White collar fraudsters steal thousands times more than Class C shoplifters

A pair of stories out of Dallas related to theft enforcement - in particular shoplifting and Medicare fraud - struck me as emblematic of the priorities of policing that frequently frustrate your correspondent. First, since I've sometimes criticized prosecutors at USDOJ's Texas districts for de-prioritizing white-collar offenses to focus on increasingly vast volumes of immigration litigation, I should note in a positive light a major prosecution effort aimed at stemming Medicare fraud. Jim Landers' story ("More Dallas area home health care prosecutions likely as over 800 agencies face fraud inquiries," Oct. 6, behind paywall) at the Dallas News opened:

Something’s rotten about home health care in Dallas.

So far this year, federal investigators have brought charges against several area doctors and nurses, alleging they billed Medicare for more than $475 million in fraudulent claims. The cases involve at least 800 home health care agencies in the Dallas-Fort Worth area that are accused of participating in the schemes.

The owners and operators of five of those agencies are facing fraud charges. An additional 78 have seen their Medicare reimbursements suspended while investigators comb their records. For the rest, federal prosecutors say their investigations continue.

“There are several people now — agents and prosecutors — working up these cases, people who are devoted full time to do these cases,” said a Justice Department official who spoke on condition of anonymity. He characterized the indictments to date as “just the tip. There’s still a lot more cases to be brought.”

These are vast numbers: 800 area businesses collectively defrauding Medicare of nearly half a billion dollars! Extraordinary! And the issue is not isolated in Big D.

In urban areas across the country, Medicare paid for an average of 14.4 care episodes for every 100 beneficiaries in 2010. In the Dallas-Fort Worth area, the rate was more than double that — 38 cases per 100 beneficiaries.

(The seven highest rates in the country were recorded in South Texas. Brooks County had 150.4 episodes of care for every 100 beneficiaries, according to an analysis this year by the Medicare Payments Advisory Commission.)

Texas has more claims than other states in part because it does not require home health care agencies to get a “certificate of need” before setting up a business, the commission noted. Many other states limit the number of home health care agencies by requiring them to spell out the need for their services.

Prosecution provides a stick, but there's an homage at the end of the story to the reality that a long-term solution must be structural and preventive, not relying just on cops, prosecutors and jails to prevent corporate crime. "The Partnership for Quality Home Health Care, a national organization representing more than 1,500 home health care companies, told Congress this summer that the new “aberrant payment prevention” software saved $853 million in 2010 and could save another $11 billion over the next decade."

In the end, while it's necessary to punish white collar criminals to provide some disincentive for what's alleged to be rampant cheating, there's also a responsibility for government to prevent cheating through its own systems, which is where, according to the News, the process fell down with Texas' failure to effectively regulate home health providers. This is a case where Texas' unwillingness to regulate business has allegedly facilitated outright criminality. Businesses may dislike regulation, but surely they also dislike competing in an industry full of fraudsters who are dealt with, though rarely, mainly via prosecution.

A second Morning News story by Tanya Eiserer and Steve Thompson ("Changes to Dallas police shoplifting policy spur drop in crime rates," Oct. 6) details changes in Dallas police record keeping for petty, Class C shoplifting thefts in a way that made reported theft artificially drop this year. The Chief dubiously claimed a major drop in petty theft was not "because of a new policy that makes it harder for store owners to report shoplifting cases under $50." Instead, "Police Chief David Brown last week disputed that finding, saying the low numbers of reported retail thefts are the result of good police work, not the change in reporting policy. He said his department’s new crackdown on “fences” — people who buy and sell stolen goods — drove shoplifting lower."

Whether that claim is justifiable (and it's probably not), the underlying policy IMO was sound. "The change in the response policy freed up officers for the [anti-fencing] task force, Brown said. The idea was to treat theft cases much like drug cases, focusing on big operations rather than individual small-time criminals."

A comic-store clerk complained of extra paperwork now required to report a theft, declaring, "Last time I checked, the police are there to protect me, not to have me do their paperwork.” OTOH, he's afforded the shopkeeper's privilege, so if he wants to exercise that privilege, perhaps it's not unreasonable to oblige him to fill out some forms. In any event, according to the News, as soon as the new paperwork was required there was a rapid dropoff in reported shoplifting:

An analysis of the year’s petty shoplifting reports suggests that store operators like Shorr have become less likely to report minor shoplifting incidents. The reports plummeted Jan. 5. That’s exactly the day the new reporting policy took effect.

