Fraud Examples

Examples of Fraud in the Unemployment Insurance Program

Falsification of a Separation from Employment Case

The claimant fraudulently stated that she had been laid off from her job when in fact she actually quit. The claimant failed to meet all the work search requirements during her sixteen weeks on unemployment insurance, although she admitted knowing Texas Workforce Commission's work search requirements. This fraudulent behavior created a $5,248 overpayment, of which she has repaid $150. However, the commission is continuing its collection efforts.

Falsified Availability for Work Case

The claimant certified that he was able and available for work even though his doctor had not yet released him after a serious injury. The claimant failed to meet all of the work search requirements during the time he was receiving unemployment insurance (only four were made during eighteen weeks of unemployment). When confronted, the claimant admitted that he had taken advantage of the benefits by treating the time as a vacation. The claimant's fraudulent behavior created a $5,436 overpayment, which the commission is pursuing through its collection efforts.

Fictitious Employer Case

Example One. The claimant, an out of state resident, set up a fictitious employer in Texas, reported $54,167 in wages in his name, and paid $233 in taxes. The claimant then filed a claim for benefits and qualified for the maximum benefit amount of $8,528. The claimant successfully obtained $1,968 in benefits before the commission discovered the scheme and cancelled the benefits. Due to the commission's collection efforts, the claimant repaid the entire amount.

Example Two. A former employee of the Texas Workforce Commission, her daughter and son-in-law have reached plea deals acknowledging they defrauded the unemployment insurance program out of $167,000. Irma M. Richie, 55, and her daughter Mary A. Richie, 35, will each plead guilty Thursday to two counts - conspiracy to commit mail fraud and aiding and abetting mail fraud. U.S. District Judge Xavier Rodriguez is also expected to take a plea that day from David Murillo, 35, whose plea deal said he agreed to admit guilt to one count of aiding and abetting mail fraud. The three were charged in February in a nine-count indictment alleging the fraud occurred from March 1997 to April 2001. As part of their plea bargains, the government will drop all remaining counts. According to court records, Irma Richie processed claims for the commission from 1986 to May 31, 2000, and used her insider information to help set up the scheme. The ploy included setting up fake employers and then using the commission's automated TeleServ system to process bogus unemployment claims. Since the employers were fake, the claims were never challenged, so the Texas Workforce Commission paid them out, according to the plea deals. The trio agreed to pay $167,000 in restitution. Each of the counts carries a maximum of five years in prison.

Failure to Report Earnings Case

The claimant failed to report $2,620 in wages that he earned over a seven week period while simultaneously collecting $2,296 in unemployment benefits. When he was finally fired from this job for poor performance, he failed to disclose the termination on his next claim for benefits. The claimant's fraudulent behavior created a $6,560 overpayment, which the commission is pursuing through its collection efforts.

Examples of Fraud in the Health Care System

Medicaid

Billing for Non-Existent Services

Example One. The Williams' were owners of D&H Christian Case Management, Houston, TX, which was enrolled with the Medicaid program as a Licensed Professional Counseling provider. The two billed the Medicaid program for counseling services that were not rendered. The fraud resulted in a Medicaid overpayment of $632,424 of the $661,576 total paid to the company in one year. On May 24, 2004, Henry Williams was sentenced to 35 years in the state penitentiary. On June 3, 2004, Dranetta Williams was sentenced to 63 years in the state penitentiary. Both husband and wife were found guilty of Theft, a first-degree felony, for defrauding the state's Medicaid system. Both were ordered to make restitution to the state for the total amount of $632,424.

Example Two. A physician, Dr. Abdul Rashid Baluch, electronically filed medical claim forms for 150 -180 allergy tests he claimed to have performed when, in fact, he did not have sufficient allergens to perform that number of tests. He also prepared phony progress notes regarding the false allergy tests in case Medicaid or Medicare requested supporting documentation when reviewing the claims. The doctors had his staff randomly select 13 to 15 patient files per week and create "phantom" billings for dates on which he neither saw nor treated the patients whose insurance he billed. He instructed his staff to create false test results and false documentation, including progress notes, in order to conceal from Medicaid investigators and auditors his fraudulent billing activity and he submitted claims totaling more than $1.3 million to Medicaid for reimbursement on these "phantom" billings. The physician was sentenced to serve five years in prison following a guilty plea to health care fraud and money laundering charges. In addition, he agreed to pay $4 million to the government insurance programs he defrauded, including Medicare, Medicaid, and the FEHBP.

