Ford on fraud

Joseph L. Ford, CFE, has spent a lifetime fighting fraud, working his way up from file clerk at the FBI to holding the bureau’s No. 3 spot. After leaving the FBI, he served as Bank of the West’s chief security officer and eventually founded his own consulting firm. Here Ford speaks of his experiences investigating both large and small frauds and what we can learn from them.

One of the earliest fraud investigations that former FBI agent Joseph L. Ford, CFE, took on at the bureau involved a vendor that submitted inflated invoices for parts being sold to the U.S. Department of Defense (DOD). By today’s standards the fraudsters’ methods might seem comical in their simplicity and surprisingly none-too-subtle ways in which they tried to cover their misdeeds. To extract more money from the government, the vendor used correction fluid to “white out” the amount owed, and then typed a higher number over the original one. This was the early 1980s, before the broad availability of desktop computers, and technology had yet to provide fraudsters with all the advantages it does today. But for a while it worked, allowing the vendor to garner tens of thousands of dollars in ill-gotten gains.

But as often happens, the criminals got sloppy. They changed the dates and the amounts but didn’t bother to adjust the invoice numbers. This raised red flags at the DOD, which brought in the FBI to investigate. Law enforcement executed a search warrant and seized the invoices. “They wanted to blame it on bad bookkeeping records, but you could show a jury the invoices had been changed,” Ford tells Fraud Magazine. “You could hold the original invoice up to the light and see the original number.”

Amateurish, perhaps. But the case sparked Ford’s lifelong interest in understanding the mindset of fraudsters, learning about the techniques they used and how to catch them. That curiosity soon had Ford working on bigger and more sophisticated cases, garnering the experience that ultimately earned him the No. 3 spot at the FBI. The arc of Ford’s career is impressive to say the least. If you want to learn about fraud investigations and how to develop a career in this field, a chat with Ford would be an excellent way to start. Ford spoke to Fraud Magazine earlier this year about some of the large and small cases he worked on, what he’s learned over the years and his advice for aspiring fraud examiners.

A modest start

Ford started at the bureau as a file clerk in 1977 while studying to earn a college degree in engineering. But he had ambitions to become an FBI agent and soon changed his major to business administration and accounting, a skill that sits at the root of the FBI’s origins. Indeed, Charles Bonaparte, the grandnephew of the famous French emperor of the same name who helped create the FBI early in the 20th century, started out with just a few trained accountants who reviewed the financial transactions of the federal courts. Since then, accountants have played an increasingly pivotal role at the agency amid a rise in complex financial and corporate frauds. In the 1970s, the FBI started hiring what it called accounting technicians. And by the 1990s that role had evolved into the standardized investigative position of forensic accountant. Among other duties, a forensic accountant testifies in court about their findings. (See “A Brief History, The Nation Calls, 1908-1923,” FBI and “FBI Forensic Accountants. Following the Money,” FBI, News, March 9, 2012.)

“That is how the FBI started, doing accounting fraud cases,” says Ford. “It was actually doing cases of fraud against the defense contractors in the early 1900s. I realized that becoming a special agent accountant was probably the better way to evolve my career. I went from being a file clerk to somebody who started working in forensic accounting. They didn’t call it that back then, but that is probably the best way to describe my role.”

Ford officially joined the FBI in 1977 but became a special agent in 1981, working his way to become in 2006 its associate deputy director and chief operating officer (COO), the agency’s No. 3 position. His appointment as COO was part of then-Director Robert S. Mueller’s internal restructuring, and it put Ford in charge of overseeing the bureau’s personnel, budget, administration and infrastructure. Mueller at the time likened the role to a COO at a big corporation. (See “Focus on Priorities, Director Mueller Details Realignment,” FBI, July 26, 2006.)

