Spotlight on Disability Fraud | This Week in Nonprofit Fraud

Reposted from the This Week in Nonprofit Fraud Blog – January 13, 2014

SPECIAL EDITION – Spotlight on Disability Fraud

 Spotlight on Disability Fraud

Photo courtesy of Michael Appleton for the New York Times

Social Security Disability fraud is no new trend, but this week, federal investigators indicted more than 100 people on charges of perpetrating the largest ever disability fraud. The fraud allegedly involves as many as 1,000 individuals (many of them New York City police and firefighters), who collected $400 million in disability payments for falsely alleging serious mental illnesses. The individuals indicted received a total of $21 million in fraudulent payments receiving, per person, about $50,000 to $500,000.

According to prosecutors, the ringleaders of the fraud coached perpetrators in what to say and how to behave during interviews. For police and firefighters who had worked on September 11, they were even taught to talk about their debilitating fears of entering skyscrapers. Everyone was told that they should show that they could no longer leave the house or find work. Many even claimed they could not use a computer, though this did not stop them from maintaining active social media pages. In exchange for this “occupational training,” the ringleaders received cash kickbacks of more than $28,000 per successful disability application.

One officer claimed to suffer from debilitating anxiety due to toxic fumes exposure; investigators found photos on Facebook of the officer making an obscene gesture while riding a Jet Ski, posted while he was actively collecting disability payments. Another officer had posted a photo of himself on Facebook holding a gigantic sailfish (see above), captioned “It was an awesome day off the coast of Costa Rica.” Others were found engaging in activities like flying a helicopter, playing sports, teaching martial arts, or selling food at a street festival.

Investigators first began looking into the issue when they noticed that a retired NYPD officer had received a firearm permit while he was receiving disability benefits. This raised a red flag because the disability benefits regulations meant that the retired officer wasn’t allowed to carry a gun. Once they began looking for similar scenarios, they noticed that hundreds of applications for disability benefits appeared to be in the same handwriting and described exactly the same symptoms. Not only that, almost all the applicants used the same lawyer to file for benefits.

This case is sure to be making headlines for months, or even years to come. The four ringleaders of the fraud – including a former FBI agent, a pension consultant, and a former police officer – all deny the allegations, as do some of the other perpetrators. They’ll have to face the traditional evidence used in fraud cases for decades, such as extensive taped conversations, reports of undercover officers, and extensive documentation. And, in this new electronic age, they will also refute their own words, made public through social media.

See more on this case at CBS New York, the New York Times, the Wall Street Journal, the Daily Beast, and many more.

Lesson Learned

  • Tragically, some of the greatest opportunities to commit fraud can arise from our greatest efforts to do good. Nonprofits and governments pay out enormous amounts of money in response to natural disasters and terrorist acts, with a focus on speed rather than security, to ensure that those who are in need are cared for. The environment is extremely tempting for a fraudster willing to take advantage of society’s charitable urges.
  • It is important to use all available data in your efforts to detect ongoing fraud. In this case, large numbers of disability applications from individuals with similar backgrounds used identical language to describe mental health issues. Advanced data analysis techniques allow us to identify those types of issues, which are a significant red flag for fraud.
  • In this day and age, almost everyone has social media accounts through Facebook, Twitter, YouTube, and other websites. Activity posted to these accounts can tell a lot about a person, and a case like this is a good reminder that you should be very cautious with your public persona.

Raffa Forensic Practice Tips:

  • It is always difficult to balance the need to fulfill your mission efficiently with the need to reduce possible fraud, but you should constantly be considering what risks you face as an organization when you expend funds.
  • Does your organization periodically assess its fraud risks and respond to internal and external changes in the risk environment?
  • Your organization probably collects more data than you even realize during the normal course of business, which you should be taking full advantage of.
  • Does your organization have a strategy for conducting ongoing, real-time data analysis to identify potential red flags for fraud?

DON’T BE THE NEXT VICTIM OF FRAUD!

The Raffa Forensic Accounting Services Practice offers a wide variety of fraud prevention and detection services including Fraud Risk Assessments, Background and Workplace Investigations, Fraud and Internal Investigations, Transactional Due Diligence Investigations, Anti-Fraud Consulting and Training, and Computer Forensic Analysis.

For more information on the Raffa Forensic Accounting Services Practice please visit us at www.raffa.com/ProfessionalServices/Forensic/ and the Nonprofit Fraud Prevention Institute at www.raffa.com/Fraud.

You can also contact the following Raffa professionals with any questions or if your organization needs assistance in fraud prevention:

Lawrence J. Hoffman, CPA/CFF, CVA, CFE, Senior Partner:  Lhoffman@raffa.com

Leslie C. Kirsch, CFE, Manager:  Lkirsch@raffa.com

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