Note on Cases. The defendants in the first case received stiffer sentences because they choose to go to trial instead of plead the case like the defendant in the second case. Also, the two cases were tried in different jurisdictions.

Billing for Services Not Covered by Medicaid

In March 2003, a referral was made to the Medicaid Provider Integrity (MPI) Division by the Medicaid Audit Division at National Heritage Insurance Company (NHIC) regarding Just for Kids (JFK), a Comprehensive Outpatient Rehabilitation Facility (CORF). NHIC reported they were unable to secure adequate records from JFK and had to rely upon cancelled checks and bank statements to establish their findings in auditing the 2001 JFK cost report. Based on the audit findings for one year and a Medicaid Provider Integrity investigation, it was concluded that JFK submitted a cost report which contained costs not associated with the Medicaid Program; submitted a cost report containing costs not permitted by Medicaid Program policies; and failed to comply with Medicare and Medicaid policies. The Medicaid program pays all costs and then at the end of each year, reconciles the money paid out to all claims filed. It is at this time that the system will recognize if any unallowable costs were paid out. The investigation resulted in an agreed settlement amount of $1.2 million for unallowable costs in the 2001 cost report. The agency is still finalizing the 2002 and 2003 cost reports, when that is complete a decision on whether to file criminal charges will be made.

Workers' Compensation Provider Cases:

Billing for Non-Existent Services

Example One. A health care provider was billing for services not rendered. He also had unsupervised patients in a work hardening program. A work hardening program is one where an injured worker is put into a return-to-work oriented treatment which uses the worker's involvement in real or simulated work tasks to progressively increase the bio-mechanical, neuro-musculoskeletal, cardiopulmonary and psycho-social functions of the individual as its principle means of treatment. The fraud amount was just over $78,000. The health care provider was found guilty and sentenced to 3 years in a federal prison.

Example Two. A health care provider used deceptive means to obtain claimant information and then submitted fraudulent billings. The health care provider entered into an agreement to pay restitution of over $10,000 and be removed from the commission's Approved Doctor List.

Example Three. For a period of 4 years, a health care provider submitted false billings to various insurance carriers. The health care provider entered into a plea agreement and was sentenced to 60 months in a federal prison and restitution was ordered in the amount of over $2.7 million.

Billing for Services Different than the Ones Provided

A health care facility provided group aquatic therapy but billed as one-on-one aquatic therapy. The facility entered into a plea agreement where they paid a $10,000 fine, paid $168,346 in restitution to 15 carriers.

Injured Employee Cases:

Example One. An injured employee did not reveal employment while receiving Supplemental Income Benefits. The injured employee received approximately $38,384 in benefits she was not entitled to receive. The injured employee received deferred adjudication and was ordered to pay full restitution.

Example Two. An injured employee did not report his ownership of a business while earning workers' compensation benefits. The injured employee received approximately $3,946 in benefits he was not entitled to receive. The injured worker entered into a plea agreement and was sentenced to 2 years in jail, 5 years probation and fined $250.

Examples of Insurance Fraud

Consumer Fraud Cases

Faking Damages

Several individuals purchased two-story homes and also used homes of family and friends in a scheme to defraud their home insurers. Each time, furniture was removed from the house and old damaged furniture put in its place, and then using garden hoses, the individuals systematically flooded the interior of the house causing excessive water and mold damage. The insurer would be notified that a leak from a broken pipe occurred while the owners were away. Prior to the insurance adjuster arriving, the leak would have been repaired. Homes in the greater Houston area, Bay City and Austin were used in the insurance fraud scheme. Seven individuals were convicted in U.S. District Court, Houston and sentenced to more than 31 years, for their part in a scheme to defraud homeowner insurance companies out of more than $5,000,000. Those involved in the scheme were homeowners, independent sub-contractors, vendors and service providers in filing claims and repairing damages to the homes. Several homes were sold to among the group to repeat the process. They fabricated bills from repairing appliances to furnishings, clothing and electronics. Twelve TDI Fraud Unit Investigators along with Federal Law Enforcement Officers were involved in this investigation which has become the Fraud Unit's largest crackdown on fraudulent insurance claim filings.

Faking Prescription Drug Costs

Fraud Unit investigators identified numerous false prescription drug claims that were submitted by a Dallas resident to the health insurance plan during a 2 ½ year period. The health insurance company reimbursed the insured in excess of $44,000 for the false claims. The insured was convicted as part of an insurance fraud scheme to defraud a health insurance company of more than $44,000. The court imposed a sentence of 120 months deferred adjudication and ordered restitution in the amount of $44,656.93.

