#EPA-OIG: Inadequate EPA Labs’ resourcing and controls cause far reaching, mission critical fraud schemes

Well, that isn’t the title really; the real title is referenced below (it is an OIG Report, what did you expect?).  But the title above is the meaning a new Administration will give to the real title.  Agents, anticipating where the enforcement target will be after IG’s and priorities are set and knowing the true scope of fraud in EPA contracts (that is what agents do), will be coursing hunting grounds made more plentiful under a new Administration that is likely to be newly supportive of grant fraud and procurement fraud enforcement (GFPFE).  As a white collar criminal defense attorney, I am skeptical of anything an enforcer tells me or my clients, but to effectively gauge risk, you have to try to think like an enforcer in the agency context she finds herself in.

“Report: Fraud Controls for EPA’s Contract Laboratory Program Are Adequate, but Can Be Strengthened With Formal Risk Assessment and Investigative Information Sharing

Report #17-P-0119, March 6, 2017 What Was Found

The impacts of lab fraud include risks to human health and the undermining of EPA regulatory programs.”

Sounds pretty bad, but with the ho-hum, conclusory phrasing you might just blow right by it.  It is actually as bad or worse than it sounds.  Inside the report we learn that:

Lab fraud investigations “comprise 1% of total caseload” [page 16].  

I already set forth here why grant fraud and procurement fraud enforcement was compromised across the enforcement platform, and why it is likely to be reinvigorated. Just like Trump’s green policy would benefit from problems found in EPA contracts and grants, Obama’s green policy made it difficult to engage in meaningful GFPFE involving green spending.
The Report claims 1% fraud waste and abuse in EPA lab contracts (for those of you following along, as questionable as this might sound, this is 10X the fraud rate claimed in 2010 by Vice President Biden regarding ARRA). Incredible.  No $10,000 toilet seats at EPA.  They did it again, near flawless execution.  We will just buff out that 1%.  But wait a minute—it’s not really clear what the cause and effect is of this 1% fraud rate is.  Fraud, waste and abuse is probably low in Ghana too if you measure it by fraud prosecutions.  Is the percentage of fraud cases so low because there isn’t any fraud, or is it low because the effort to detect and investigate fraud is insufficient?

“Each office described resource limitations that would limit detailed analysis of lab fraud investigations and the formal sharing of information outside of the affected program office. For example, OCEFT/CID said it does not have a large analytical group, and its staff numbers are down 20 percent or so over the past 6 to 8 years. OIG/OI said it conducted trend analyses when it had a lab fraud directorate; however, that group has since disbanded and now OIG/OI does not monitor or analyze proactively.” [Page ?]

OK, so it looks like we have some resource constraints and there seems to be no program to funnel “lessons learned” from fraud investigations back into the audit corps, so they know what to look for when they are doing audits.  But, wait a minute, anyone in the business knows that it is actually much worse than that because it would be rare if EPA auditors were properly trained to identify red flags of fraud and refer them at earliest stages to investigative agents. Audit components like to get dollars through the audit pipeline and nothing gums up the works like a referral to the agents. No reference anywhere in the Report about that effective yet elusive fraud enforcement protocol.

So fraud is not a big problem because filed cases only affect 1% of lab contracts.  This may be the IG report equivalent of the cop standing in front of a grisly accident scene trying to keep traffic moving smoothly: “OK, keep moving, nothing to see here…”  There is one additional quick litmus test we can run to see what we are really dealing with.  Does the report give us any insight into the types, volume and significance of the fraud problem in terms of the kinds of cases brought.  Did a space ship crash because a grant was improperly administered or did a mousetrap vendor use the wrong locality for an overhead rate?   Sure enough the IG Report provides us with handy break out of case examples on page 18.

“Examples of Lab Fraud Impacts
·A recent CLP lab fraud case led OLEM to determine that the quality of the data could not be assessed and should not be used for any site cleanup decisions. OLEM issued a recall of all the data produced by the lab. The recall covered all 10 EPA regions and impacted a total of 237 sites. Funds expended on the analysis of the recalled data were approximately $2.3 million.

OK, a fraud scheme that involved garbage-in garbage-out data that rendered all of it useless and impacted 237 sites.  Does this sound serious? I think so.  Next up:

  • Three former employees of a drinking water laboratory were found to have falsified  over a 3-year period. Customers affected included schools, day care facilities, government entities, restaurants and mobile home communities.

Gee, anyone recall any worst case scenario mass poisoning of drinking water cases in the last year (think Flint)?  Fake data for three years?  Was that quick detection?  Does this sound serious?  I think so.  Next.

  • The operator of a mass spectrometer, located in a U.S. Geological Survey laboratory responsible for conducting coal and water quality assessments in projects both in the U.S. and abroad, was accused of scientific misconduct and manipulating data. The agency’s review revealed far-ranging impacts: retracted or delayed publications due to inaccurate information, diminished employee morale, and reduced public trust in agency-generated information. Moreover, the agency found that 24 research and assessment projects of national and global interest were potentially affected, and that the projects represented about $108 million in funding

 

That doesn’t sound good.  You mean a USGS lab was cranking out false spectrometer data which corrupted enforcement decisions and 24 research and assessment projects nationally?  Oh, and globally?!  Apparently the Mars Program was unaffected.  Really?  I suspect there is an interesting back story here that perhaps some reporter might like to explore it.  Was this a situation where data was made worse to achieve some political agenda?  New enforcers will take a dim of this the enforcement stimulative effect.

  • A lab president was sentenced to serve 48 months incarceration and pay a $50,000 fine stemming from concealing and falsifying pesticide residue tests used by the EPA to determine whether levels of pesticide residues in foods are safe and protective of public health. The lab was sentenced to pay a $15.4 million fine. The president and the company also each paid $3.7 million in restitution to defrauded pesticide manufacturers and the EPA. The defendants falsified the results of their tests in order to save time and money that would have been necessary to repeat tests that did not meet calibration or QC requirements. [Page ?]

 

Falsified test results involving food is never ideal.  Think this is serious.  I think so.

 

Obviously, the cases referenced above involve serious fraud over a long period of time using what must have been complex schemes.  Generally, the environment that makes these devastating schemes possible is not so exacting that it would effectively deter fraud in the rest of the 99% of lab contracts.  Not only will a new Administration see it this way, but current agents with whom I have spoken and former agents we have worked with concur in the above opinion.

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