Death Fraud:
What is it and how to prevent it?

Acco 455: Fraud Prevention and Investigation
D. Peltier-Rivest
November 26, 2013 In 1986, fraudster James Hogue famously stole the identity of a dead infant to conceal his criminal past in order to attend high school while pretending to be an orphan with special backgrounds. Each year, nearly 2.5 million deceased Americans' identities are stolen by perpetrators (Kirchheimer, 2013). Death frauds have affected victims, companies, organizations and society at large in numerous ways. What exactly is death fraud, and how do we prevent it?

What is death fraud?

Death fraud can be broadly defined as any fraud that involves death but does not involve killing. There are several major types of death frauds: stealing the identity of a deceased person, faking death and faking that a deceased person is not dead.

Identity theft

A common type of death fraud is that of identity theft targeting dead people. According to the Identity Theft Handbook, during identity theft, criminals acquire key pieces of personal identifying information - such as name, address, date of birth, SSN/SIN etc. - for the purpose of impersonating and defrauding a victim (Biegelman, 2009). Death fraud, then, is a spin on this crime, targeting specifically the identity of deceased individuals who can no longer detect the crime and thus less likely to be caught. There are many ways a fraudster can obtain vital personal information of the deceased, such as stealing their mails or going through their garbage bags after learning of their decease through obituary (called 'dumpster diving'), access through friends and family, publicly available records on the Internet, computer hacking, etc. (Hyder & Warner [H&W], 2010). Identity theft is a federal crime in the U.S., with penalties of up to 17 years of incarceration and a maximum fine of $250,000 (H&W, 2010).

There are many ways a perpetrator could use a deceased person's personal information. Although not all inclusive, the following are common types of frauds committed:

(1) Tax Refund

According to the AARP, tax refund fraud committed using a deceased SSN amounted to $5.2 billion in 2011(Kirchheimer, 2013). Since it can take up to 6 months for a death to be registered in the DMF and decedent's personal information can be easily obtained, there are ample time and opportunities for fraudster to obtain false tax refund from the government. Several cases exemplify the prolificacy of false tax refund in death frauds. For instance, in California, two men was able to apply for $2 million in false tax refunds. In New Jersey, a woman stole the identity of 28 deceased individuals for a tax refund of $108,000 (H&W, 2010). In addition, last year, five men in Ohio have been accused of obtaining $1.2 million in false tax refund from 2009 to 2011 using the identity of the deceased. A 10-count indictment, including conspiracy to defraud the United States, conspiracy to commit mail fraud, mail fraud and aggravated identity theft, have been filed by the U.S. Department of Justice (Steer, 2012).

While tax refund frauds are more commonly committed by "everyday people" who sees the opportunity to obtain cash from the gap in the system, government officials are not exempt from committing tax fraud. Harriette Walters, former manager of tax refund for the District of Columbia, for instance, was sentenced to more than 17 years in federal prison for tax scams in 2009. Walters started issuing fraudulent tax refund checks to friends and co-conspirators in 1989. Fraudulent tax refunds checks were either deposited into fake corporate accounts or issued to deceased taxpayers then redirected to co-conspirators' account (H&W, 2010). Her schemes were discovered in 2007 when the co-conspiring bank manager at SunTrust Bank was fired and a suspicious employee contacted the FBI when Walter's niece tried to deposit a large sum of refund check. During her 18 years of scheming, she has issued more than 230 fraudulent checks that totalled $48 million. She has said that loopholes in software and internal controls had allowed her to carry on undetected (Southall, 2009). Though most of her schemes are related to fraudulent corporate tax refunds, Walters also used decedent's SSN during certain phases of her scheme (H&W, 2010).

(2) Social security and other benefits

In order to continue receiving decedent's social security and other benefits, fraudsters may conceal decedents by either not reporting their deaths or giving funeral homes the wrong SSN and other identifying information.

When Penelope Jordan's mother passed sway in 2003, she concealed her death from the government and hid her body in a spare room to continue collecting her Social Security and military survivor's benefits. Jordan successfully carried on the fraud for 6 years, until police found her body after reports of nuisance cats in 2009. During the period, Jordan collected $61,415 from Social Security and $176,461 from military pension (Lonely, Sutton & Maler, 2009). Jordan pleaded guilty and faced a sentence up to 10 years and a $250,000 fine in addition to the repayment of $237,876 she collected during her scheme (Gentile, 2009).