Insurance Agent Cases

Inflated Costs

Example One. A former adjuster from Denton devised a scheme to increase losses on legitimate homeowner's claims by attaching false repair invoices from fictitious companies, issuing checks in those company names, cashing and depositing the checks to accounts that he established. When questioned about the scheme, the adjuster said, "It was just play money," used to purchase anything he wanted. The individual was convicted in Austin, in a scheme to defraud an insurance company that he worked for out of more than $150,000. The court imposed sentence of 108 months deferred adjudication and ordered restitution in the amount of $148,999.98.

Example Two. A former Bryan agent who was an officer of an insurance premium finance company was devised a scheme to defraud the premium finance company of more than $450,000. Under the scheme more than forty-nine fraudulent premium contracts and disclosure statements were created without the knowledge of the insured persons or the premium finance company president, generating in excess of $450,000 to the agent. The agent was convicted and the court imposed a sentence of 120 months deferred adjudication and ordered restitution in the amount of $185,000.

Third Party Administrator Case

Skimming Money

A former Chief Financial Officer of a large licensed Third Party Administrator (TPA) involved in the payment of health care benefit claims, devised a scheme to defraud his employer. The scheme involved the siphoning off of money from the TPA to accounts controlled by the CFO. The CFO was convicted in U.S. District Court, Fort Worth, in a scheme to defraud his employer of more than $450,000. The court imposed a sentence of 96 months in jail and ordered restitution in the amount of $1,485,074. The court also seized in excess of $952,000 of personal property from the former CFO.

Examples of Fraud of Taxpayer Dollars (Not Including Medicaid)

Texas Department of Criminal Justice

Workers' Compensation

On June 11, the Office of Inspector General received information that a Texas Department of Criminal Justice (TDCJ) employee that had reported an on the job injury and been off work since the incident on December 30, 2002, was working additional jobs while receiving workers' compensation benefits. Additional information was received that the employee was conducting some of this work from his residence, which happened to be state housing.

Documents showed that the employee was receiving workers compensation benefits for a sprained knee and neck spasm. In accordance with the employee's claim, under the instruction of his medical doctor, the employee could not do any type of physical labor.

On March 25, 2004, the 52nd District Grand Jury, Coryell County, True Billed the employee for fraudulently obtaining workers compensation benefits, under Section 418 Workers' Compensation Act.

Texas Department of Transportation

Example One. In the spring of 2002, Texas Department of Transportation's (TxDOT) Laredo District cooperated with the Texas Rangers and the Webb County District Attorney's Office in an investigation involving a Laredo district employee and a construction company. The TxDOT employee, the employee has since been discharged, was indicted as were several of the construction company workers, in connection with a scheme involving approval of overpayments. This concerned a $60 million construction project. The criminal case is still pending. TxDOT's Austin audit office audited the project at the request of the Laredo district. As a result, the district recovered all overpayments from the contractor that had been approved by the TxDOT employee. Since then, several new policies have been put into place in the district to prevent similar fraud.

Example Two. A report released by the State Auditor's Office in May 2004 found that the department had not adequately managed a consultant contract for development of TxDOT's Statewide Traffic Analysis and Reporting System (STARS) project. TxDOT had undertaken its own investigation into the handling of the contract, resulting in the discharge of two employees and the resignation of a third. The state report said $501,066 was improperly paid the vendor. The contract has subsequently been terminated, with TxDOT seeking another vendor to complete the project.

Example Three. A Fort Worth District employee was convicted of felony theft for stealing aluminum guard railing and selling it to a metal recycling operation. In 2002, a district maintenance employee witnessed suspicious activity by a district construction employee. The Fort Worth District began a full internal investigation including a complete audit with the assistance of TxDOT's Audit Division. After the audit concluded, it found no fraud in regards to construction files or the construction program.

The audit did show potential theft by the district construction employee, and as a result, the Texas Rangers were notified about the potential criminal offense. The officer confirmed the theft of equipment and guardrail, followed up by a confession from the employee. The estimated replacement value of these items was approximately $325,000.

The officer arrested the employee and submitted the case to the local district attorney's office for prosecution. Restitution was also requested. The district immediately terminated the employee. Based on the former employee's previously good record, the district attorney chose to plea bargain with him for a reduced sentence. Much of the equipment was returned to the district, and the former employee was ordered to pay $15,529 in restitution.