Fraud Prevention & Tools of The Trade Risk Management Agency Special Investigation Branch Senior Investigator Mark Price

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


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


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


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


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


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.


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.


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.


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.


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.


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.


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.


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.


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.

ANTI-FRAUD TRAINING

THE FIRST LINE OF DEFENSEVIDEO

CLASSROOM TRAINING TRAINERS/FACILITATORS

CD ROM COMPUTER BASED/SELF-PACED MODULE

CURRICULUM FRAUD INDICATORS INTERVIEWING TECHNIQUES OBTAINING INFORMATION

Documents

Fraud Prevention & Tools of The Trade Risk Management Agency Special Investigation Branch Senior Investigator Mark Price