Archive for the ‘financial crime and fraud’ Category

Taxation — Interim Results of the 2014 Filing Season

April 21, 2014 Comments off

Interim Results of the 2014 Filing Season
Source: Treasury Inspector General for Tax Administration

The filing season, defined as the period from January 1 through mid-April, is critical for the IRS because it is during this time that most individuals file their income tax returns and contact the IRS if they have questions about specific laws or filing procedures.

The closure of Government operations between October 1 and October 16, 2013, reduced the time the IRS had to implement tax law changes and bring tax return processing systems online. The objective of this review was to provide selected information related to the IRS’s 2014 Filing Season. TIGTA plans to issue the final results of our analysis of the 2014 Filing Season in September 2014.

As a result of the Government closure, the IRS delayed the start of the filing season from January 21, 2014, to January 31, 2014. As of March 7, 2014, the IRS had received more than 67.1 million tax returns—more than 62.2 million (92.6 percent) were filed electronically and nearly five million (7.4 percent) were filed on paper. The IRS has issued more than 55.4 million refunds totaling more than $164 billion.

The IRS continues to expand identity theft filters to identify fraudulent tax returns. As of February 28, 2014, the IRS reports that it identified and confirmed 28,076 fraudulent tax returns involving identity theft. In addition, the IRS identified 57,316 tax returns with $385 million claimed in fraudulent refunds and prevented the issuance of $336 million (87.3 percent) of the fraudulent refunds it identified. The IRS also identified 36,801 prisoner tax returns for screening.

The use of the split refund option to direct deposit a refund into multiple bank accounts continues to grow. Through March 6, 2014, a total of 585,331 individuals chose to split refunds totaling more than $2.6 billion into multiple accounts. However, TIGTA continues to identify that some taxpayers and return preparers misuse this option to direct a portion of a tax refund to a preparer for payment of services.

TIGTA also found that some paid tax return preparers continue to be noncompliant with Earned Income Tax Credit due diligence requirements, but the number has decreased substantially when compared to the same period last filing season.

Finally, the IRS plans to assist 5.6 million taxpayers through face-to-face contact at the Taxpayer Assistance Centers during Fiscal Year 2014, which is one million fewer taxpayers than were assisted during Fiscal Year 2013. As of March 8, 2014, approximately 46.3 million taxpayers had contacted the IRS by calling one of the various toll-free Customer Account Services lines. The IRS continues to offer more self-assistance options that taxpayers can access 24 hours a day, seven days a week, including its IRS2Go app; YouTube channels; interactive self-help tools on; and Twitter, Tumblr, and Facebook accounts. However, the IRS did not always ensure that the self-help tools were updated with the most current tax information before the start of the filing season.

This report was prepared to provide interim information only. Therefore, no recommendations were made in the report.

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Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets

April 15, 2014 Comments off

Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets
Source: Journal of Finance, forthcoming (via SSRN)

We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker’s (1968) economic theory of crime, we identify the tax evasion component in foreign portfolio investment data by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border investment in equity and debt markets.

Companies are missing opportunities to mine big data to reduce fraud risk and improve anti-bribery compliance

March 28, 2014 Comments off

Companies are missing opportunities to mine big data to reduce fraud risk and improve anti-bribery compliance
Source: Ernst & Young

EY’s 2014 global forensic data analytics survey, Big risks require big data thinking, highlights that 63% of senior executives surveyed at leading companies around the world, agree that they need to do more to improve their anti-fraud and anti-bribery procedures, including the use of forensic data analytics (FDA). The survey polled over 450 executives in 11 countries, including finance professionals, heads of internal audit, compliance and legal, about their use of FDA in anti-fraud and anti-bribery compliance programs.

The survey also finds that 87% of respondents indicate that regulatory requirements, including anti-corruption laws and recent enforcement trends, are a driving force behind the design and use of FDA, with almost half indicating that these regulatory developments are a top five factor. Bribery and corruption is reported as the top perceived risk at 65%, which aligns well with the finding that 74% report using FDA to combat bribery and corruption. Other perceived significant fraud risk areas, such as asset misappropriation and financial misstatement, are also priority areas for FDA attention.

