SEPA
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

       Office of Inspector General
WHEN  GOOD\
MONEY GOES  BAD
True Stories of Grant Fraud at EPA
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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 protect the
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 catalyst for 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 Grant Fraud at EPA
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 grant fraud. 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
grant fraud investigations conducted by the U.S. Environmental Protection
Agency, Office of Inspector General, Office of Investigations.
      WHEN GOOD MONEY GOES BAD • TRUE STORIES OF GRANT FRAUD AT EPA

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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 grants. 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 OF GRANT FRAUD AT EPA

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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
Former EPA Intern Pleads Guilty to Submitting False Timesheets

An individual from Arlington, Texas, pled guilty in U.S. District Court for the District of Massachusetts to 10 counts of making
false statements.

The individual, an employee with an EPA grant recipient, was placed in an internship position with EPA; however, EPA
contacted the employer within 2 weeks and requested the individual be replaced  with another intern. After she left her
internship at EPA, the individual submitted forged timesheets to the grantee, who subsequently  continued to pay her a
salary for approximately 1 year after her internship had been terminated. Her salary was paid from funds provided to the
grantee by EPA.
Professor Settles Civil Complaint
A professor of environmental medicine at a New York medical school entered into a civil settlement in U.S. District
Court, Southern District of New York, to settle a false claims case. In the settlement, the professor agreed to pay the
United States $17,500.

For  over 2 years, the professor submitted numerous fraudulent reimbursement requests to the  school. These
reimbursement requests were paid from moneys provided by federal grants funded by the EPA. The professor used the
illegally obtained funds to support his personal hobby of stamp collecting.
       WHEN GOOD MONEY GOES BAD  • TRUE STORIES OF GRANT FRAUD AT EPA

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 FRAUD  CASE  STUDIES
University  Agrees to Pay $2.5  Million  to Settle False
Claims Allegations
A university in New England agreed to pay $2.5 million in
damages and penalties to settle civil allegations that the
university submitted false claims on approximately  500
federal grants awarded to them.

The federal government awarded the grants for work to
be performed by two of the university's specialized service
facilities. The grant awards were made by  numerous
federal agencies including the Department of Defense, the
Environmental Protection  Agency, the National Science
Foundation, and the  National Aeronautics and  Space
Administration.

The government specifically alleged  that the  university
submitted  grant applications containing  incorrect  or
overstated information about anticipated expenses. The
university charged certain expenses that were notproperly
chargeable  and  submitted invoices to the  government
for three types of grant expenses. First, the government
alleged that the university did not utilize a  proper basis for
setting and regularly updating its  billing rate structure, as
required by federal  law. The university's failure to revise
and appropriately set  its billing rate structure resulted in
numerous false claims being submitted for payment to the
United States. Second, the government alleged that the
university failed to follow federal law for calculating how
extra compensation  should be paid to university faculty
members for additional work on grant supported research
activity and that improper excess charges were therefore
charged to the grants. Finally, the government alleged that
certain of the grants  required cost sharing or matching by
the university and that the university failed to provide the
requisite cost sharing or matching.

The  university  has   also  entered  into a  compliance
agreement  with the  federal  government that requires
the university to make  significant  changes in its  grant
administration  program. In addition, the university must
certify thatithas in place an adequate compliance program
for preventing fraud and false billings to federal grants.

This investigation  was conducted jointly with the Defense Criminal
Investigative Service, the  Defense Contract Audit Agency, and the U. S.
Army Criminal Investigation Command.
       WHEN GOOD MONEY GOES BAD • TRUE STORIES OF GRANT  FRAUD AT EPA

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                                                              FRAUD  CASE  STUDIES
Company President  Found  Guilty of Defrauding
Investors and  U.S.  Government
A federal jury found a Colorado businessman guilty of
mail fraud, wire fraud, false statements, and failure to
file tax return charges. These  charges were related to
defrauding investors and the U.S. Government concerning
his proposed alternative fuel additive. The businessman, of
Parker, Colorado, is the founder, President, and a member
of the  Board of Directors for his commercial business.

Through this  commercial business,  the  businessman
was raising money for and  purportedly  developing an
alternative fuel  additive called "vapor  phase  combustion
(VPC)." He  solicited money from investors, making a
variety of claims regarding the  proven efficacy of VPC.
As part of his scheme, the businessman prepared and
sent periodic newsletters  to past and  potential investors
in which he falsely represented the results of scientific
testing regarding VPC, and falsely represented that major
oil companies  were  interested  in making  substantial
investments in VPC. Over 7 years, more than 43  people
invested approximately $559,200 in his business, based on
the fraudulent pretenses,  representations, and promises
made. Instead he used this money to pay for personal
expenses and some business expenses.
Additionally  the  businessman  successfully  lobbied
members of Congress and obtained a $3.6-million earmark
grant for further testing  of VPC. He created a non-profit
entity to obtain and use the money, then submitted a grant
proposal and other documents to EPA,  which he  knew
contained material falsities, including the false scientific
test results for VPC. As a result of the fraud, the non-profit
entity  actually received  approximately $2 million of the
earmarked grant money from EPA.

