Environmental Fraud

More subtle than midnight dumping


By Francesco Liberti, MBA, CFE

Environmental issues often aren't the focus of traditional fraud examinations. But this type of fraud goes well beyond illegal midnight chemical dumping. It includes such schemes as falsification of data, marketing fraud, inflation of invoices, and fraudulent insurance claims. 

A site owner responsible for environmental, health, and safety compliance for a manufacturing facility is notified during the course of a periodic and routine monitoring program that elevated levels of contaminants appear to be in the groundwater wells used for detecting contamination and migration from the site of pollutants. He's concerned that this might reveal poor housekeeping practices, or even illegal activities (such as handling prohibited hazardous materials), so the owner decides to engage the services of a laboratory that employs an acquaintance willing to be bribed.

Together, they devise a sampling program that appears to be comprehensive and in accordance with regulatory requirements on the surface. But they switch the samples so the laboratory receives clean versions (or cleaner than expected). The site manager then uses these cleaner analyses as a basis to convince regulators that the company should undergo a less expensive remedial effort or none at all thus saving the potentially high costs of remediation and possible legal action by neighboring property owners. But such a fraud, undetected for years, could eventually cost the company hundreds of times more than the cost of an appropriate remediation.

While health-care fraud, identity theft, and construction schemes continue to grab the headlines, environmental fraud isn't often thought to be a great risk to companies. But environmental fraud goes well beyond disregarding environmental laws. It includes schemes such as falsification of data, inflation of invoices, and fraudulent insurance claims. Here we'll describe the ways environmental fraud is perpetrated and what can be reasonably done to limit it.

POTENTIAL FOR FRAUD IN ENVIRONMENTAL MATTERS
Mention environmental "issues" and the average person most likely will think of illegal polluters blatantly violating environmental regulations such as illegal midnight dumping. Although these are certainly problems that affect society, environmental fraud can and does occur in many more and diverse instances. Given the complexity of environmental projects, fraud has a very good chance of success particularly because most concerns are focused on transactions that involve payments and procurement, which leaves many other areas exposed.


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