Audit of the Department of Justice’s Efforts to Address Mortgage Fraud

March 18, 2014 Comments off

Audit of the Department of Justice’s Efforts to Address Mortgage Fraud (PDF)
Source: U.S. Department of Justice, Office of Inspector General

DOJ and its components have repeatedly stated publicly that mortgage fraud is a high priority and during this audit we found some examples of DOJ-led efforts that supported those claims. Two such examples are the Criminal Division’s leadership of its mortgage fraud working group and the FBI and USAOs’ participation on more than 90 local task forces and working groups. However, we also determined during this audit that DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements. For example, the Federal Bureau of Investigation (FBI) Criminal Investigative Division ranked mortgage fraud as the lowest ranked criminal threat in its lowest crime category.1 Additionally, we found mortgage fraud to be a low priority, or not listed as a priority, for the FBI Field Offices we visited, including Baltimore, Los Angeles, Miami, and New York. We also found that while the FBI received $196 million in appropriated funding to investigate mortgage fraud activities from fiscal years 2009 through 2011, in FY 2011 the number of FBI agents investigating mortgage fraud as well as the number of pending investigations decreased.

FTC Announces Top National Consumer Complaints for 2013

March 14, 2014 Comments off

FTC Announces Top National Consumer Complaints for 2013
Source: Federal Trade Commission

Identity theft continues to top the Federal Trade Commission’s national ranking of consumer complaints, and American consumers reported losing over $1.6 billion to fraud overall in 2013, according to the FTC’s annual report on consumer complaints released today.

The Commission received more than two million complaints overall, as reported in the agency’s Consumer Sentinel Network Data Book 2013, of which 290,056, or 14 percent, were identity theft related. Thirty percent of these incidents were tax- or wage-related, which continues to be the largest category within identity theft complaints.

The highest reported age group for identity theft is 20-29, with 20 percent of complaints. Rich says that educating consumers on this topic is a top priority for the agency. Some of the FTC resources include Signs of Identity Theft, Immediate Steps to Repair Identity Theft, and How to Keep Your Personal Information Secure.

Of the more than 1.1 million fraud complaints (classified separately from identity theft) the Commission received, 61 percent of consumers reported an amount of money they had paid, which collectively added up to more than $1.6 billion.

Caught In The Scammer’s Net: Risk Factors That May Lead to Becoming an Internet Fraud Victim, AARP Survey of American Adults Age 18 and Older

March 12, 2014 Comments off

Caught In The Scammer’s Net: Risk Factors That May Lead to Becoming an Internet Fraud Victim, AARP Survey of American Adults Age 18 and Older
Source: AARP Research

The present study surveyed some 11,271 individuals age 18 and older nationally and in 12 state oversamples. The survey sought to answer the following questions:

1. Are there behaviors and life experiences that may increase a person’s risk of becoming a victim of online fraud?
2. What proportion of individuals nationally, and in particular target states may be at risk of being victimized by online fraud?
3. How concerned are Americans about online fraud and what if any steps are they taking to protect themselves?

Data from this national and multi-state survey of over 11,000 online users also shows that Americans are very concerned about online fraud, yet many avoid taking basic precautions to protect themselves.

Medicaid Fraud Control Units Fiscal Year 2013 Annual Report

March 11, 2014 Comments off

Medicaid Fraud Control Units Fiscal Year 2013 Annual Report
Source: U.S. Department of Health and Human Services, Office of Inspector General

The Department of Health and Human Services (HHS) OIG is the designated Federal agency that oversees State Medicaid Fraud Control Units (MFCU or Unit). This MFCU Fiscal Year (FY) 2013 Annual Report highlights statistical achievements from the investigations and prosecutions conducted by the 50 MFCUs nationwide. The report also explores relevant policy issues that affect Medicaid fraud work and describes oversight activities undertaken by OIG. This report represents a new effort by OIG to compile in one document information about MFCU activities and results, and we anticipate issuing annual reports for future years.

