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How One Woman Uncovered a Major Tax-Fraud Scheme

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In responding to red flags at her company, Widget Financial's CEO discovered a fraud ring responsible for thousands of stolen identities, fake tax returns, and millions drained from the US Treasury.

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Two years ago, a branch manager at Widget Financial, a federal credit union in Erie, Pennsylvania, began to get suspicious. He had been processing several account-opening requests and thought it unusual that they had all come from New York City (not exactly in the same neighborhood). At around the same time, a Widget vice president got a strange phone call from a New Yorker complaining that he had never opened an account with Widget, yet was receiving mail from the credit union.

The coincidental occurrence of these two red flags was enough to catch the attention of Widget CEO Gail Cook, who ordered her information technology department to pull the details of every account from New York, Connecticut, and Rhode Island that had been opened in the previous two years.

Cook had no idea that she had just taken the first steps in uncovering a massive tax-fraud scheme that involved thousands of stolen identities, fake tax returns, and millions of dollars drained from the US Treasury.

Cook said in an interview that as soon as the details from eight different accounts were put side by side, she and her employees began to see problems. "There was a lot of cut-and-paste type information," she says. There were driver's licenses with the same person's photo and different names, as well as multiple names listing the same address.

The next step was to examine account activity. On some of the accounts, Cook says, there was nothing other than run-of-the-mill transaction activity. But others were different, with activity almost exclusively limited to money order purchases and payments to and from prepaid credit card accounts.

And direct deposits from the Internal Revenue Service.

Cook immediately called the local FBI field office. An agent was in the credit union within a day, returning not long afterward with representatives of the IRS Criminal Investigation division. "This looks like a pretty big deal," the agent said at one point -- but until last week, Cook and her employees had no idea how big.

Cook heard nothing further about the case until her phone rang and she found herself speaking to the local FBI agent who had first visited her office. "He said, 'I just want to thank you. You have no idea what you all did,'" Cook remembers.

It turned out that Widget Financial had uncovered a massive tax-fraud scheme. Five men from New York, Rhode Island, and Tennessee had (since at least 2005) been using stolen identities to fill out thousands of fake tax returns demanding refunds from the IRS. According to David J. Hickton, US attorney for the Western District of Pennsylvania, the men had operated a "massive stolen identity ring" that filed claims for some $21 million in refunds; they were paid at least $10 million.

Ironically, one of the institutions in which the fraud ring opened a fake account was the Treasury Department Federal Credit Union in Washington, D.C., a credit union that serves (among others) employees of the IRS. Other institutions identified in the indictment include PNC Bank, Air Academy Federal Credit Union, Pennsylvania State Employees Credit Union, and others.

Despite the much larger size of some of the other institutions they targeted, it was little Widget Financial that tripped up the members of the fraud ring.

Cook said that to her and her employees, it was just part of the job. "Being vigilant and thorough is part of the DNA of this credit union, and we take these matters very seriously," she says.

Editor's Note: This article by Rob Garver originally appeared on The Fiscal Times.

For more from The Fiscal Times:

Little Credit Union Uncovers Massive Tax Fraud

Americans Are Still Idiots When It Comes to Investing

Offshore Tax Havens Cost You $1,259 a Year

 

Follow The Fiscal Times on Twitter @TheFiscalTimes.
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