crown management capital reviews

Environmental Fraud

More subtle than midnight dumping

Environmental issues often aren't the focus of traditional fraudexaminations. But this type of fraud goes well beyond illegalmidnight chemical dumping. It includes such schemes asfalsification of data, marketing fraud, inflation of invoices, andfraudulent insurance claims.

A site owner responsible for environmental, health, and safetycompliance for a manufacturing facility is notified during thecourse of a periodic and routine monitoring program thatelevated levels of contaminants appear to be in thegroundwater wells used for detecting contamination andmigration from the site of pollutants. He's concerned that thismight reveal poor housekeeping practices, or even illegalactivities (such as handling prohibited hazardous materials),so the owner decides to engage the services of a laboratorythat employs an acquaintance willing to be bribed.

Together, they devise a sampling program that appears to be comprehensiveand in accordance with regulatory requirements on the surface. But theyswitch the samples so the laboratory receives clean versions (or cleaner thanexpected). The site manager then uses these cleaner analyses as a basis toconvince regulators that the company should undergo a less expensiveremedial effort or none at all thus saving the potentially high costs ofremediation and possible legal action by neighboring property owners. Butsuch a fraud, undetected for years, could eventually cost the companyhundreds of times more than the cost of an appropriate remediation.

While health-care fraud, identity theft, and construction schemes continue tograb the headlines, environmental fraud isn't often thought to be a great riskto companies. But environmental fraud goes well beyond disregardingenvironmental laws. It includes schemes such as falsification of data, inflationof invoices, and fraudulent insurance claims. Here we'll describe the waysenvironmental fraud is perpetrated and what can be reasonably done to limitit.

POTENTIAL FOR FRAUD IN ENVIRONMENTAL MATTERS

Mention environmental "issues" and the average person mostlikely will think of illegal polluters blatantly violatingenvironmental regulations such as illegal midnight dumping.Although these are certainly problems that affect society,environmental fraud can and does occur in many more anddiverse instances. Given the complexity of environmentalprojects, fraud has a very good chance of success particularlybecause most concerns are focused on transactions that involvepayments and procurement, which leaves many other areasexposed.