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Fraud Brief | UNCLASSIFIED 1
Joseph R. Comer, Special Agent
Northwest Field Office
Procurement Fraud Awareness Briefing
2013 Pacific Northwest Defense Symposium
Bremerton, WA
September 25, 2013
Fraud Brief | UNCLASSIFIED 2
Who is NCIS?
Fraud Brief | UNCLASSIFIED 3
Who is NCIS?
U.S. Federal Agents
Authorized by SECNAV INST and EO to conduct
investigations with DoN nexus
Investigate military and civilian subjects
Includes UCMJ, US Code, assimilation of of state code Work closely with other agencies, i.e., FBI DCIS, GSA, AFOSI, Army, DOL, SBA, etc.
90% Civilian
Assigned to USMC/Navy operational
environments
Fraud Brief | UNCLASSIFIED 4
Worldwide Presence: Major Field Offices
Yokosuka, Japan
Naples, Italy
Newport, RI Washington, DC
(FO and HQ)
Camp Lejeune, NC
Mayport, FL Pensacola, FL
Puget Sound, WA
Camp Pendleton, CA
Honolulu, HI San Diego, CA
Norfolk, VA Bahrain
140 locations worldwide aligned under 16 Field Offices
Singapore Contingency Response FO
(FLETC)
OSP
Fraud Brief | UNCLASSIFIED 5
What is FRAUD?
Fraud is the misrepresentation of a material
fact with the intent to deceive and includes:
Deliberate omission of material facts
Reckless disregard for the facts
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Fraud Triangle
Three Common Elements Of Fraud
1. Opportunity to Commit Fraud (e.g., an open safe)
2. Motivation to Commit Fraud (e.g., money problems)
3. Rationalization on Why Fraud Is Acceptable (e.g.,
“NAVFAC/NAVSEA won’t miss it”)
“A good person, left alone, for a long period of time, with a lot of money, is vulnerable to fraud
and criminal misconduct.” – FLETC Instructor
Motive
Fraud Triangle
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Who Commits Fraud?
The Insider
Government Employees with legitimate
access, who know the system
The Outsider
Prime Contractors
Subcontractors
Vendors
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THE COST OF FRAUD
Association of Certified Fraud Examiners
(ACFE) estimates U.S. corporations lose 5%
annually to fraud.
ACFE case study estimated the median loss associated with occupational fraud at $140,000.
DoD 2012 budget for $553 billion 5% annual loss to DoD would be
approximately $27.7 billion
Fraud Brief | UNCLASSIFIED 9
MAJOR PROCUREMENT FRAUD
CATEGORIES Product Substitution: Parts or products that do not meet contract specifications
(i.e. counterfeit parts) Antitrust: Eliminating competition
Bribery: Offering something in return for favorable treatment
Conflict of Interest: Improper/unethical relationship between Government
employee and contractor
Cost Mischarging: Overcharging or reallocating costs to Government
Defective Pricing: False costs or pricing on a contract
Environmental Crimes: Improper storage, transport, or disposal of hazardous
waste Subcontractor Kickbacks: Subcontractor offers something to prime contractor to
secure business
10 10
False Claims and False Statements
Definitions:
False Claims: requests or demands for public
money or transfer of public property based on
something that is untrue and deceitful
False Statements: deliberate misrepresentation of
the facts
Episodes from the REAL NCIS
“Government Employees
Convicted for Accepting Bribes”
Navy Yard engineer charged in $10M
kickback scheme
12
U.S. v. Charlene Corley and C & D
Distributors, LLC
Really? It cost that much to ship a screw?
Charlene Corley and C & D
Distributors, LLC – Case Study
Overview
A supplier of small
hardware components to
the military
(Iraq/Afghanistan)
Over nine years, received
over 20 million dollars from
DoD for submitting 112
fraudulent shipping invoices
Computerized government
system used that allowed
shipping costs to be
automatically reimbursed
Examples of Shipping invoices: $998,798 for two 19-cent washers
$445,640 for an $8.75 elbow pipe
$492,096 for a $10.99 machine
thread plug
$403,436 for six machine screws
valued at $59.94
Charlene Corley convicted in
2007 for conspiracy and
sentenced to 6 ½ years in
federal prison
Seizure of Assets
Fraud Brief | UNCLASSIFIED 13
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STEWART NOZETTE THE SAD TRUTH:
CASE STUDY
Overview Defense Contractor/U.S. Naval Research Laboratory
Astrophysicist
Sold classified information to a person he believed was an
Israeli intelligence officer
Undercover operation emerged from an earlier case against
Nozette in which he was accused of defrauding federal
agencies by submitting more than $265,000 in false claims
Convicted of attempted espionage in September 2011
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STEWART NOZETTE THE SAD TRUTH:
CASE STUDY
COUNTERFEIT MATERIAL DEFINITION
• Material whose identity or characteristics have been
deliberately misrepresented, falsified, or altered
without legal right to do so.