We based the information in this report on an analysis of data from six sources: (1) Quarterly Statistical Reports submitted by Units; (2) supplemental data collected from Units for this FY 2013 MFCU Annual Report; (3) HHS OIG exclusion data; (4) information gathered through onsite reviews; (5) MFCUs’ Memorandums of Understanding (MOUs) with their State Medicaid agencies; and (6) the annual reports of individual MFCUs. All statistical information is current as of January 31, 2014, except where otherwise noted.

In FY 2013, MFCUs nationwide reported a total of 1,341 criminal convictions in cases involving Medicaid fraud and patient abuse and neglect, and criminal recoveries reached nearly $1 billion. Criminal convictions involved a variety of provider types, most notably home health agencies. MFCUs also obtained 879 civil settlements and judgments in FY 2013, and civil recoveries totaled over $1.5 billion. Civil settlements and judgments involved a variety of provider types, most notably pharmaceutical companies. MFCUs are an important source of referrals to the OIG for purposes of provider exclusions; for over 1,000 Medicaid providers convicted in MFCU cases, OIG took further action to exclude them from all Federal health care programs, including Medicare, in FY 2013.

We found that a lack of fraud referrals to MFCUs from Medicaid managed care organizations (MCOs) presents challenges; Unit officials expressed concern that some MCOs may not have incentive to refer providers suspected of fraud. We also found that recent provider payment suspension rules enacted by the Patient Protection and Affordable Care Act (ACA) require more coordination between MFCUs and State Medicaid agencies. Finally, in its oversight role during FY 2013, OIG conducted 10 onsite reviews of Units, published 8 reports on onsite reviews, issued regulations to allow data mining by MFCUs, and proposed additional authorities for Units to investigate allegations of patient abuse and neglect.

Departments of Justice and Health and Human Services announce record-breaking recoveries resulting from joint efforts to combat health care fraud

February 26, 2014 Comments off

Departments of Justice and Health and Human Services announce record-breaking recoveries resulting from joint efforts to combat health care fraud
Source: U.S. Department of Health and Human Services, Office of Inspector General

Attorney General Eric Holder and HHS Secretary Kathleen Sebelius today released the annual Health Care Fraud and Abuse Control (HCFAC) Program report showing that for every dollar spent on health care-related fraud and abuse investigations through this and other programs in the last three years, the government recovered $8.10. This is the highest three-year average return on investment in the 17-year history of the HCFAC Program.

The government’s health care fraud prevention and enforcement efforts recovered a record-breaking $4.3 billion in taxpayer dollars in Fiscal Year (FY) 2013, up from $4.2 billion in FY 2012, from individuals and companies who attempted to defraud federal health programs serving seniors or who sought payments from taxpayers to which they were not entitled. Over the last five years, the administration’s enforcement efforts have recovered $19.2 billion, up from $9.4 billion over the prior five-year period. Since the inception of the program in1997, the HCFAC Program has returned more than $25.9 billion to the Medicare Trust Funds and treasury.

These recoveries, released today in the annual HCFAC Program report, demonstrate President Obama’s commitment to making the elimination of fraud, waste and abuse, particularly in health care, a top priority for the administration. This is the fifth consecutive year that the program has increased recoveries over the past year, climbing from $2 billion in FY 2008 to over $4 billion every year since FY 2011.

Citigroup: A Case Study in Managerial and Regulatory Failures

February 20, 2014 Comments off

Citigroup: A Case Study in Managerial and Regulatory Failures
Source: Indiana Law Review (forthcoming); GWU Legal Studies Research Paper; GWU Law School Public Law Research Paper

Citigroup has served as the poster child for the elusive promises and manifold pitfalls of universal banking. When Citicorp merged with Travelers to form Citigroup in 1998, Citigroup’s leaders and supporters asserted that the new financial conglomerate would offer unparalleled convenience to its customers through “one-stop shopping” for banking, securities and insurance services. They also claimed that Citigroup would have a superior ability to withstand financial shocks due to its broadly diversified activities.