Subsequentto the businessman's conviction,the non-profit
entity's treasurer pled guilty to three counts of knowingly
failing to file tax returns  for the commercial business. He
was involved with the company, acting at various times as
its registered agent, bookkeeper, chief of staff, corporate
secretary, and treasurer. He was sentenced to 12 months
probation and ordered to pay a $3,450 fine.

This case was conducted with the Internal Revenue Service Criminal
Investigation Division and the U.S. Postal Inspection Service.
       WHEN GOOD MONEY GOES BAD • TRUE STORIES OF GRANT FRAUD AT EPA

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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 recipients/vendors
         and/or among recipients/vendors who may otherwise be considered competitors.
       • Excessive, new-found wealth may also be a clue that a bribe or kickback has been accepted.
       • Grants or contracting employee has an undisclosed business.
FRAUD CASE  STUDIES
Public Employee and  Others Sentenced in Kickback Case
A public employee, his company, and two businessmen
were sentenced in federal court in California. The public
employee was sentenced to 9 months home detention, 24
months of probation, 500 hours of community service, and
fined $40,000. His company was sentenced to 36 months
probation and ordered to pay a $150,000 fine.  The two
businessmen collectively were sentenced to 36 months
of probation, 500 hours of community service, and fined
$15,000. These sentences followed guilty pleas to various
charges including mail  fraud  and theft from programs
receiving federal funds.

For  approximately 9 years, the employee was employed
by a public  entity that was responsible for a number of
public works projects  including an EPA financed  pipeline.
As an employee, he was precluded from obtaining public
contracts. He devised a scheme wherebyhe would be able
to secretly obtain surveying contracts with the pubic entity
despite his  employment  with  that government agency.
He used his position to assist the other businessman in
obtaining  surveying jobs  with the  public  entity, first by
recommending to his supervisors that work be granted
and later personally granting them work. In exchange for
the work, the businessman paid an amount of the money
earned to the public employee's company. The  public
employee also entered into  an agreement with the other
businessman whereby his  company would be awarded
contracts by the public entity.

The public employee concealed the income he received
on government projects from the government and the  EPA
by filing false Statements of Economic  Interest with the
County Clerk in spite of his duty as a government employee
to  provide full disclosure.  His company  received over
$1,100,000 in gross receipts from the government.

This case was worked jointly with the Federal Bureau of Investigation
and the San Bernardino Sheriff's Office.
       WHEN GOOD MONEY GOES BAD • TRUE STORIES OF GRANT FRAUD AT EPA

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Embezzlement

Definition:
        Fraudulent taking of personal property or money with which one has been entrusted.

Indicators:
        . Discrepancies between reported facts and supporting documentation.
        • Key employee does not take time off.
        • Inability or refusal to provide supporting documentation.
                                                              FRAUD  CASE  STUDIES
Grantee Sentenced to Prison for Embezzling Federal Funds

A resident of Fairbanks, Alaska, was sentenced in U.S. District Court for the  District of Alaska to 9 months in prison,
3 years probation, and ordered to pay a $104,000 fine. This sentencing followed the resident's guilty plea to one count of
embezzlement of federal funds.

EPA awarded three grants to two separate entities and the Alaska resident was the project manager on all three grants. The
purpose of the grants was to train and certify people in asbestos and lead paint removal. The investigation determined that
the individual embezzled some of the funds for personal use, including the operation of his wife's construction company.

In addition to the criminal sentence imposed on the individual, the two entities, the construction company, and the individual's
wife and daughter were suspended from participation in government procurement and non-procurement activities.

This investigation was conducted jointly with the Federal Bureau of Investigation.
       WHEN GOOD MONEY  GOES BAD  • TRUE STORIES OF GRANT FRAUD AT EPA

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FRAUD  CASE  STUDIES
   Former  Grantee Employee Sentenced for Embezzlement

   An employee of an EPA grantee was sentenced in U.S. District Court for the District of Oregon to 21 months in prison,
   followed by 36 months of probation, and was ordered to pay $268,863 in restitution. In addition, the employee was suspended
   from participation in federal procurement and nonprocurement activities. The employee was the former office manager of
   a Soil and Water Conservation District in Oregon, a recipient of EPA grant funds.

   As the office manager from 2000 until her resignation in June 2005, the employee was solely responsible for managing
   the finances of the organization to include making purchases and paying bills. While employed, she devised a scheme
   to embezzle  money from the organization to pay for personal expenses. She made unauthorized charges to a credit card
   belonging to  the organization for personal items including clothing, vacations, gifts, jewelry, and furniture. She then paidthe
   credit card bill with the organization's funds, some of which were derived from EPA grants.

   This investigation was conducted jointly with the Federal Bureau of Investigation and the Tillamook County Sheriff's Office.


   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.
          WHEN GOOD MONEY GOES BAD • TRUE STORIES OF GRANT FRAUD AT EPA

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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 OF GRANT FRAUD AT EPA

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