District of Puerto
Rico.

The company created  a variety of wastes  and byproducts
from its printing business, including ink, which were placed
in drums and transported to "La Finca" on a regular basis.
EPA requested information  from the  company  pursuant
to  Section  104 (e) of  the Comprehensive Environmental
Response, Compensation, and Liability Act  (Superfund).
This information pertained to the hazardous substances
and industrial wastes  that were  used, stored, generated,
disposed of, or  otherwise handled by them  at the  "La
Finca" location. The company responded by telling EPA the
company had not disposed of any industrial waste at "La
Finca" even though they knew thatthey had placed, stored,
handled, and disposed of industrial waste atthe site.
In addition, EQB requested information and documents from
the company concerning the disposal of industrial liquid
waste. In response to that request, the company submitted
fraudulent "dump tickets" or manifests  reflecting  the
disposal of the liquid industrial waste atthe Puerto Nuevo
wastewater treatment plant, even  though this plant was
closed and not accepting industrial wastewater.

The president of the  printing company was also the vice
president of another company. That company used a variety
of  inks and generated ink and  other liquid  wastewater
which was housed in an outside wastewater storage tank.
During an inspection, EQB discovered a  rupture in a pipe
leading to  the outside storage tank.  The rupture caused
blue ink and other wastewater to reach the Loiza  River via
a creek thatwas located  behind the manufacturing facility.
The company did  not have a permit to discharge  into the
creek orthe Loiza River. They failed to contain the release,
thereby allowing the waste to enter into the ground water
and the Loiza River.
This investigation was conducted with the EPA Criminal Investigation
Division.
    WHEN GOOD MONEY GOES  BAD « TRUE STORIES FRAUD IN THE EPA SUPERFUND PROGRAM

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                                                                FRAUD CASE  STUDIES

Pleas Entered  in  Bid  Rigging  Case
(This case is an example of both a kickback and mischarging scheme.)
In U.S. District Court forthe District of NewJersey,a Laurel
Springs, New Jersey company, as well as its owner and
a former employee of a prime contractor, were charged
and pled guilty in  a  bid-rigging scheme in  connection
with subcontracts  for  wastewater treatment supplies
and services at two Superfund  sites  in  New Jersey.
A Canadian company was also charged and pled guilty for
its role in the scheme.

The New Jersey company and its owner  pled guilty  to
rigging bids at  the Federal  Creosote Superfund  site  in
Manville, New Jersey. The owner also pled guilty to one
count of conspiracyto defraud EPAatthe Federal Creosote
site and to defraud another company atthe Diamond Alkali
Superfund site in  Newark, New Jersey. As  part of the
conspiracy, the owner participated in a false invoicing and
kickbackscheme. He also pled guilty to filing false income
tax returns.

A former employee of a prime  contractor  pled guilty  to
rigging bids at the Federal Creosote site. In addition, he
pled guilty to one count of conspiracy to defraud  EPA at
the Federal  Creosote site and to defraud another company
atthe Diamond Alkali Superfund site by participating in a
false invoicing and kickbackscheme. He also pled guilty to
one count of aiding the  New Jersey company's owner in
filing a false income tax return.
The  co-conspirators  thwarted  the  competitive bidding
process and defrauded EPA. The owners of the New Jersey
company provided more than $26,000 in  kickbacks to an
employee of a prime contractor and more than $385,000 to
his former supervisor in exchange for their assistance in
allocating certain subcontracts to the Canadian company.
The kickbacks were in the form of checks, cash, cruises,
home renovations, boat  trailers,  and  airline tickets.  In
addition, the employee and a former supervisor inflated
invoices  and  accepted  kickbacks  from  three  other
subcontractors atthe  Superfund sites.

The Canadian company pled guilty to conspiracyto defraud
EPA atthe Federal Creosote site by inflating the prices it
charged to a prime contractor  and  paying  kickbacks to
employees of that contractor. The company was given
confidential bid information that it used to inflate invoices
to cover almost $1.3 million in kickbacks  to employees of
the  prime contractor  in exchange for their assistance in
steering subcontracts to them. The kickbacks were in the
form of money wire transfers, cruises for senior officials,
various  entertainment tickets, and  home entertainment
electronics. As part of the fraudulent scheme, this company
and its co-conspirators also included amounts it kept for
itself in the inflated invoices.

This case was conducted with the Internal Revenue Service Criminal
Investigation Division.
    WHEN  GOOD  MONEY GOES BAD « TRUE STORIES FRAUD  IN THE EPA SUPERFUND PROGRAM

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What to do  if You Suspect  Fraudulent Activity,
Waste,  or Abuse

     i/ DO contact the OIG Hotline.
     V  DO discuss your concerns with the OIG.
     v  DO seek answers to your questions in the normal course of business.
     v  DO cooperate with the OIG and expect to be contacted and involved.
     /( DON'T "tip off" subjects of actual or pending investigation.
     /( DON'T feel compelled to "prove" a case or intent.
     /( DON'T "stop" your normal course of business unless otherwise directed.
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     Report Suspected Fraud Activity to Our Office


              You can Place a Telephone Call to Our 24-hour Hotline
                               (888) 546-8740

                              You Can Mail Us
                     U.S. Environmental Protection Agency
                    Office of Inspector General Hotline (2443)
                         1200 Pennsylvania Avenue, NW
                            Washington, DC 20460

                             You Can E-mail Us
                            OIG_Hotline@epa.gov

                    Or You Can Contact Our Offices Directly
                         Northeastern Resource Center
                               Arlington, VA
                               (703) 347-8740

                           Eastern Resource Center
                                Atlanta, GA
                               (404)562-9857

                           Central Resource Center
                                Chicago, IL
                               (312)353-2507

                           Western Resource Center
                              San Francisco, CA
                               (415) 947-4507
WHEN GOOD MONEY GOES BAD « TRUE STORIES FRAUD IN THE EPA SUPERFUND PROGRAM

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