By 2009, those bold predictions of Citigroup’s success had turned to ashes. Citigroup pursued a high-risk, high-growth strategy during the 2000s that proved to be disastrous. As a result, the bank recorded more than $130 billion of losses on its loans and investments from 2007 to 2009. To prevent Citigroup’s failure, the federal government provided $45 billion of new capital to the bank and gave the bank $500 billion of additional help in the form of asset guarantees, debt guarantees and emergency loans. The federal government provided more financial assistance to Citigroup than to any other bank during the financial crisis.

During its early years, Citigroup was embroiled in a series of high-profile scandals, including tainted transactions with Enron and WorldCom, biased research advice, corrupt allocations of shares in initial public offerings, predatory subprime lending, and market manipulation in foreign bond markets. Notwithstanding a widely-publicized plan to improve corporate risk controls in 2005, Citigroup continued to pursue higher profits through a wide range of speculative activities, including leveraged corporate lending, packaging toxic subprime loans into mortgage-backed securities and collateralized debt obligations, and dumping risky assets into off- balance-sheet conduits for which Citigroup had contractual and reputational exposures.

Post-mortem evaluations of Citigroup’s near-collapse revealed that neither Citigroup’s managers nor its regulators recognized the systemic risks embedded in the bank’s far-flung operations. Thus, Citigroup was not only too big to fail but also too large and too complex to manage or regulate effectively. Citigroup’s history raises deeply troubling questions about the ability of bank executives and regulators to supervise and control today’s megabanks.

Citigroup’s original creators – John Reed of Citicorp and Sandy Weill of Travelers – admitted in recent years that Citigroup’s universal banking model failed, and they called on Congress to reinstate the Glass-Steagall Act’s separation between commercial and investment banks. As Reed and Weill acknowledged, the universal banking model is deeply flawed by its excessive organizational complexity, its vulnerability to culture clashes and conflicts of interest, and its tendency to permit excessive risk-taking within far-flung, semi-autonomous units that lack adequate oversight from either senior managers or regulators.

Panama: Detailed Assessment Report—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

February 20, 2014 Comments off

Panama: Detailed Assessment Report—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Source: International Monetary Fund

Panama is vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes. It is a country with an open, dollarized economy and, as a regional and international financial and corporate services center, offers a wide range of offshore financial and corporate services. It is also a transit point for drug trafficking from South American countries with some of the highest levels of production and trafficking of illegal drugs in the world. These factors put the country at high risk of being used for ML. Although the authorities have not conducted a risk assessment, they attribute the largest sources of ML to drug trafficking and other predicate crimes committed abroad. No information or estimates were provided on the extent of domestic and foreign predicate crimes and the amount of related ML in Panama. No terrorism financing (TF) cases have been detected so far.

A New Identity Fraud Victim Every Two Seconds in 2013 According to Latest Javelin Strategy & Research Study

February 20, 2014 Comments off

A New Identity Fraud Victim Every Two Seconds in 2013 According to Latest Javelin Strategy & Research Study
Source: Javelin Strategy & Research

The 2014 Identity Fraud Study released today by Javelin Strategy & Research, reports an increase of more than 500,000 fraud victims to 13.1 million people in 2013, the second highest number since the study began. Account takeover fraud hit a new record in incidence for the second year in a row and accounted for 28 percent of all identity fraud. Additionally, fraudsters increasingly turned to eBay, PayPal and Amazon with the stolen information to make purchases. In 2013, data breaches became more damaging, with one in three people who received a data breach notification letter becoming an identity fraud victim. Encouragingly, the amount criminals stole decreased by $3 billion to $18 billion, reflecting more aggressive actions from financial institutions, identity theft protection providers and consumers.

CRS — Food Fraud and “Economically Motivated Adulteration” of Food and Food Ingredients

February 19, 2014 Comments off

Food Fraud and “Economically Motivated Adulteration” of Food and Food Ingredients (PDF)
Source: Congressional Research Service (via MSPB Watch)

