30 Dec

A Parallel to Fraud?

Testing of airport screeners, using images of guns and banned objects during the airport X-ray of bags, had some interesting results. When using a library of 250 images, the performance of the screeners (how often they detected the items) went up over time. When the image library was changed, performance dropped dramatically.

The new images were all still the same types of banned items, but they looked different. They were different types of guns, or knives pointing in different directions. Read More

28 Dec

More theft of Red Cross Katrina funds

49 people have been indicted for participating in a scheme that defrauded the Red Cross out of hundreds of thousands of dollars earmarked for Katrina victims. 17 of the people worked at a Red Cross claim center in Bakersfield, CA. This call center received calls from victims and authorized payments to them. The remaining fraudsters were friends or family members of the call center employees.

The cam was discovered when Red Cross employees noticed an unusually high number of claimants picking up funds near the call center, when they believed few Katrina evacuees were actually living in that area.

The Red Cross’s programs for Katrina evacuees paid out $1.3 billion. Because donors want to see their money put to work immediately, the Red Cross generally doles out funds fairly quickly. Further, many of the evacuees left their homes with no money, no clothing, and no access to their local banks. The call centers were set up to quickly distribute money, in lieu of the Red Cross’s usual policy of meeting face-to-face with disaster victims. Funds were dispersed in the amount of $360 for a single-person household, to a maximum of $1,565 for households with more than four people.

The cumbersome system set up to verify eligibility was full of loopholes which allowed call center employees to file fake claims. As word spread through the call center about lack of security in the payment system, workers began logging claims for themselves, friends, and family.

None of the fraudsters were employees of the Red Cross, rather they were employed by companies that contracted to handle the call center operations. Of those indicted, 6 people have already pleaded guilty. Additional indictments are expected.

23 Dec

Workers Compensation Insurance Fraud

Gary Linsey Slater of Harrogate, Tennesee was sentenced to nine years in prison for committing mail fraud and money laundering. Slater owned a company that leased employees to coal mining companies. He conspired to hide the number of employees employed through his company in order to reduce his workers compensation premiums.

The company employed over 100 miners, while he reported only 15 to the insurance companies. By hiding approximately 90% of the payroll, Slater reduced his insurance premiums by about $6 million.

In addition to the prison time, Slater must also repay $5 million to two insurance companies.

See how Sequence assists insurance companies with fraud investigations.

22 Dec

Your Number’s Up: Tax Audit Time and Your Documents Are Missing

A tax audit creates fear and anger in individuals and business owners. It also creates a need. The need for documentation to prove income and expenses when the auditor is scrutinizing them. It is not uncommon for documents to be lost or discarded by business owners and individuals.

As soon as a taxpayer is notified of an audit, a “financial intervention” must begin. The taxpayer should gather any and all documentation that is available. In the case of a natural disaster, there may be absolutely nothing left.

Documentation will include both paper records and digital records. Taxpayers should gather bank statements, canceled checks, deposit slips, credit card statements, and expense receipts. Missing data could be recovered from banks, credit card companies, and companies with which the taxpayer did business.

When solid documentation is received from sources such as banks and credit card companies, the process of recreating the taxpayer.s books and records is fairly straightforward. However, gaps in data are best filled with the help of a forensic accountant.

There are several ways to help substantiate deductions during an audit:

* Oral explanations or testimony can be used to support deductions. If the taxpayer is credible and the explanation is supported by the facts, the deduction can be allowed.
* Affidavits from people or businesses that can support your deductions can be helpful.
* Use data from other months, quarters, or years to prove patterns in numbers.
* Ratio analysis may help a forensic accountant estimate expenses
* Available industry data also may be used to estimate a reasonable level of expenses.

These are not the only ways to prove income and expenses, but are among the most common. It is important that the taxpayer make every effort possible to gather documentation that supports reported income and expenses for the year under audit.

Working with an expert who is familiar with methods used to recreate books and records is also a critical part of the audit process. Utilize an advocate who can be creative and aggressive to calculate numbers that are useful and believable, and which help the taxpayer achieve the best result possible from the audit.

