Cooking the Books with Fuel Fraud

SPECIAL TO THE WEB

Robert Tie
Contributing Writer, Fraud Magazine

The nation's energy industry might soon seek more CFEs. False-statement frauds have plagued a complex federal program that mandates production of renewable fuel to reduce consumption of gasoline and diesel fuel and reliance on foreign oil.

Federal district courts in Maryland and Texas, in unrelated trials, recently convicted two men of stealing $60 million from the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) program and numerous energy companies participating in it.

Under RFS, the EPA mandates the production of ethanol, biodiesel and other renewable fuels in volumes that by law increase annually — from 9 billion gallons in 2008 to 36 billion gallons in 2022.

Civilian tips on the suspects’ unusual behavior alerted investigators to both schemes, which until then had evaded existing EPA controls. The crooks were particular about how they got around. One, looking ahead, bought a Patton tank and a Gulfstream jet. The other, living in the moment, accumulated a fleet of ostentatious cars.

The fraudsters reported producing vast amounts of renewable fuel but actually made none. Through those misrepresentations they illicitly earned renewable fuel production credits that they sold on an EPA-hosted online trading system to buyers who, in good faith, assumed the credits were valid.

A proposed EPA Quality Assurance Program (QAP) designed to detect and deter such frauds could create employment or engagement opportunities for CFEs who are familiar with the energy industry and can demonstrate how their special skills could be useful in QAP.

JUST DESERTS FOR ALL?

The fraudsters have given up their toys, paid heavy fines and restitution and begun serving 12 to 15 years behind bars. They weren't the only ones punished, though.

RFS participants’ confidence went into a tailspin when EPA took enforcement actions against the victimized companies for not satisfying the renewable fuel quotas they were trying to meet when they were swindled.

The fines amounted to de facto penalties for not performing better due diligence before completing transactions with the fraudsters, who also participated in the RFS program.

“Since its inception in 2007, this has been a ‘buyer beware’ market,” says David Bennett, CFE, CPA, founder of RIN Attest and Advisory Services, LLC, a Stamford, Conn., firm that provides compliance and advisory services to more than 100 companies in the renewable fuel sector.

Read the full article at Fraud-Magazine.com.

Data Visualization – More Than Pretty Pictures

GUEST BLOGGER

Jeremy Clopton, CFE, CPA, ACDA
Managing Consultant, Forensics and Valuation Services, BKD, LLP

With “big data” comes the desire to see and better understand it. As investigators, that is one of our main objectives. While infographics and data posters are designed as art, there are other uses of data visualization as well. We need to understand the data in our cases so we can use it to detect fraud. I can think of many instances in my career where data visualization helped me, a colleague or a court better understand the data in an investigation.

Thinking back over my career, one case that demonstrates this concept stands out. While investigating a potential conflict of interest, we looked for vendors located near an employee's residence. Naturally, we decided the best approach would be to plot all of the vendor and employee addresses on a map. What we saw was quite interesting. None of the vendors were located near the employee on which we were focused. There was, however, another employee with a vendor very near. The employee and vendor were located more than 50 miles from the company address and the vendor was a casino. A new investigation quickly followed. Data visualization helped identify this previously unknown relationship and uncover a multi-year fraud scheme.  

While this is only one example of using data visualization to detect fraud, there are many other applications of the same concept. Simple distribution charts showing checks issued by day of week or time of day identify checks issued outside of normal business hours. Trend analyses of vendor payments indicate unusual patterns of activity, such as kickbacks. Network maps show relationships between various parties (remember the pictures on a bulletin board connected by yarn in the cop shows?). The use of data visualization in investigations is limited only by available data and your imagination.

Speaking of imagination, I am a Certified Public Accountant (CPA). As such, imaginative is not the first word many use to describe me. People generally shy away from describing accountants as creative. That simply means I tend to look at what others are doing in the world of data visualization to find new ideas. And I would encourage you to do the same. Read reports, especially the exhibits. Check out websites about data visualization (I like flowingdata.com). By exploring what others are doing you will be better equipped to incorporate data visualization into your next investigation. Who knows, maybe the visualization used to break open your next big case will also end up as a work of art in your office.

Find more insight from Jeremy at BKDForensics.com.

The Art of Persuasion: Mastering the Investigation Interviewing Process

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

Aesop, the great storyteller, said, “Persuasion is often more effectual than force.” I have a feeling Don Rabon would agree. Don is one of the ACFE’s most highly-rated faculty members, a past winner of the ACFE's Baker Award for speaking, a CFE and president of Successful Interviewing Techniques. He will lead a Pre-Conference session, “Persuasive Interviewing Techniques” at this year’s 24^th Annual ACFE Global Fraud Conference in Las Vegas this June.

In the clip below, Don gives a sneak peek into what he will discuss in his session and why persuasion remains one of the most challenging parts in the interviewing process.

Don’t forget about these other Pre- and Post-Conference sessions:

• Intellectual Property and Personal Information: Investigating Loss, Leaks and Theft
• Taking Data Analytics to the Next Level
• Persuasive Interviewing Techniques
• Auditing/Investigating Fraud Seminar
• Tracing and Recovering Fraud Losses
• Uncovering Fraud with Financial and Ratio Analysis

Find more details and the full Conference Agenda at FraudConference.com.