Food fraud, or the act of defrauding buyers of food or ingredients for economic gain—whether they be consumers or food manufacturers, retailers, and importers—has vexed the food industry throughout history. Some of the earliest reported cases of food fraud, dating back thousands of years, involved olive oil, tea, wine, and spices. These products continue to be associated with fraud, along with some other foods. Although the vast majority of fraud incidents do not pose a public health risk, some cases have resulted in actual or potential public health risks. Perhaps the most high-profile case has involved the addition of melamine to high-protein feed and milk-based products to artificially inflate protein values in products that may have been diluted. In 2007, pet food adulterated with melamine reportedly killed a large number of dogs and cats in the United States, followed by reports that melamine-contaminated baby formula had sickened thousands of Chinese children. Fraud was also a motive behind Peanut Corporation of America’s actions in connection with the Salmonella outbreak in 2009, which killed 9 people and sickened 700. Reports also indicate that fish and seafood fraud is widespread, consisting mostly of a lowervalued species, which may be associated with some types of food poisoning or allergens, mislabeled as a higher-value species. Other types of foods associated with fraud include honey, meat and grain-based foods, fruit juices, organic foods, coffee, and some highly processed foods.

Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud

February 18, 2014 Comments off

Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud (PDF)
Source: Financial Industry Regulatory Authority/National Center for Victims of Crime

Financial fraud is real and can be devastating. Fortunately, in every community there are individuals in a position to provide tangible help to victims. To assist them, the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and the National Center for Victims of Crime joined forces in 2013 to develop Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud.

Prevention is an important part of combating financial fraud. We also know that financial fraud occurs in spite of preventive methods. When fraud occurs, victims are left to cope with the aftermath of compromised identities, damaged credit, and financial loss, and a painful range of emotions including anger, fear, and frustration.

This guide gives victim advocates a roadmap for how to respond in the wake of a financial crime, from determining the type of fraud to reporting it to the proper authorities. The guide also includes case management tools for advocates, starting with setting reasonable expectations of recovery and managing the emotional fallout of financial fraud.

Our hope is that this guide will empower victim advocates, law enforcement, regulators, and a wide range of community professionals to capably assist financial victims with rebuilding their lives.

CRS — Identity Theft: Trends and Issues

January 28, 2014 Comments off

Identity Theft: Trends and Issues (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

In the current fiscal environment, policymakers are increasingly concerned with securing the economic health of the United States—including combating those crimes that threaten to undermine the nation’s financial stability. Identity theft is one such crime. In 2012, about 12.6 million Americans were reportedly victims of identity fraud, and the average identity fraud victim incurred a mean of $365 in costs as a result of the fraud. Identity theft is often committed to facilitate other crimes such as credit card fraud, document fraud, or employment fraud, which in turn can affect not only the nation’s economy but its security. Consequently, in securing the nation and its economic health, policymakers are also tasked with reducing identity theft and its impact.

CMS and Its Contractors Have Adopted Few Program Integrity Practices To Address Vulnerabilities in EHRs

January 9, 2014 Comments off

CMS and Its Contractors Have Adopted Few Program Integrity Practices To Address Vulnerabilities in EHRs
Source: U.S Department of Health and Human Services, Office of Inspector General

Electronic health records (EHRs) replace traditional paper medical records with computerized recordkeeping to document and store patient health information. Experts in health information technology caution that EHR technology can make it easier to commit fraud. For example, certain EHR technology features may be used to mask true authorship of the medical record and distort information to inflate health care claims. The transition from paper records to EHRs may present new vulnerabilities and require CMS and its contractors to adjust their techniques for identifying improper payments and investigating fraud.

We sent an online questionnaire to CMS administrative and program integrity contractors that use EHRs to pay claims, identify improper Medicare payments, and investigate fraud. We also reviewed guidance documents and policies on EHRs and fraud vulnerabilities that CMS and its contractors released for health care providers. Lastly, we reviewed documents on EHRs and Medicare claims that CMS provided to its contractors.

CMS and its contractors had not changed their program integrity strategies in light of EHR adoption. Few CMS contractors had adopted few program integrity practices specific to EHRs. Specifically, few contractors were reviewing EHRs differently from paper medical records. In addition, not all contractors reported being able to determine whether a provider had copied language or overdocumented in a medical record. Finally, CMS had provided limited guidance to Medicare contractors on EHR fraud vulnerabilities.

