fraud prevention & tools of the trade risk management agency special investigation branch senior...
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Fraud Prevention&
Tools of The TradeRisk Management Agency
Special Investigation Branch
Senior Investigator
Mark Price
Background
June 2000
The Agricultural Risk Protection Act of 2000 (ARPA)
The Federal Crop Insurance Act (the Act)
Section 515: Program Compliance and Integrity
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
Background (Cont.)
Since June 2000, the principle focus of RMA’s 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
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 RMA’s quality-control process
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
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)
Claims Audit
Legislative RequirementFSA will assist in auditing a
statistically appropriate number of claims paid by insurance providers
MilestonesProcedure published in 4-RM
Handbook, FCIC Program Integrity
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
IMPLEMENTATIONLet contract to establish data warehouse.Data Mining project initiated
Single step in a multi-step research project
Data Mining and Warehousing
RESULTS IMPLEMENTING PROCEDURES BASED ON ANALYSIS
TARGETS ATTENTION OF COMPLIANCE
EFFORTS
REFERRALS TO: RISK MANAGEMENT AGENCY INSURANCE PROVIDERSFARM SERVICE AGENCY
RESULTS-Referrals
Fiscal Year 2001 resultsSpot Check Referrals
1763 Referrals sent to FSA
4-RM Referrals
Received 413 referrals from FSA on form AD-2007
NRCO Data Mining Summary
2001
2001 Spot Check Reviews (FSA)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
Minnesota All 13 $22,384 $178,123 $12,708
Montana All 1 $623 $4,915 $4,877
North Dakota All 47 $362,380 $2,072,966 $1,203,643
South Dakota All 18 $154,652 $1,097,757 $459,741
Wisconsin All 13 $158,916 $1,350,002 $28,635
92 $698,955 $4,703,763 $1,709,604
2001 Soybean Yield Switching (Insurance Providers)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
Iowa Soybeans 5 $24,619 $288,192 $75,726
Minnesota Soybeans 1 $530 $8,095 $0
South Dakota Soybeans 2 $47,795 $483,461 $53,390
8 $72,944 $779,748 $129,116
2001 Winter Wheat Yield Switching (Insurance Providers)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
Montana Winter Wheat 10 $282,020 $2,470,685 $738,967
10 $282,020 $2,470,685 $738,967
Policies Premium Liability Indemnity
Grand Total 110 $1,053,919 $7,954,196 $2,577,687
2002
2002 Spot Check Reviews (FSA)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
Iowa All 57
Minnesota All 160
Montana All 27
North Dakota All 519
South Dakota All 179
Wisconsin All 23
Wyoming All 2
967 $0 $0 $0
2002 Yield Switching (Insurance Providers)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
All All 39 1190749 $8,579,435 $1,887,856
39 $1,190,749 $8,579,435 $1,887,856
2002 Added Land/New Producer (Insurance Providers)
State CropPolicies
ReviewedPremium Reviewed
Liability Reviewed
Indemnity Reviewed
All All 63 $469,296 $4,780,689 $485,745
63 $469,296 $4,780,689 $485,745
PoliciesGrand Total 1,069
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
200019991998
INDEMNITIES PAID TO INDIVIDUALS ON SPOT-CHECK LIST 1998-2000 AS OF 02/10/02
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
2001200019991998
INDEMNITIES PAID TO INDIVIDUALS ON SPOT-CHECK LIST 1998-2001 AS OF 02/10/02
CY1998
CY1999
CY2000
CY2001 (proj)
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
Yield Switching Group - Soybeans
CY1998
CY1999
CY2000
CY2001
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
Yield Switching Group - Soybeans
CY1996CY1997
CY1998CY1999
CY2000CY2001 (PROJ)
Tota
l Inde
mnit
y$-
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
$10,000,000.00
$12,000,000.00
$14,000,000.00
Yield Switching Group - Cotton - Projection for CY2001
CY1996CY1997
CY1998CY1999
CY2000CY2001
$-
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
$10,000,000.00
$12,000,000.00
Yield Switching Group - Cotton
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.
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
TOOLS CONT.
18USC, 286 – Conspiracy – Fines/Time18USC, 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
TOOLS CONT.
ADMINISTRATIVE REMEDIES
Civil Fines
Disqualification/Suspension of Producers
Debarment/Suspension of Agents, Adjusters, Company Employees
CRIMINAL/CIVIL PROSECUTIONS
Mother and Son – Plead Guilty to CropInsurance 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.
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.
CRIMINAL/CIVIL PROSECUTIONS (CONT.)
Crop Insurance Company Agreed to Pay CivilDamages and Penalties
Civil Action: Fraudulent MPCI claims were filed by a company
loss adjuster on his father’s MPCI policy. The claims were processed and approved by claims managers at the company’s 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.
CRIMINAL/CIVIL PROSECUTIONS (CONT.)
Crop Insurance Company Agreed to Pay CivilDamages 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.
CRIMINAL/CIVIL PROSECUTIONS (CONT.)
Four Farmers Are Charged in Crop Insuranceand 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.
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.
CRIMINAL/CIVIL PROSECUTIONS (CONT.)
Wimbledon, North Dakota Man Found GuiltyFor role in $14M Crop Insurance and FarmProgram 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.
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.
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.
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 agent’s 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.