Fraud Detection and Prevention The Role of HUD OIG NAHRO Conference Corpus Christi, Texas | April 10, 2018

Special Agent Special Agent Garrett Westfall Walter Zapata Office of Inspector General Office of Inspector General Office of Investigations Office of Investigations San Antonio Field Office San Antonio Field Office 210-475-6822 210-475-6810 gwestfall@hudoig.gov wzapata@hudoig.gov R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Office of Inspector General

What OIGs Do Prevent and detect fraud, waste, and abuse. Conduct independent and objective audits, investigations, inspections, and evaluations; Promote economy, efficiency, and effectiveness; Review pending legislation and regulation; Keep the agency head and the Congress fully and currently informed; and Prevent and detect fraud, waste, and abuse. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Office of Investigations Regional Office: Fort Worth, TX Stations: Houston, Texas San Antonio, Texas Oklahoma City, Oklahoma Baton Rouge, Louisiana New Orleans, Louisiana Little Rock, Arkansas R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Office of Investigations The OIGs Office of Investigations employs special agents that are statutory federal law enforcement officers that specialize in criminal investigations regarding issues in and against their department. OIG special agents: Carry firearms Make arrest Testify in Court Serve search warrants Serve subpoenas R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Office of Investigations OIGs special agents investigate violations of criminal statutes using the following techniques: Interview subjects/witnesses Surveillance Electronic monitoring In conducting investigations, OIG special agents work closely with other Federal, state and local law enforcement agencies, as well as with OIG auditors. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Fraud, Waste and Abuse

Fraud, Waste and Abuse OIGs are charged with not only investigating or auditing fraud, waste, and abuse after they have occurred, but also identifying vulnerabilities and recommending programmatic changes that would, when enacted or implemented, strengthen controls or mitigate the risk of fraud, waste, and abuse from occurring. But what do we mean when we say fraud, waste, and abuse?

What is Fraud? A type of illegal act involving the obtaining of something of value through willful misrepresentation. A false representation of a material fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives another so that he acts or fails to act to his detriment.

What is Waste? Involves the taxpayers not receiving reasonable value for money in connection with any government funded activities due to an inappropriate act or omission by players with control over or access to government resources. Waste relates primarily to mismanagement, inappropriate actions and inadequate oversight.

What is Abuse? Involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances. Abuse also includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate.

Determining Fraud

Why? R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Types of Fraud Common types of fraud we find: Contract and Procurement Fraud Loan Fraud Mortgage Fraud Landlord / Tenant Fraud Check and Credit Card Fraud Voucher Fraud

Common Fraud Schemes Cost Mischarging Embezzlements/Theft Labor, materials, unallowable costs, personal costs, payroll padding (ghost employees, salaries given to family/friends), inflated rates, double billing; Embezzlements/Theft Credit Card Misuse Altered Payees Theft or Conversion of property Product Substitution False Statements/Documents Creating false documents or manipulating existing documents. Bribery & Gratuities Bid Rigging R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Perpetrators of Fraud Any individual who believes they have a need for more material items or money and includes: Contractors Employees Management Recipients Landlords

Detecting Fraud

Signs of Fraud or Theft Obsessive control Living beyond means Close relationship with contractors Personal financial pressure R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Red Flags You believe that false data was deliberately submitted to the government within a progress report. Your manager demotes you for inquiring about suspicious activity regarding your grant award. You believe your company is co-mingling the work for projects from two separate federal agencies. You are asked to charge hours to a project code which you did not work on. You believe your company is asking the government to pay for equipment which is not necessary for the project. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Red Flags You discover that a coworker submitted false information on invoices and receipts to your organization. A subcontractor employee tells you that he believes that a scam may be going on between upper management and your company and the subcontractor’s company. You believe a product/deliverable your company is providing to the government is not what is supposed to be provided. You believe that your company is charging the government twice for the same cost item. Your manager tells you, “the government’s coming for a site visit, so we need to make it look like we’re doing what they want.” R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Fighting Fraud

Best Fraud Deterrents Culture of Ethics Management Controls Documentation Requirements

Culture of Ethics As representative of a grant recipient organization, you are responsible for promoting the integrity of the entire entity. Furthermore, management is responsible for setting the “tone from the top” by: Creating an environment in which employees understand that dishonest acts will be detected and promptly addressed. Sending a message that the organization will aggressively seek out possible fraudulent conduct, instead of waiting for instances to come to its attention.

