Cooking the Books with Fuel Fraud

SPECIAL TO THE WEB

Robert Tie
Contributing Writer, Fraud Magazine

The nation's energy industry might soon seek more CFEs. False-statement frauds have plagued a complex federal program that mandates production of renewable fuel to reduce consumption of gasoline and diesel fuel and reliance on foreign oil.

Federal district courts in Maryland and Texas, in unrelated trials, recently convicted two men of stealing $60 million from the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) program and numerous energy companies participating in it.

Under RFS, the EPA mandates the production of ethanol, biodiesel and other renewable fuels in volumes that by law increase annually — from 9 billion gallons in 2008 to 36 billion gallons in 2022.

Civilian tips on the suspects’ unusual behavior alerted investigators to both schemes, which until then had evaded existing EPA controls. The crooks were particular about how they got around. One, looking ahead, bought a Patton tank and a Gulfstream jet. The other, living in the moment, accumulated a fleet of ostentatious cars.

The fraudsters reported producing vast amounts of renewable fuel but actually made none. Through those misrepresentations they illicitly earned renewable fuel production credits that they sold on an EPA-hosted online trading system to buyers who, in good faith, assumed the credits were valid.

A proposed EPA Quality Assurance Program (QAP) designed to detect and deter such frauds could create employment or engagement opportunities for CFEs who are familiar with the energy industry and can demonstrate how their special skills could be useful in QAP.

JUST DESERTS FOR ALL?

The fraudsters have given up their toys, paid heavy fines and restitution and begun serving 12 to 15 years behind bars. They weren't the only ones punished, though.

RFS participants’ confidence went into a tailspin when EPA took enforcement actions against the victimized companies for not satisfying the renewable fuel quotas they were trying to meet when they were swindled.

The fines amounted to de facto penalties for not performing better due diligence before completing transactions with the fraudsters, who also participated in the RFS program.

“Since its inception in 2007, this has been a ‘buyer beware’ market,” says David Bennett, CFE, CPA, founder of RIN Attest and Advisory Services, LLC, a Stamford, Conn., firm that provides compliance and advisory services to more than 100 companies in the renewable fuel sector.

Read the full article at Fraud-Magazine.com.