ACFE Connection

In the 1990s, Ford got to know Dr. Joseph T. Wells, CFE, CPA, while attending some conferences, and he soon sparked a deep friendship with the ACFE founder and chairman that would lead to a lifelong connection to the association. Ford, a Regent Emeritus, is now a longtime fixture at the ACFE, which in 2012 awarded him with the Cressey Award for a lifetime of achievement in the detection and deterrence of fraud. The association has even named a building after him. The accolades are hardly surprising. As Dr. Wells has pointed out, Ford has multiple notches under his belt for excellence in fraud detection and deterrence. (See “I’m a CFE,” by Cora Bullock, Fraud Magazine, September/October 2012.)

Ford says when he became the FBI’s COO, he wanted to expand the bureau’s relationship with the ACFE. From 2001 to 2005, the number of corporate fraud cases the FBI opened jumped over 300%, and the agency was looking to work closely with partners within the government and the private sector. This included the ACFE. Not only did the FBI become one of the first organizations to partner with the ACFE’s Law Enforcement and Government Alliance (LEGA), but Ford looked for ways to turn the CFE credential into an enhancing qualification for those looking to join the FBI. (LEGA provides anti-fraud training and resources to assist government entities and nongovernmental organizations in the fight against fraud. Today, members include the City of London Police, South Australia Police, the Office of the Inspector General of the U.S. State Department and the United Nations World Food Programme. See “Law Enforcement and Government Alliance Partners” and “Speeches,” FBI, Sept. 27, 2007.)

I saw the value in having white-collar crime agents and our forensic accountants trained as CFEs because I felt they were doing the same level and amount of fraud investigation work. So having a CFE testifying on the witness stand as a special agent in the FBI was a powerful message to send to defense counsel, judges and juries.

“The idea was that if you can get through the whole acceptance process [at the FBI], being a CFE would be that enhancer that will get you over the edge” to gain entrance into the FBI if all other qualifications were equal, says Ford. “We would treat it almost like an MBA. It would be like a master’s degree in fraud.

“I saw the value in having white-collar crime agents and our forensic accountants trained as CFEs because I felt they were doing the same level and amount of fraud investigation work. So having a CFE testifying on the witness stand as a special agent in the FBI was a powerful message to send to defense counsel, judges and juries.”

Cracking the big cases

Ford’s prowess as a fraud investigator has served him well over the years, allowing him to crack some of the biggest corporate fraud cases in recent U.S. history and learn some lessons along the way.

Ford caught his first big break in the 1990s when he ran the FBI’s health care fraud program. During that time, he’d become proficient at working on Medicare Part B cases involving doctors and other health care providers. Medicare Part B cases that Ford participated in included fraud at National Medical Enterprises (NME) and major medical laboratories that resulted in criminal prosecutions and hundreds of millions of dollars in civil fines. An investigation uncovered that a subsidiary of NME unnecessarily hospitalized patients and either billed for nonexistent medical treatment or inflated the costs of services. That’s not to mention alleged kickbacks to doctors and other medical professionals for patient referrals. (See “Protecting Public Health and Human Services Programs: A 30-Year Retrospective,” Department of Health and Human Services, Office of Inspector General, pages 21-22.) But subject-matter experts he’d talked to were encouraging him to examine the program with the largest expenditure in health care dollars, namely Medicare Part A, which was also relevant to the NME case and encompassed inpatient care at hospitals, nursing homes and home health care agencies. Those discussions proved to be prescient.

Earlier that decade, whistleblowers working at one of the country’s largest hospital companies, Columbia/HCA Healthcare Corporation, had started to file qui tam civil suits under the False Claims Act against their employer. They accused the company of submitting fraudulently inflated cost reports to Medicare Part A programs — the U.S. national health insurance program for older Americans — and garnering hospital and outpatient reimbursements it wasn’t entitled to. The suits eventually triggered a multiyear probe by the U.S. Department of Justice (DOJ) and Ford’s involvement in the case. (See “U.S. Joins Lawsuit Against Columbia Healthcare,” DOJ, Dec. 30, 1998.)

“When the qui tam civil suit was filed under seal by an individual who was an employee for Columbia/HCA, the attorneys for the civil suit actually sought me out and asked me to take a look at it because Columbia/HCA had a large presence in Fort Myers, where I had been working for a couple of years as a street agent,” says Ford. “As luck would have it, it was a Part A fraud case, and extremely complicated.”