Identity
Information such as the original manufacturer, trademark
or other intellectual property, performance, part number,
date code, lot number, testing methods and results,
inspection, documentation, warranty, origin, ownership
history, packaging, storage, handling, physical condition,
previous use, etc.
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• Counterfeiting is more than an economic crime against
the companies whose goods are faked, the damage
extends to health, the environment and national security.
• When Counterfeit Material is bought and sold it funds:
– Terrorism
– Organized Crime
– Gang Activities
– Human Trafficking
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Counterfeit Material Case Owner and Employee of Florida-based Company
Indicted in Connection With Sales of Counterfeit High Tech Devices Destined to the U.S. Military and Other Industries. WASHINGTON - A 10-count indictment was unsealed today in
U.S. District Court for the District of Columbia charging Shannon L. Wren, 42, and Stephanie A. McCloskey, 38, with conspiracy, trafficking in counterfeit goods, and mail fraud. The indictment alleges that Wren, McCloskey and others imported counterfeit integrated circuits from China and Hong Kong and sold them to the U.S. Navy, defense contractors and others, marketing some of these products as" military-grade.”
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How do I document Suspected Counterfeit
Material and who do I notify?
• Documentation and Notification Report it in a Product Quality Deficiency Report (PQDR).
Use the inspection attribute code “5AS” for suspected
Counterfeit Material
Notify your Supervisor, Chain of Command and NCIS
Save the suspected counterfeit material and all packaging,
paperwork, and certificate of conformance
Quarantine the suspected counterfeit material so it can be
tested and validated
Support Screening/Action points from the PQDR process and
NCIS during the investigation until completion
Destroy material only after all legal actions have been
completed as directed by Screening/Action points from the
PQDR process (directed from legal and investigative services)
*IMPORTANT
to Report All
Material Failures
19
Discovery of Fraud
Fraud Brief | UNCLASSIFIED 20
The most common detection
methods:
- Tips
- Management Review Audit
- Accidental discovery
Fraud Brief | UNCLASSIFIED 21
REMEDIES
Prosecution in Federal Court
Contractors or DON Personnel:
Criminal and/or Civil prosecution
Recoveries: Contractors: Fines, Forfeitures,
and/or Monetary Recoveries for DON
Administrative Remedies
Contractors: Suspension, Debarment, Terminating Contract, or
Offsets in Contract
DON Personnel: Admin Leave, Termination, Re-assignment, or
Reprimand
Military Personnel: Court Martial, Non-Judicial Punishment
Fraud Brief | UNCLASSIFIED 22
If you know, witness or suspect a crime or fraud
is being committed…
NCIS Text and Web Tip Hotline
Anonymous way to submit information to NCIS.
You are assigned an unique number so you cannot be identified,
but allows NCIS to communicate with you via text messages.
You don’t have to provide your identity or contact information
unless YOU want to.
Up to $1000 reward for any information that leads to a felony
arrest or apprehension.
See Something Wrong, Do Something Right
Fraud Brief | UNCLASSIFIED 23
3 Ways to Use the System
Web Based Tips Go to www.ncis.navy.mil
Cell Phone Text Message Text/dial 274637 (CRIMES), The first word you type in must be “NCIS”
followed by your information/tip.
You will receive a response like “Your alias is: S2U5. Call 911 if urgent! If
replies put you at risk, text STOP.”
Smart Phone App Download a free app to your iPhone or Android cell phone.
Search app store for “Tip Submit Mobile.”
See Something Wrong, Do Something Right
Fraud Brief | UNCLASSIFIED 24
See Something Wrong, Do Something Right
What kind of information should you report?
Narcotics/illegal drugs sold, used, or purchased
Defrauding the government
Theft or misuse of government property
Sexual assault or rape
Environmental crimes
Espionage
Work place violence or threats of work place violence
Force protection issues/incidents
If you know, witness, or suspect it…report it!
Text “NCIS” followed by your information to 274637 (CRIMES)
Fraud Brief | UNCLASSIFIED 25
Contact Information
Joseph R. Comer, Special Agent
E-mail: [email protected]
Desk: (425) 304-3621
Jeffrey M. Peterson, Special Agent
E-mail: [email protected]
Desk: (360) 476-0197
Prevent. Protect. Reduce
Questions????
Fraud Brief | UNCLASSIFIED 26
