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

2. 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
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3. Office of Inspector General

4. 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.
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5. 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
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6. 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
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7. 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.
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8. Fraud, Waste and Abuse

9. 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?

10. 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.

11. 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.

12. 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.

13. Determining Fraud

14. Why?
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15. 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

16. 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
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17. Perpetrators of Fraud
Any individual who believes they have a need for more material items or money and includes:
Contractors
Employees
Management
Recipients
Landlords

18. Detecting Fraud

19. Signs of Fraud or Theft Obsessive control Living beyond means
Close relationship with contractors
Personal financial pressure
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20. 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.
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21. 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.”
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22. Fighting Fraud

23. Best Fraud Deterrents Culture of Ethics Management Controls
Documentation Requirements

24. 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.

25. 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.

26. 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

27. Fraud Investigations

28. 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

29. 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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31. 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.
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33. Salvation Army-Kerrville:
Subjects conspired to fraudulently embezzle HPRP and HHS ARRA rental assistance.
Subjects were indicted and arrested in April 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.
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34. 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.
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36. 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.
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37. 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…
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38. 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?
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39. Conclusion

40. Fraud Integrity Bulletins- HUD OIG Website (www.hudoig.gov)
Resources
Fraud Integrity Bulletins- HUD OIG Website (
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
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41. Report Fraud, Waste and Abuse to the OIG Hotline