(3) Conceal ownership of fraudulent companies

Death fraud most commonly occurs in a company in the accounting department via disbursement fraud (H&W, 2010). Fraudsters either use decedent's SSN to create fictitious vendors or change deceased employee's mailing address to one under their control.

Georgette Richie's former husband Phillip Richie worked at AMPORTS, Inc. as a Director of Engineering responsible for receiving and analyzing bids from contractors (The United States Attorney’s Office District of Maryland [USAODM], 2008). Philip failed to disclose their relationship and approved two companies created by his former wife using the identity of a dead man. Georgette then hired sub-contractors to perform the job at a much lower rate and transferred the remainder of the money to accounts created using the dead man's identity. Richie laundered profits and understated income when filing taxes. In 2007, Georgette Richie was charged with mail fraud, money laundering and filing a false tax return. Richie pleaded guilty and agreed to pay back $4,223,356 that AMPORTS, Inc. lost due to her scam and was sentenced to 8 years in prison (USAODM, 2008). Her husband passed away a few years earlier and was not charged for co-conspiracy (USAODM, 2008).

(4) Health-care fraud

Health-care is an important and increasing area of concern for death fraud. According to Fraud Magazine, the National Health Care Anti-Fraud Association recently estimated that approximately 3 percent of all U.S. health-care spending – or $68 billion annually – is lost to fraud (H&W, 2010). According to the same article, common ways perpetrators (usually physicians) use decedent's information to commit fraud include:

• Services purportedly rendered by a deceased provider and billed to an insurer
• Services purportedly rendered to a deceased patient and billed to an insurer
• Purchases of durable medical equipment purportedly made on behalf of a decedent and billed by the physician using that person’s identifying information (H&W, 2010)

According to the U.S. Senate Permanent Subcommittee’s findings in 2008, Medicare overpaid an estimated $60 million to $92 million to deceased doctors during the period 2000 to 2007 (H&W, 2010). Fraud schemes involving false claims to insurers for 'services' rendered to deceased patients also appear to be on the rise (H&W, 2010).

In addition to above mentioned reasons, perpetrators will also commit identity theft to conceal their criminal past, obtain credit cards and loans, open bank accounts, obtain passports and driving licenses, take over existing accounts, etc.

Faking death

There are many reasons an individual would want others to think that he/she has died: most commonly to avoid debt or jail time, to escape enemy or to obtain life insurance payments.

John Darwin, also known as the “canoe man”, for instance, defrauded the insurance company $375,000 by faking his death. Darwin’s wife, a co-conspirator, alerted the police after Darwin purportedly went canoeing and never came back. After failing to find him, she began the process to declare him dead and collected the insurance payment. Darwin subsequently changed his name to John Jones and travelled around the world.Darwin was caught five years later after returning to the UK due to a change in visa law. Both spouses were found guilty and sentenced to more than six years in prison (The Guardian, 2011).

Decedent is alive

Sometimes to obtain benefits, a perpetrator would want other to believe that a decedent is in fact alive. A good case in point would be that of Thomas Parkin. When his mother died in 2003, her $2.2 million property was deeded to Parkin. However, when Parkin failed to make the mortgage payments, the house was sold at a foreclosure auction. In an attempt to gain back the property and obtain her social security payments, he claims that his mother is still alive and impersonated her for six years. Parkin was able to obtain his mother Social Security payments because he reported a false SSN and date of birth to her funeral home (H&W, 2010). He was busted when investigators found his mother's tombstone in a local cemetery. During the period, Parkin has obtained $44,000 in fraudulent Social Security payments. Parkin was found guilty by a jury and was sentenced to 13 2/3 to 41 years in prison (Long, 2012).

How to prevent death fraud?

While anti-fraud professionals have a duty to help the general public understand that vigilance over one’s identity does not end upon their death, they are not entirely responsible for the prevention of death fraud. On the whole, the responsibility for identity theft prevention, including death fraud, can be said to lie on three distinct parties: the consumers that provide the information, the organizations that collect and use the information, and legislative bodies that regulate the handling of personal information. Despite the efforts of legislators and organizations, the consumer has a vital role in the prevention of identity theft. Carelessness or lack of attention on the part of the consumer can undo all the preventative work done by governments and businesses.According to researchers, consumers, now and in the future, will play a critical role in identity theft prevention and identity fraud detection. Without a concerted program of customer education, legislation and technical solutions cannot prevent identity theft and fraud (Archer, 2012). Listed below are steps that legislators, organizations and individuals have taken or can take in attempt to prevent death fraud.

