Did you know that the United States Trustee Program initiated an independent study on the nature and prevalence of fraud, abuse and error in the bankruptcy system? The final report, by the RAND Corp. entitled, Identifying Fraud, Abuse, and Error in Personal Bankruptcy Filings (authored by Noreen Clancy and Stephen J. Carroll) was completed in June 2007 and is now available here and here.
Among the procedures used to identify fraud, abuse and error in bankruptcy cases, the report identifies: (1) private trustees' case reviews, (2) field office case reviews, (3) tips, and (4) debtor audits as significant. While case reviews and tips historically have been the only (significant) means of discovering bankruptcy frauds and abuse (civil and criminal), the BAPCPA's debtor audit requirements may have added an additional method. I say may because experience under BAPCPA is still in its infancy and because the number of debtor audits being conducted is substantially less than originally conceived.
Beginning October 20, 2006, 1 out of every 250 randomly selected chapter 7 and chapter 13 cases were selected for audit, together with certain other cases targeted for their deviation from a statistical norm. In January, 2008, however, the United States Trustee Program suspended its designation of cases subject to audit for budgetary reasons. While the Program's designation of cases for audit resumed in May, "random" audits (as opposed to "targeted" audits) now are conducted in only 1 out of 1,000 cases filed in a judicial district, causing me to wonder whether debtor audits really are a significant means of discovering bankruptcy fraud and abuse and further to wonder (as I did here and here) whether they will increase the number and quality of bankruptcy fraud criminal referrals. Time will tell - and reader comments welcomed.