In 1997, federal agents started seizing documents on the company’s cost reports that determined how much Medicare would reimburse the hospitals and other health care providers. In some cases, they also kept a second report (a duplicate set of books) for many of the cost report submissions. At the time, Columbia/HCA owned more than 340 hospitals and 550 home-health agencies, according to a Miami Herald article. (See “Rick Scott and His Role in Columbia/HCA Scandal,” by Scott Hiaasen and John Dorschner, Miami Herald/Colodny Fass, June 26, 2010.) And it was painstaking work as the FBI pored over 13,000 boxes of records and emails during the course of the investigation, including Arthur Andersen audit work papers titled AA-1 through HH-47 that helped tell the story of wrongdoing at an HCA hospital that was the focal point of the qui tam civil suit. But one particular workpaper, DD-55, was nowhere to be found. That was a critical piece of evidence because it referenced conversations about the fraud at the hospital and its history. “It was referred to in three or four of the different other work papers,” Ford remembers. “But when we looked for it, we couldn’t find it.”

Ford suspected that somebody had removed the DD-55 file before handing over the work papers to the FBI. But despite that missing link, evidence of intent slowly started to emerge, including emails signed by several managers referencing the film “Jerry Maguire” with the saying “SHOW ME THE MONEY.” (See “Speeches,” FBI, Sept. 27, 2007.) Ford and his team also found more second sets of cost reports that showed expenses were in fact significantly lower than what the company had reported to Medicare, and executives had been setting aside funds in case auditors ever questioned their expense claims.

Interestingly, before the investigation, a government auditor had caught discrepancies in one of the company’s hospital cost reports and informed Columbia executives. But because of an error, the government accepted subsequent claims of those same fraudulent expenses, according to a New York Times article.

Later, according to The New York Times, investigators discovered that Columbia executives had falsely claimed that some administrative costs were capital costs — which include the purchase of medical equipment and are reimbursed at a higher rate. In one instance, they allegedly lied and said that proceeds from a certain debt issue were entirely used for capital expenditures. This allowed them to claim all the interest paid on that debt. (See “3 Executives of Hospital Chain Charged With Medicare Fraud,” by Kurt Eichenwald, The New York Times, Business, July 31, 1997 and “Rick Scott and His Role in Columbia/HCA Scandal,” by Scott Hiaasen and John Dorschner, Miami Herald/Colodny Fass, June 26, 2010.)

“It was like a person claiming deductions on their tax returns that they aren’t entitled to, but instead of doing it for hundreds of dollars, they were doing it in the hundreds of thousands of dollars per each hospital they owned,” says Ford.

In 2001, the DOJ filed civil lawsuits against Columbia/HCA — by then known as The Healthcare Company (HCA) — accusing it of three broad types of fraud: (1) kickback payments to physicians to encourage them to up the numbers of patients on federal health insurance, (2) inflating hospital costs to get higher Medicare and other government reimbursements and (3) kickbacks and inflation costs for wound care services. (See “Justice Department Sues HCA – The Health Care Company and its Hospitals for Fraud,” DOJ, March 16, 2001.)

In 2003, HCA finally settled the civil case sparked by whistleblower suits, agreeing to pay $631 million in penalties and damages for the alleged false claims it had submitted to the government health program. This came after HCA subsidiaries had pleaded guilty in December 2000 to criminal conduct and agreed to pay more than $840 million in criminal fines, civil restitution and penalties. Along with an additional $250 million fine to resolve overpayment claims, the government had extracted $1.6 billion from HCA for its misdeeds, which at the time was its largest-ever recovery in a health care fraud investigation. (See “Largest Health Care Fraud Case in U.S. History Settled HCA Investigation Nets Record Total of $1.7 billion,” DOJ, June 26, 2003.)