Legislators

Death Records Scheme: The Death Records Scheme, implemented by the United Kingdom government is a scheme aimed to prevent death fraud. As part of this scheme, the Registrars General annually releases death records to carefully vetted organizations to match against their clients’ database (M2 PRESSWIRE, 2008). This scheme attempts to send a strong message to potential fraudsters, implying that if they attempt to steal the identity of a deceased person in order to commit fraud, they will be caught. As a result of this message, this scheme not only detects death fraud but also plays a role in preventing the attempt to engage in death fraud. Pension scheme managers, who struggled for many years to ensure they receive prompt notification of a member’s death, welcomed this scheme. The scheme enabled firms to check death record data against credit card applications, insurance payouts and pensions in order to prevent fraud (Western Mail, 2008).

Death Master File: The Social Security Administration in the United States created The Death Master File in 1980. It is a database created to help prevent payments of Social Security benefits to deceased individuals (H&W, 2010). Similar to the Death Records Scheme, it is used as a cross reference against financial databases within organizations. The SSA keeps the database current by purchasing death certificate information from state governments and gathering death notifications from funeral homes and friends and family of the deceased. A limitation of utilizing such a system of cross-referencing is that it may be very time-consuming to run these checks and as a result it might slow the claim approval process. While this scheme cannot totally prevent and detect all cases of death fraud, on the whole, it is a very direct and effective method of mitigating the risk of death fraud (H&W, 2010). For example, in 2007, Harriette Walters the former manager of tax refunds for the District of Columbia, bilked the D.C. government out of an estimated $48 million in fraudulent tax refunds through engaging in death fraud. Walters used decedent’s SSNs for certain phases of her schemes and even though she was caught, the extent of death fraud committed overall remains unknown. To prevent this fraud, the District of Columbia Comptroller’s Office could have cross-referenced its tax records against the Death Master File (H&W, 2010). Walters told investigators that loopholes in software and lax internal controls are what allowed her to carry on undetected (Southall, 2009). Other prevention controls like segregation of duty and an effective ‘whistle-blowing’ system in the office could also have prevented Walters from committing the fraud for so long.

The case of Georgette Richie is another one that could be addressed through the use of the Death Master File. The two companies Webster General, Inc. and Geo Tech Systems, Inc. were created under the social security number of a dead man. AMPORTS, Inc. could have cross-referenced vendors with the DMF as validation, before engaging in business with them. Taxpayer identification numbers can be compared against the DMF. In addition, an internal control can be implemented, requiring certain steps periodically: searching for SSNs appearing in the DMF, cross-referencing vendor and employee files against the DMF, and identifying vendors and employees sharing SSNs, addresses, bank accounts, or telephone numbers (H&W, 2010). In addition, AMPORTS could have avoided the fraud by segregating Phillip Richie’s responsibilities and by requiring him to explain to senior managers about his contract choices.

Service Canada: The Canadian Government warns against death fraud and has communicated steps to take with the Social Insurance Number card of a deceased person. The government requires the next-of-kin to send the deceased person’s SIN card along with a copy of the Death Certificate or a Statement of Death to Service Canada. Upon receipt of the SIN the government records the information and assures that the deceased’s SIN will still be useable for estate purposes (Service Canada, 2012).

Organizations:

It is essential that organizations update their data at least once every month in order to prevent this type of fraud. Many organizations in the financial services industry believe that they have the system in place to prevent this kind of fraud, yet they fall prey to death fraud because the information they are using to crosscheck their databases is incomplete, incorrect and not up-to-date (Webster, 2005). Data-mining capability is another tool that programmers in organizations can use to prevent death fraud. If organizations do not have Social Security Numbers in their databases (which they can cross check with the DMF, for instance) they will have the capability to use other data fields common to databases such as the DMF or the information released as part of the Death Records Scheme. In addition, data miners can look for changes in bank account routing information, payee addresses, and other information on a broad scale. Finally, having a qualified and competent field auditor can help organizations in recovering fraudulent overpayments through investigation. By utilizing the data provided by data-miners, these auditors can conduct a much more successful investigation (H&W, 2010).

