Deepwater Horizon audit finds one in five business, seafood claims lack proper documentation

NEW ORLEANS – An audit of the Deepwater Horizon settlement facility shows that nearly one in five claims in certain fraud-prone categories were paid without proper documentation.

The $14 million independent audit, paid for by oil giant BP PLC, shows that 20.6 percent of business loss claims attributed to the 2010 oil spill lacked documentary proof. Similarly, fishermen claims for losses lacked proper documentation 18.4 percent of the time. These two loss categories have been cited by BP and federal investigators as magnets for fraud and both programs have been a focus in recent months for scores of clawback requests and criminal indictments.

The audit, released last week by Virginia-based accounting firm McGladrey LLP, found that some $538 million of nearly $4 billion in randomly selected claims paid by Claims Administrator Patrick Juneau lacked proper documentation. Although the audit stopped short of stating that all of the $538 million Juneau paid out in improperly documented claims was fraudulent, it noted that in many cases auditors working under Juneau may not have exercised “appropriate professional skepticism’’ when sending out checks.

The audit also faulted Juneau’s office for exercising careless internal controls across a variety of operations. For example, it said its attempt to reconcile claims payments accounts uncovered an “unexplained” discrepancy of $5.4 million. In other cases, the audit cited a general lack of internal monitoring, an incomplete history of claims, no systems in place to document manual overrides of the claims processing system and other program deficiencies.

BP has long complained that Juneau was not requiring oil spill claimants to submit proper documentation, such as signed tax forms, when making a claim. This inattention to detail, BP maintains, opens the settlement trust fund to serious fraud.

Indeed, Louis Freeh, the special master appointed to investigate fraud in the settlement program, has found several paid claims that were based on false IRS forms and uncovered unrealistic estimates regarding massive seafood landings for personal consumption. Also, just this week FBI agents raided the office of bookkeeper Shawanda Nevers, of LaPlace, accusing her of filing bogus claims for a phantom catering business and a dozen non-existent employees.

Outside experts have said the best way to prevent fraud in the claims center is to demand certified tax documents from claimants, but the McGladrey audit noted that Juneau’s claims center makes no attempt to do this. The audit noted that refusing to require certified tax documents is a specific violation of Juneau’s own internal policy.

BP spokesman Geoff Morell said the shortcomings uncovered in the 88-page McGladrey audit were troubling.

“These include more than 30 weaknesses in the Claims Administrator’s controls and more than 28 weaknesses in the program vendors’ controls – all of which result in or contribute to the risk of compensating fraudulent claims,’’ Morrell said. “While BP continues to evaluate the report, our review to this point does little to allay our concerns over the operation of the settlement program.’’

Juneau didn’t respond to a request for comment, but in a response filed with the court last week he noted the McGladrey audit found that basic calculation errors associated with claims were low – only $17.5 million out of $3.7 billion in claims. Juneau’s response also criticized McGladrey for exceeding its scope of work when making many of its critiques of the claims program.