“We found other witnesses that could corroborate the whistleblower and the fraud, and ultimately that led to a global settlement with Columbia/HCA, where they agreed to plead guilty criminally to nine different fraud schemes,” says Ford.

Columbia/HCA was a career-changing event for Ford, who as a result of the case acquired a reputation for his ability to tackle large complex financial frauds. By the early 2000s, Ford had become the head of the economic crimes unit at the FBI, and he was soon to face another labyrinthine fraud event that would arguably overshadow Columbia/HCA.

Enron takes priority

On Dec. 2, 2001, Enron declared bankruptcy, spawning an investigation that would turn the Houston-based energy trading company into a symbol of corporate greed and fraud. At the time, Ford was poised to move to New York to lead the white-collar program for the FBI’s flagship office. Instead, the recently appointed FBI Director Mueller canceled Ford’s transfer to New York and asked him to lead the Enron investigation. (See “Twenty years later, could another Enron happen?” by Sherron Watkins, Fraud Magazine, November/December 2021.)

A week after Ford was appointed lead investigator for the Enron case in January 2002, he attended a DOJ meeting with Leslie Caldwell, the prosecutor on the case, and representatives from Arthur Andersen, the Enron accounting firm that just a few months later would be convicted for obstruction of justice and forced to close shop.

“Arthur Andersen’s criminal defense attorneys came in and described a situation where a number of [Andersen] partners had destroyed a lot of evidence related to the Enron engagement,” Ford remembers. “Based on that, we had a good idea that there was more to this case than met the eye.”

Indeed, Arthur Andersen proved to be a good place to start as a subpoena would be easier to obtain knowing they’d obstructed an SEC investigation, says Ford. Ford’s team also learned that Enron had destroyed documents, which led to a consent search that allowed 150 FBI agents to search through Enron’s 50-story headquarters in Houston and conduct interviews with employees.

“The strategic decision was ‘let’s start interviewing some people to see if we can get an idea of what this is all about,’” says Ford. “We were able to successfully identify three or four major different frauds by just doing those interviews. That was successful for the first two days of the search and then, when Enron attorneys realized what we were doing, they asked us to stop.”

No matter — the FBI had already started to identify a complex web of shell companies and special purpose vehicles (SPVs) that Enron executives famously used to hide enormous amounts of debt and non-performing assets. “It ended up becoming an accounting fraud,” says Ford.

Ford’s team then got David Duncan, the former Arthur Andersen partner who had ordered staff to shred Enron documents, to testify against his employer. “He started cooperating. Then we used that as a mechanism to charge Arthur Andersen the company,” says Ford. (See “Andersen partner who audited Enron settles with SEC,” by Kristen Hays, Houston Chronicle, Jan. 28, 2008.)

When you work these big national high-profile investigations, there is a sense of humbleness because you are being asked to conduct investigations that have national impact not only on industries and the law, but on people.

With evidence in hand, the FBI focused on flipping executives so that it could convict people higher up the chain of command. This included Enron Controller Michael Kopper, Enron CFO Andrew Fastow’s right-hand man. Kopper ran daily operations of LJM2 — one of many Enron partnerships constructed to buy underperforming Enron assets and hide its debt off its balance sheet and away from stock investors’ eyes. Kopper was the first Enron executive to cut a deal with prosecutors and his testimony was vital in convicting Fastow. (See “Enron exec who pleaded guilty is freed,” L.A. Times Archives, Bloomberg News, Jan. 3, 2009 and “Partnership That Bought Enron Assets Bankrupt,” by Matthew Goldstein, The Street, Sept. 25, 2002.)

“Enron was a career-altering investigation, but I could say the same for Columbia/HCA,” Ford recalls. “When you work these big national high-profile investigations, there is a sense of humbleness because you are being asked to conduct investigations that have national impact not only on industries and the law, but on people.”

For Ford, Enron equated more to a Ponzi scheme than anything else. Executives manipulated investors’ perception so they’d buy the company’s stock, but the underlying businesses were poorly managed, often losing money and arguably failed as ongoing concerns. “They really weren’t good at business,” says Ford. “Yeah. They were really good at committing fraud, but not at keeping the company as an ongoing concern. They didn’t conduct due diligence and purchased over-inflated businesses, more than once or twice.”