Our report made two recommendations. First, CMS should provide guidance to its contractors on detecting fraud associated with EHRs. CMS could work with contractors to identify best practices and develop guidance and tools for detecting fraud associated with EHRs. Specific guidance should address EHR documentation and electronic signatures in EHRs. Second, CMS should direct its contractors to use providers’ audit logs. Audit log data distinguish EHRs from paper medical records and could be valuable to CMS’s contractors when reviewing medical records. CMS concurred with our first recommendation and partially concurred with the second recommendation.

Spotlight On… Fighting Fraud at Community Mental Health Centers

December 19, 2013 Comments off

Spotlight On… Fighting Fraud at Community Mental Health Centers
Source: U.S. Department of Health and Human Services, Office of Inspector General

Lethal Weapon. Tootsie. Ghostbusters. Batman. You may think these are great movies—some might argue they’re classics—but do they qualify as psychotherapy? Patients at Diagnostic and Behavioral Health Clinic watched these films for entertainment and participated in other recreational activities, such as playing games and going on field trips, while the clinic billed Medicare for mental health services. Therapists also charged for 1-hour sessions when patients were in-and-out the door in 15 minutes. As a result, the clinic improperly billed Medicare over $4 million. OIG’s investigation of this case led to the 1999 convictions of the owner and another employee.

Over a decade later, OIG and our law enforcement partners found that employees at another facility—American Therapeutic Corporation External link—concocted a $205 million fraud scheme involving fictitious companies, fabricated patient files, patient recruiters, kickbacks, and elaborate cover-ups. They also illegally prescribed unnecessary psychotropic medications. Prosecutors for the case charged dozens, and the three owners/operators received a combined 120 years in prison (additional information below).

Besides committing fraud, the facilities in these two examples have something else in common: both are Community Mental Health Centers (CMHC), a type of facility that provides mental health services to individuals who reside in a defined geographic area. Fraud at CMHCs is not new, and OIG studies on CMHCs show that it isn’t isolated. For example, the report Questionable Billing by Community Health Centers found approximately half of CMHCs had unusually high billing for at least one of nine questionable billing characteristics. These characteristics include billing for patients with no mental health diagnoses, billing for patients who participated in CMHCs outside their own communities, or billing for patients who were not referred by health care facilities. While there are procedures in place for detecting and deterring fraud involving CMHCs, another OIG report – Vulnerabilities in CMS’s and Contractors’ Activities to Detect and Deter Fraud in Community Mental Health Centers – identified a number of shortcomings in oversight of CMHCs and found the extent to which Medicare contractors engaged in anti-fraud activities varied considerably.

Victims of Identity Theft, 2012

December 16, 2013 Comments off

Victims of Identity Theft, 2012
Source: Bureau of Justice Statistics

Presents findings on the prevalence and nature of identity theft from the 2012 Identity Theft Supplement to the National Crime Victimization Survey. Identity theft is defined as the unauthorized use or attempted use of existing accounts, or the unauthorized use or attempted use of personal information to open a new account or for other fraudulent purposes. The report details the number and percentage of persons age 16 or older who reported at least one incident of identity theft over the past year. It describes how the personal information was obtained, financial losses due to identity theft, victim reporting to credit bureaus and police, and the impact of identity theft on victims’ lives. The report also presents a lifetime prevalence rate for identity theft and information on the preventative actions taken to avoid becoming a victim of identity theft.


  • About 7% of persons age 16 or older were victims of identity theft in 2012.
  • The majority of identity theft incidents (85%) involved the fraudulent use of existing account information, such as credit card or bank account information.
  • Victims who had personal information used to open a new account or for other fraudulent purposes were more likely than victims of existing account fraud to experience financial, credit, and relationship problems and severe emotional distress.
  • About 14% of identity theft victims experienced out-of-pocket losses of $1 or more. Of these victims, about half suffered losses of less than $100.„„
  • Over half of identity theft victims who were able to resolve any associated problems did so in a day or less; among victims who had personal information used for fraudulent purposes, 29% spent a month or more resolving problems.