Before that date, minor shoplifting offenses averaged about 10 a day. Immediately afterward, that average fell to fewer than three a day. The average has remained steady at that lower level since.

With police recording about seven fewer petty shoplifting offenses a day, the reductions have accumulated. By the end of August, petty shoplifting had fallen by 1,692 reports — 73 percent — compared with the same period the year before.

Let's extrapolate. If the department previously received an average of ten reports of Class C shoplifting per day and the number reduced to three because of the new policy, that would mean DPD formerly took 3,650 such reports per year and the paperwork requirement reduced it to somewhere in the neighborhood of  1,100 per year. So let's say the real number should be 3,650 and the average amount stolen (a generous estimate; I have no idea what the real number is) was $40 per incident, then the total amount stolen would collectively come to $146,000.

Now compare that $146,000 worth of societal cost to the $475 million in allegedly fraudulent claims by 800 Dallas area home-health companies, with more potential Texas targets so far un-prosecuted.

Certainly, shoplifting is the kind of public order offense that can't be allowed to run rampant, but businesses are responsible for their own security as it regards Class C theft, and as the Morning News story noted, the larger retailers devote considerable resources toward low-level "loss prevention." Just as Medicare is installing preventive mechanisms, some responsibility for theft prevention falls on businesses themselves.

At the same time, it often galls me to see so much attention paid to petty criminals like Class C shoplifters, who are more pathetic than dangerous, while corporate criminals - whether on Wall Street or at DFW-area home health agencies - are robbing the public blind, in this case allegedly stealing more than three-thousand times the amount annually attributable to Class C shoplifters in Dallas. Those undetected financial crimes don't show up in crime statistics, just like the Class Cs now missed in the records because Dallas shopkeepers don't fill out their paperwork. But as a taxpayer, I'm a lot more concerned about the white-collar offenses we don't hear about than I am Class C shoplifting thefts that never made it into the record.

Shoplifting up as economy tanks

Having undertaken to identify criminal justice implications for the current economic downturn, I was interested to see this item from the New York Times about a surge in shoplifting ("As economy dips, arrests for shoplifting soar," Dec. 22):

Police departments across the country say that shoplifting arrests are 10 percent to 20 percent higher this year than last. The problem is probably even greater than arrest recordsindicate since shoplifters are often banned from stores rather than arrested.

Much of the increase has come from first-time offenders like Mr. Johnson making rash decisions in a pinch, the authorities say. But the ease with which stolen goods can be sold on the Internet has meant a bigger role for organized crime rings, which also engage in receipt fraud, fake price tagging and gift card schemes, the police and security experts say.

And as temptation has grown for potential thieves, so too has stores’ vulnerability.

“More people are desperate economically, retailers are operating with leaner staffs and police forces are cutting back or being told to deprioritize shoplifting calls,” said Paul Jones, the vice president of asset protection for the Retail Industry Leaders Association.

The problem, he said, could be particularly acute this December, “the month of the year when shoplifting always goes way up.”

Two of the largest retail associations say that more than 80 percent of their members are reporting sharp increases in shoplifting, according to surveys conducted in the last two months.

Compounding the problem, stores are more reluctant to stop suspicious customers because they fear scaring away much-needed business. And retailers are increasingly trying to save money by hiring seasonal workers who, security experts say, are themselves more likely to commit fraud or theft and are less practiced at catching shoplifters than full-time employees are.

That last paragraph in particular strikes me as an interesting twist; I hadn't thought about the use of temp workers increasing the risk of theft, which adds another layer of cost and complications to businesses forced to downsize. That cheaper, seasonal employee may not seem so cheap once they clear out the cash register on their way out.

These data are from retailers associations, not official crime statistics, so we'll have to wait at least a year to see if the increases bear out in the official numbers. Certainly, though, it makes sense that low-level crimes of opportunity might increase when so many more people are feeling the economic pinch.

Hat tip to CrimProf Blog.

RELATED: The Washington Post says that whether or not property crime is statistically increasing, anxiety about property crime is going up.

MORE: Jack Shafer at Slate calls this story the "Bogus Trend of the Week." It'll be interesting down the line to compare this period's official theft statistics with media hype about the economic crisis boosting property crime.