Individuals:

There are numerous measures that should be taken to protect against identity theft for those who've recently passed. Obituaries shouldn't list the birthday, mother's maiden name or other personal identifiable information that could be used to obtain credit cards, loans, licenses etc. Addresses are also discouraged from publication because burglars also comb these listings to learn when families will be at a funeral or away from their home (Marasco, 2013). Death certificates should be guarded and kept safe. While it is necessary to fax these documents to certain organizations, surviving family members should ensure that these documents are sent only to highly trusted institutions (Sileo, 2007).

A death should be reported as soon as possible to the Social Security Administration. In addition, once reported, benefits to the deceased will promptly cease and the SSA can mark the record accordingly. This will help prevent potential death fraudsters from using Social Security Numbers to commit their crime. Survivors should also ensure that they promptly shut down social media profiles and email accounts of the deceased. Since passwords can be easily compromised, keeping these accounts active can allow the risk of death fraud to continue. Survivors must also insist that nursing homes, hospitals etc. truncate or mask the Social Security number and full date of birth from all patient records or reports unless completely necessary. An inquiry should be made as to what safeguards or security protocol these institutions utilize in order to protect this sensitive information (Marasco, 2013).

Unfortunately, there are many cases of death fraud committed by family members of the deceased. This could be a relative, child, spouse or friend who is either in financial trouble or feels that he/she has been wronged in the will or estate (testamentary trust). For this reason, the identifying information of a deceased family member should be kept to as small a circle as possible. It seems to work best when one individual is point-person for collection of documents, closing of accounts etc. Generally, this should be someone other than the person organizing all the other events surrounding the death (Sileo, 2007).

References:

Anne Darwin released after serving time for canoe disappearance fraud. (2011, March 9). The Guardian. Retried from http://www.theguardian.com/uk/2011/mar/09/anne-darwin-released-canoe-disappearance

Archer, N. (2012). Journal of Financial Crime. Retrieved from http://0-search.proquest.com.mercury.concordia.ca/business/docview/911508840/141F20F448881E3C56/1?accountid=10246
Biegelman, M.T. (2009). Identity Theft Handbook: Detection, Prevention, and Security. (pp.2). Retrieved from http://www.amazon.com/Identity-Theft-Handbook-Detection-Prevention/dp/0470179996/ref=sr_1_1?ie=UTF8&qid=1385454218&sr=8-1&keywords=identity+theft+handbook#_
Ex-Wife Pleads Guilty In $12 Million Contracting Fraud Scheme. (2008, April 11). The United States Attorney’s Office District of Maryland. Retrieved from http://www.justice.gov/usao/md/news/archive/Ex-WifePleadsGuiltyin12MillionContractingFraudScheme.html

Gentile, C. (2009, June 26). Benefits Collected for a Long-Dead Mother. The New York Times. Retrieved from http://www.nytimes.com/2009/06/23/us/23body.html

Hyder C.B.& Warner C.L. (2010, September/October). Death Fraud – This Identity Theft is Alive and Kicking. Fraud Magazine. Retrived from http://autoaudit.com/downloads/death-fraud-identity-theft.pdf

Kirchheimer, S. (2013, March 6). Protecting the Dead From Identity Theft. AARP. Retrieved from http://www.aarp.org/money/scams-fraud/info-03-2013/protecting-the-dead-from-identity-theft.html

Lonely, J., Sutton, J. & Maler, S. (2009, May 8). Woman who kept mom's body and benefits charged. Reuters. Retrieved from http://www.reuters.com/article/2009/05/08/us-usa-corpse-idUSTRE5473JM20090508

Long, C. (2012, May 21). Thomas Parkin Sentenced: New York Man Dressed As Dead Mom To Collect Social Security, Keep House. Huffington Post. Retrieved from http://www.huffingtonpost.com/2012/05/21/thomas-parkin-dressed-as-dead-mom-brownstone-new-york_n_1534619.html

M2 PRESSWIRE (2008, December 23). Retrieved from http://search.proquest.com/pqcentral/docview/446153229/141DE014D5250A57BC8/1?accountid=12339
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Southall, A. (2009, June 30). 17-Year Term for Official in Tax Scam. The New York Times. Retrieved from http://www.nytimes.com/2009/07/01/us/01embezzle.html?_r=1&

Steer. J. (2012, January 25). Six accused of stealing identities of dead people to get tax refunds. News Channel 5. Retrieved from http://www.newsnet5.com/dpp/news/local_news/cleveland_metro/six-accused-of-stealing-identities-of-dead-people-to-get-tax-refunds

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