Read the full article here.

20 Dec

Even eBay can be fooled by a fraudulent eBay e-mail!

An e-mail directing someone to a website called ebaychristmas.net was reported to eBay as potentially fraudulent. The website requested users to enter their eBay user names and passwords, as well as information about e-mail accounts.

The investigations team for eBay reported back that the email was an official email from eBay. The recipient of the original e-mail contacted the investigations team again, telling them that the website was clearly fraudulent.

Days later, an eBay representative confirmed that the e-mail was in fact fraudulent. It appears that eBay was actually working on shutting down the phishing site noted in the email. The scam is using multiple servers, and when one is shut down, a new one takes its place.

Full story here.

19 Dec

A plot to bring down Santa morale around the world?

The former world Santa of the Year, Ron Horniblew of Great Britain, suspects a campaign to prevent him from winning the crown again is damaging “Santa morale”.

Each year, up to 50 Santas compete for the world title in the Santa Winter Games. This year the contest came down to the reindeer sled race. While Horniblew’s competitor fell off his sleigh, the judges awarded him extra point for falling in a Santa-like style.

Horniblew is an official part of the international Santa circuit, and is recognized by the Master Santa in Greenland. In order to be authorized with the Santa badge, one must pass the official Santa Test and agree to not smoke, drink alcohol, or swear while in uniform.

Read the full story here.

16 Dec

Fired HealthSouth CEO sues the company

Richard Scrushy, former CEO of HealthSouth, is suing the company for $70 million related to his March 2003 firing. He was fired following the discovery of a $2.7 billion fraud at the company.

Scrushy claims that since he was acquitted on 36 criminal counts related to the fraud, he should still be an employee. His employment contract specifies a $1.2 million annual salary as chairman and director, a minimum of $1.2 million annual bonuses, and additional incentives such as stock options, employee benefits, fringe benefits, and severance pay.

The HealthSouth fraud began in mid-1996 and went on for over seven years. It added $2.7 billion to the company’s bottom line, when the true figure for that period was $1.7 billion (40% of what the company reported). Headquarters added revenue to the figures submitted by the clinics, hospitals, and other facilities owned by HealthSouth.

Scrushy was ultimately acquitted on all charges related to the fraud.

15 Dec

Data breaches reported since the Choicepoint incident

If yesterday’s post about ID theft made you feel badly, this post will probably make you feel worse.

The Privacy Rights Clearinghouse has assembled a listing of the security breaches since the February 15, 2005 Choicepoint breach. These breaches were reported to consumers because the compromised information included Social Security numbers, account numbers, and/or driver’s license numbers.

Including Choicepoint and continuing through December 1, 2005, the breaches on the list affected at least 51,776,622 customer accounts. (Yes, that’s almost 52 million in less than one year.)

Read the details here.

14 Dec

Identity theft worries?

An analysis done by ID Analytics, a San Diego fraud detection company, shows that people whose personal data is compromised have a low risk of becoming victims of identity theft. This includes those whose credit cards are lost or stolen.

Their findings showed that the smaller the security breach (how many people’s identifying data is compromised by a bank or credit card company), the greater the likelihood for identity theft. The study found that those who steal identities have difficulties using stolen credit cards because they are quickly canceled.

ID Analytics is therefore suggesting that banks and credit card companies should NOT always notify customers of data breaches because the customers have little chance of becoming ID theft victims.

Does that make you feel better? If not, read the whole story.

13 Dec

SEC and corporate fines

The Securities & Exchange Commission is set to issue guidelines on fines for corporate wrongdoer. SEC Chairman Christopher Cox is pushing for standards in levying fines, and would like those guidelines available to the public. The standards won’t speak to the size of fines, but will dictate when a fine is appropriate.

Some more recent penalties include:
WorldCom (MCI) – $750 million for fraudulent financial statements
Time Warner – $300 million for inflating advertising revenue at AOL
Qwest Communications – $250 million for accounting fraud

Full story here.