Courtney Schenkel | Director
It seems the headlines never end, constantly riddled with an array of natural disasters – hurricanes, tornadoes, floods, fires. Natural disasters plague us year round. Tornados whirl from March to July in the South and Midwest; hurricanes wreak havoc from June to November along the coast; fires rage throughout late summer and fall; floods caused by the sudden downpours and dare I mention the snow? It seems we barely have time to recover from one catastrophe before the next disaster strikes.
Disasters have the ability to bring neighbors together during cleanup efforts and rally support from other communities through fundraising and charity work. Unfortunately, fraudsters prowl in the background of these catastrophes hoping to prey on vulnerable individuals and organizations for financial gain.
Natural disaster fraud is an intentional deception to defraud individuals and the government that results in personal gain. There are various types of natural disaster fraud including; charitable solicitation, vendor/contractual fraud, price gouging, insurance fraud and forgery/impersonation.
Charitable solicitation fraud may occur when a fraudster poses as a legitimate organization, such as the Red Cross, or a non-existent charity established to support relief efforts. Phony websites reach a worldwide audience and are created to collect credit card and other personal information that is later sold or used.
Vendor and contractual fraud occurs when an contracted person or entity enters into an agreement with no intention of actually repairing the damages. Vulnerable victims who are desperate for help after a disaster may neglect normal precautions when hiring a contractor, such as checking references, due to the immediate need for the repair. Scam artists present themselves as reputable contractors from outside the area to help meet demand. They may be seen working door-to-door providing estimates and requesting deposits and prepayments for their services.
Price gouging happens when businesses increase the costs of vital goods in demand or in limited supply at the expense of natural disaster victims. The majority of states currently have legislation making it illegal to increase prices during disasters.
Insurance fraud against insurance companies includes inflating losses (also known as opportunistic fraud), faking repairs or damages, and in some cases deliberately causing damage to property and personal belongings. Another type of insurance fraud could include submitting duplicate claims through an insurance policy and to FEMA for the same damage.
Forgery commonly includes stolen reimbursement checks, submission of false building permits and receipts for claims. Additionally, imposters have gone door to door in neighborhoods impersonating FEMA inspectors or government officials. They ask for personal information and details on damages to file for relief funds before the victim. In some aggressive instances they are known to ask for unsupervised admittance into affected homes in order to gain access to valuables.
Established in 2005, in the wake of Katrina, the National Center for Disaster Fraud (NCDF) was formed, in order to combat and improve the detection, prevention, investigation and prosecution of natural disaster fraud. The NCDF is a partnership between the U.S. Department of Justice and various law enforcement and regulatory agencies. During the time of Hurricane Katrina, over 1,300 cases of disaster fraud were prosecuted which had reported an estimated total of $108 billion in economic damages. Included in these damages was an estimated $34.4 billion of insured loss claims. Approximately $80 billion of government funding was appropriated for reconstruction and development. It is estimated that insurance fraud may have accounted for as much as $6 billion of this total funding.
While you may not be directly affected by a specific natural disaster, we all pay for the scams. Government aid is funded with taxpayer dollars and insurance claims with insurance premiums. According to FBI.gov, the total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. By this estimate, the average family pays between $400 and $700 per year in the form of increased premiums.
While it may seem daunting, some prevention is possible. The FBI, FEMA and other agencies published guidelines for consumers including:
- Always ask to see an FEMA inspectors laminated photo ID badge
- State and Federal workers will not ask or accept money
- FEMA will notify survivors by phone or mail if their applications are receiving additional scrutiny
- Be skeptical of individuals representing themselves as victims or officials asking for donations
- Beware of organization with copy-cat names to reputable charities
- Beware of emails that claim to show pictures of disaster relief areas – they may contain viruses
- Do not give personal information that may compromise your identity
- Make contributions directly to known organizations
- Verify spam schemes with web services like ScamBusters.org
As fraud plots are getting more complex it is of extreme importance to remain prepared and aware when a disaster is likely. Take the necessary precautions to protect yourself during times of natural disasters. Remember if you think you have been a victim of fraud, waste or abuse involving disaster relief operations contact NCDF at 866-720-5721 or firstname.lastname@example.org. Suspicious email solicitations and fraudulent websites can be reported to the FBI’s Internet Crime Complaint Center at www.ic3.gov.
About the Author: Courtney is a Director in StoneBridge Business Partners, an EFPR Group company. She has diverse experience in a variety of industries including: closely-held for profit companies, not-for-profits, ERISA engagements, and health care entities. She serves as a firm wide resource in areas of business acquisitions, due diligence and private equity transactions. Her experience in ERISA engagements include: defined benefit, defined contribution, health and welfare, and ESOP plans. She is a lead auditor for the United States Conference of Catholic Bishops performed throughout the United States. Courtney currently serves as a member of the Commercial Service team for EFPR Group, LLP.