Falsifying Government Claims and Insider Trading

Fraudsters are still skittering out of the woodwork to get their share of U.S. stimulus money. However, the federal government is hitting back vigorously. Here is how to protect your organizations and clients from government claim fraud and insider trading.

Excerpted and adapted from Chapter 5 of "Managing the Risk of Fraud and Misconduct: Meeting the Challenges of a Global, Regulated, and Digital Environment," by Richard H. Girgenti, J.D., and Timothy P. Hedley, Ph.D., copyright 2011 McGraw Hill. Additional contributors to this chapter are Graham J. Murphy, Amanda Rigby and Nimna Varghese.

The U.S. False Claims Act (FCA) — enacted in March 1863 to battle abuses of federal contractors during the Civil War — is a primary weapon aimed at helping stem the tide of false claims by government vendors. In 2010 alone, the U.S. government recovered more than $3.1 billion from organizations and individuals that prosecutors say had filed false claims for services or products.

In one recent case, the U.S. Department of Justice took action against an educational organization for falsely filing student recruitment information to obtain federal student aid. The top cases, however, have primarily involved allegations against pharmaceutical or health-care companies for billings made to Medicare and Medicaid. A published report says 80 percent of the fraud is in the health-care sector, though defense, education, transportation and oil and gas are also targets. Nearly 10 percent of the annual U.S. budget, by some estimates, finds its way into the hands of individuals and companies through such fraud.

Tough economic times, meanwhile, have exacerbated the situation — on both sides of the equation: individuals seeking to make a quick buck or simply meet a corporate sales goal will file a claim for payment for a service or product that was not delivered while the federal government's need to protect every last dime in the budget has forced stepped up investigations and enforcement actions.

The U.S. economic crisis that began in 2007 through 2008 has led to unprecedented amounts of federal spending, most notably the U.S. Troubled Asset Relief Program (TARP) and other economic stimulus programs enacted in late 2008 and 2009. It has also made scrutiny of potential government fraud, waste and abuse a mantra of the federal regulatory and law enforcement community.

Organizations now have more exposure to the risk of procurement fraud as governments at every level have increased investigations and prosecutions. Current efforts to expand U.S. governmental health care appear to assume that potential additional costs can be funded, in part, from the prevention and detection of fraud and waste.

The financial crisis has spawned new regulations and helped federal enforcement in the U.S. American Recovery and Reinvestment Act (ARRA, or Recovery Act) and the U.S. Fraud Enforcement and Recovery Act of 2009 (FERA). The financial crisis, the authorization of hundreds of billions of dollars in new federal funding and a desire to strengthen regulatory and oversight controls have put fraud, waste and abuse on center stage. New standards for transparency and accountability provide powerful incentives for companies to improve governance practices and related compliance and anti-fraud programs and controls. Whether an entity directly receives federal funding or is a federal contractor, few businesses are exempt from the expanding oversight.

In addition to the federal government's commitment to catch those who steal stimulus money, the feds are vigorously pursuing insider trading with data-mining techniques and wiretapping.

CFEs should be armed with the latest knowledge of federal regulations and investigative methods so they can further prevent and deter fraud in their organizations and for their clients.