In April of this year the former chairman of a housing authority in the eastern district of New York and some of his cronies were convicted of stealing more than $500,000 in federal money through bid-rigging schemes on construction projects. The crimes occurred between March 2011 and November 2012.
Later that month, the executive director of a housing authority near Columbus, Ohio, was sentenced to 30 months in prison and required to repay $431,000 after he pleaded guilty to embezzling federal Housing and Urban Development funds over a period of time stretching from January 2012 through September 2017.
In May, the president and the vice president of a construction company were convicted by a Miami court and sentenced to prison for 51 months and 41 months, respectively, in connection with falsified invoices submitted for federally funded projects during the period June 2014 to December 2016.
The U.S. Department of Justice website is replete with cases that serve as cautionary tales about the office’s serious intent to exercise the long, patient arm of the law.
Right now, the U.S. Virgin Islands has billions of extra reasons to keep an eye out for fraud.
The territory learned this spring that $1.86 billion has been authorized for it via Community Development Grant Block – Disaster Relief funds from the U.S. Department of Housing and Urban Development.
“And that’s just HUD money,” said U.S. Attorney Gretchen Shappert. FEMA assistance to the territory (actual and committed) stands at about $1 billion. And there are millions more in federal funds being channeled through the U.S. Department of Education and other federal agencies.
“We have an obligation to be a steward” of those funds, Shappert said. Oversight, and prosecution if warranted, are important for three main reasons – to ensure funding is used for its intended purpose, to hold people accountable for their actions, and to serve as a deterrent to others who may be tempted to dip into the pot illegally.
Shappert said her office works closely with other federal and Virgin Islands departments and agencies, including the FBI, the V.I. Police Department, the V.I. Attorney General’s Office, and the Inspector General’s Offices of HUD, of U.S. Homeland Security, and of the Virgin Islands. Auditors and law enforcement handle investigations; the U.S. Attorney’s Office gets involved when it’s time to go to court.
As serious as she is about prosecution, Shappert said her office is even more interested in prevention.
“We don’t want to prosecute fraud,” Shappert said. “We want to avoid it.”
Workshops on the Do’s and Don’ts of Federal Grants
To that end, her office has participated in workshops designed to educate local players about the do’s and don’ts of federal assistance grants. In 2018, a HUD Recovery Team and FEMA led workshops in each island district, with 40 representatives of local organizations attending the one on St. Croix and another 65 attending the one on St. Thomas.
Two weeks ago there were two sessions, one for grantees and another for federal and local law enforcement officials. Shappert said 43 people attended the first session and 30 attended the second.
“The record-keeping (for grants) is intense and it has to be done appropriately,” she said.
Attendees at the workshops had some “excellent questions,” Shappert said, and they learned about some common pitfalls. For instance, it’s important that an organization using grant money for a project ensure there is a separation of duties. The same individual who is doing the ordering of supplies cannot be the one who is paying for them. The person managing day-to-day operations should not be the same person who oversees compliance.
“People do make mistakes,” Shappert said. “Every circumstance is different” and law enforcement investigates cases to determine whether they are the result of honest misunderstandings of the process or intentional fraud.
Conflict of Interest
Conflict of interest situations represent just one type of many common problems. There are lots of ways an individual or an agency can misuse disaster grant money. A resident might slip a few pre-hurricane damages at his home into his application for repair assistance; a contractor might inflate his work hours by claiming workers he doesn’t actually have on payroll; a person or an organization might seek repair money for a property they don’t even own; a government official might accept a kick-back for awarding a contract for a project.
Federal and local agencies that deal with disaster grants are used to such tricks and they have a big advantage in ferreting out fraud: They share information over a broad network. That may mean alerting law enforcement in a disaster area when a person with a questionable history moves in to offer services, or notifying a local government about reports of scams.
Shappert said her office is tasked with protecting the public. While its primary focus may be securing the integrity of federal disaster funds, it also “absolutely” gets involved in helping to protect individuals from being defrauded – although that help often is in the form of referrals to local law enforcement.
Citing long-standing policy, she declined to comment on whether her office is currently working on any cases related to the 2017 hurricanes.
Given the sheer numbers, it seems more than possible. A Justice Department press release from Oct. 2, 2017 – less than a month after Hurricanes Irma and Maria struck the Virgin Islands – said the National Center for Disaster Fraud had already received more than 400 complaints related to one or the other of the storms.
And the U.S. Justice Department announced an indictment in one alleged fraud case in the territory in February of this year.
With money continuing to flow into the territory to fund projects that may take years to complete, oversight efforts will also continue well into the future.
Hurricane Katrina struck in 2005, causing personal tragedies in Louisiana, Mississippi, Florida and surrounding areas and triggering vast social, structural, and political changes. It also set off a string of disaster fraud cases, and, Shappert noted, “It’s taken a decade to sort through them all.”
She’s hoping the V.I. community will help in the effort to curtail the misuse of funds intended for local projects. The National Center for Disaster Fraud telephone number is 866-720-5721. The email address is [email protected]