TIGTA: IRS Must Do More To Reduce Fraud Involving Employer Identification Numbers

December 10, 2013 Comments off

TIGTA: IRS Must Do More To Reduce Fraud Involving Employer Identification Numbers
Source: Treasury Inspector General for Tax Administration

While the Internal Revenue Service (IRS) has developed processes to authenticate individuals applying for an Employer Identification Number (EIN), it needs to do more to prevent fraud committed using stolen EINs, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS issues EINs to identify taxpayers’ business accounts. Individuals attempting to commit tax refund fraud steal or falsely obtain an EIN to file tax returns that report false income and withholding. TIGTA’s report found that such fraud could top $11.4 billion in potentially fraudulent refunds over a five-year period.

The overall objective of TIGTA’s review was to assess the IRS’s processes for issuing EINs and identifying stolen or falsely obtained EINs used to report income and withholding.

TIGTA found that the IRS has developed processes to both authenticate individuals applying for an EIN and ensure that there is a valid business reason to obtain an EIN. However, TIGTA identified 767,071 Tax Year 2011 electronically filed individual tax returns with refunds based on falsely reported income and withholding. Of the 285,670 EINs used on these tax returns:

+ 277,624 were stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion.
+ 8,046 were falsely obtained EINs used to report false income and withholding on 14,415 tax returns with potentially fraudulent refunds issued totaling more than $50 million.

The IRS has developed a number of processes to prevent fraudulent refunds claimed using stolen and falsely obtained EINs. However, the IRS does not have the third-party Form W-2 information needed to make significant improvements in its detection efforts. Nonetheless, the IRS does maintain data that could increase its ability to detect tax returns with false income and withholding associated with stolen or falsely obtained EINs.

Identity Theft: IRS Detection Has Improved, Yet Billions Still Lost in 2011 Returns

November 7, 2013 Comments off

Identity Theft: IRS Detection Has Improved, Yet Billions Still Lost in 2011 Returns
Source: Treasury Inspector General for Tax Administration

Expanded identity theft detection efforts at the Internal Revenue Service (IRS) are helping to identify fraudulent tax returns, however, billions of dollars of potentially fraudulent refunds continue to be paid, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA’s report is a follow-up to a July 2012 report that found billions of dollars were being lost to identity theft in 2010. This report�s objective was to determine whether the IRS has improved its procedures to identify and prevent fraudulent tax refunds resulting from identity theft.

TIGTA’s analysis of Tax Year 2011 returns found that approximately 1.1 million undetected tax returns that were filed using a Social Security Number have the same characteristics of IRS- confirmed identity theft tax returns. Potentially fraudulent tax refunds issued total approximately $3.6 billion in 2011, which is down by $1.6 billion compared to the $5.2 billion TIGTA reported for Tax Year 2010.

TIGTA Report: The IRS Needs to Improve Customer Service for Identity Theft Victims

November 7, 2013 Comments off

TIGTA Report: The IRS Needs to Improve Customer Service for Identity Theft Victims
Source: Treasury Inspector General for Tax Administration

It took the Internal Revenue Service (IRS) an average of 312 days to resolve tax-related identity theft cases, according to a new report released by the Treasury Inspector General for Tax Administration (TIGTA) that studied a statistical sample of these cases.

This audit was a follow-up to a May 2012 identity theft audit report (PDF).

The IRS reported that identity theft affected 1.2 million taxpayers in Calendar Year 2012, and an additional 1.6 million were affected in Calendar Year 2013, as of June 29, 2013.

TIGTA’s review of a statistical sample of 100 identity theft cases closed between August 1, 2011 and July 31, 2012 found that the IRS correctly determined the rightful owner of the Social Security Number in all cases. However, taxpayers faced delays, with some cases having significant inactivity during case processing. Inactivity on the 100 identity theft cases averaged 277 days. This is due, in part, to assistors being required to also answer telephone inquiries during the Filing Season.

In addition, tax accounts were not correctly resolved for 25 percent of the cases reviewed by TIGTA, resulting in delayed refunds and/or incorrect refunds to all 25 taxpayers. TIGTA surveyed 183 IRS assistors who work identify theft cases. Seventy-three percent of those surveyed stated that the IRS’s identity theft procedures are confusing.

+ Full Report (PDF)


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