Ford cites as an example of Enron leadership’s poor business acumen the company’s $2.9 billion investment in the building of an energy plant in Dabhol, India, where the Maharashtra state utility finally stopped paying its bills because it said the price of electricity was too high. Or there was Enron’s 1998 rushed acquisition of U.K. water utility Wessex Water for $2.88 billion, which went public a year later under the name of Azurix at $19 a share. According to a Fox News article, Enron and two of its private partnerships later sold 5.7 million Azurix shares to investors at $23.88, making about $824 million, before the stock fell to around $8 as earnings estimates fell below expectations. Enron then took the company private, offering stockholders just $8.375 a share. (See “New Doubts on Enron’s India Investment,” by Saritha Rai, The New York Times, Nov. 21, 2001; “Enron to Buy Back a Stock Issue at Half What Public Paid,” by Floyd Norris, The New York Times, Dec. 16, 2000; and “The Enron-Azurix Connection?” by Fox News, updated Jan. 13, 2015.)

Enron executives often hid their dodgy business practices from public view through off-balance-sheet SPVs, and entities that held these bad assets and the debt that came with them. The underlying fraud was revealed only after the U.S. Securities and Exchange Commission and others started asking questions. (See “The Rise and Fall of Enron,” by C. William Thomas, March 31, 2002, Journal of Accountancy.)

“Probably the bigger takeaway that I got from the Enron case was that hopefully we were making people more educated and more savvy about not investing in companies or organizations that have careless or suspicious business practices,” says Ford.

Ever learning

After retiring from the FBI in 2008, Ford went to work at Bank of the West as chief security officer, where from 2008 to 2016 he successfully integrated departments focused on various fraud and security risks. Not one to retire, Ford then started his own consulting business called Newton and Ford Associates, where he still works. The company is named in part after English mathematician and scientist Sir Isaac Newton. “I call him my dead business partner,” jokes Ford. “I wanted to associate myself with some brilliant person in my company and I found a dead guy. He still haunts me when it comes to any of my larger meal expenses when I travel.” Ford is currently a senior advisor to the FBI’s chief financial officer and security and risk management firm The Chertoff Group.

Be curious and constantly try to improve your skills.

Ford says that in some ways fraud schemes have changed little since he investigated the invoice fraud cases at the DOD in the 1980s. “The fraud schemes are very similar. The bad guys are looking at where the weaknesses are in either businesses, banks, customers or other institutions and how they then can commit fraud. That is pretty standard stuff.”

What has changed, says Ford, is the speed at which fraudsters can run off with victims’ money at a time when it takes just a click to transfer funds or convert them into cryptocurrencies across the globe.

“You have to be able to respond to cyberfraud cases in minutes, not hours or days,” he says. Ford encourages victims who’ve lost money to frauds to call law enforcement as soon as possible, and generally involve the FBI or U.S. Secret Service because those agencies can help put freezes on fraudsters transferring funds to financial institutions in other states or abroad. “Once the money goes through two or three bank accounts it becomes more and more difficult to trace and track,” he says.

Looking back on his career, Ford advises aspiring fraud examiners to keep learning. While fraudsters are still trying to disguise invoices and cheat companies and government departments out of their money, schemes are now more complex, and criminals have more sophisticated ways to ply their trade than using white correction fluid. And it’s best to be proactive rather than reactive when it comes to battling fraud.

“Be curious and constantly try to improve your skills,” says Ford. “That was my life lesson. I am still learning today. I have evolved from just being reactive to thinking about what a fraud risk management program would look like in a company. I see how my life has evolved from working that one simple [invoice] fraud case to asking why this happened in this company, why did it happen in the government, and how can you put controls in place to mitigate those losses.”

Paul Kilby, CFE, is editor-in-chief of Fraud Magazine. Contact him at pkilby@ACFE.com.