Management Controls Management controls include the processes and procedures for planning, organizing, directing, and controlling program operations as well as the systems for measuring, reporting, and monitoring program performance. Management is responsible for establishing a controlled environment that sets the tone of an organization. Management should ensure effective internal controls are in place to provide reasonable assurance about the achievement of the organization’s mission, goals, and objectives.

Documentation Requirements Source documentation is vital to explain and support actions taken, and the reasonableness, allowability, and allocability of costs. Examples include: Approved budgets Procurement contracts-signed by all parties Environmental reviews Grant agreements Inspection reports Completed client files Vouchers supported with detailed invoices Written policies and procedures

Fraud Investigations

Common Findings in Investigations Common areas that are frequently disclosed in investigations are: Bookkeeping and accounting Personnel, hiring and payroll Procurement and contracts Ethics and standards of conduct Charge cards Organization owned vehicles

HUD-OIG Investigation HUD-OIG Investigation – Lesvia Barrera Lesvia Barrera, Executive Director, Eagle Pass Housing Authority, was indicted and found guilty of conspiring with her nephew to fraudulently submit false claims to HUD. Ms. Barrera served 18 months in prison as a result of her guilty verdict.

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HUD-OIG Investigation HUD-OIG Investigation – Salvation Army-Kerrville Channan Cardella, HPRP Coordinator, Salvation Army, conspired with Felecia Gonzales, Field Director, Community Council of S.Central Texas, to fraudulent submit HPRP applications and issued checks to fraudulent landlords. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

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Salvation Army-Kerrville: Subjects conspired to fraudulently embezzle HPRP and HHS ARRA rental assistance. Subjects were indicted and arrested in April 2012 for theft by a public servant, conspiracy, and engaging in organized crime. Subjects were ordered to pay $40K in restitution; one subject received 10 years probation, and the other was sentenced to 9 years in prison. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

HUD-OIG Investigation HUD-OIG Investigation – El Paso Empowerment Zone Phyllis Rawley, Executive Director, El Paso Empowerment Zone, was indicted to embezzlement of HUD grant funds. R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

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El Paso Empowerment Zone: Theft Subject was the Executive Director for the EPEZ and administered an Empowerment Zone grant. Subject was indicted and plead guilty to embezzlement of HUD grant funds. Subject used the money for unauthorized bonuses for herself and her staff. Subject was ordered restitution in $18K and received 18 months probation. R - 79 G - 80 B - 79

OIG Myths OIG only investigates wrong doing by Agency employees. Fact is…. Unless I have enough evidence to definitely prove fraud, OIG with not get involved. Fact is…. If an OIG investigation has not led to a finding of wrong doing, I wasted the OIG’s time and resources. Fact is…. Asking the OIG for assistance is an admission of guilt or incompetence. Fact is… The OIG can not ensure my confidentiality. Fact is… The OIG can not investigate sub-tier contractors or grantees. Fact is… R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

How You Can Help The OIG needs you to be the eyes and ears to help identify and report activity that my be fraudulent. There is no way we can be everywhere, every time. Your efforts are critical to the success of HUD programs. Please report any possible fraudulent activity to our office. Avoid anonymous complaints! Let us be the Investigators. Don’t enter into any repayment agreement with the subject. Provide detailed information regarding the allegation – Who, What, When, Where, and Why? R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Conclusion

Fraud Integrity Bulletins- HUD OIG Website (www.hudoig.gov) Resources Fraud Integrity Bulletins- HUD OIG Website (www.hudoig.gov) https://www.hudoig.gov/fraud-prevention/industry-advisories/subrecipent-oversight- and-monitoring-%E2%80%93-roadmap-improved-results Subrecipent Oversight and Monitoring – A Roadmap for Improved Results 7 Keys to Handling Conflicts of Interest Conflicts Procurement & Contracting: Five Ground Rules for Grantees and Subrecipients R - 58 G - 161 B - 55 R - 79 G - 80 B - 79

Report Fraud, Waste and Abuse to the OIG Hotline

www.hudoig.gov