by Johanna Phillips, SOS Director of Business Development and Technical Affairs
Let’s go on a journey into Fraud Prevention through the lens of my experience professionally. As a reminder, there are three elements necessary to be present for fraud to occur (cue Cressey Fraud Triangle): pressure or incentive, opportunity, and rationalization. Fraud prevention can start by combatting one of the key elements that must be present for fraud to occur: Rationalization.
There are two sides to my experience in the organic marketplace. Until 2024, I was the enforcer- working as a certifying agent to uphold the rules. Through that lens, I greatly value the efforts of certifying agents and the USDA to combat fraud, and appreciate the reasons that confidentiality is written into the regulation. I’ve participated in numerous fraud investigations, including one case where the operator was imprisoned, seizure of hundreds of thousands in assets, and removal from certification. I found dialogue about “nothing being done” uninformed and moved forth with my commitment to the marketplace and confidentiality in a bubble of confidence. I know from first-hand experience that enforcement activities are occurring daily.
On the other side of certification, within the marketplace where enforcement actions lack operational visibility, the rationale for skeptical feedback becomes more evident. This indicates that the absence of targeted communication and transparency regarding enforcement renders the marketplace susceptible to a critical issue – fostering an environment conducive to rationalization. While prioritizing customer experience is commendable, opportunities exist to counteract rationalization. While advocating for a negative customer experience is not the objective, the essential point remains that consequences serve as a significant deterrent to fraud. Furthermore, combatting fraud necessitates addressing rationalization in all its manifestations. Fraud has been extensively studied, and the 10-80-10 rule is a widely recognized framework for comprehending fraud risk. This model posits that in any given population, 10% will actively engage in fraudulent activities, 10% will consistently exhibit honesty, and the substantial middle 80% are vulnerable to fraudulent behavior if certain conditions (pressure, opportunity, rationalization) are present, leading to a concerning potential where a majority could commit fraud. While apprehending the initial 10% is of significance, preventing the expansion of fraudulent behavior into the broader 80% is of paramount importance.
A proposal offered here is that a key to deterring fraud in the organic sector is providing adequate support to remove rationalization. We have identified that rationalization has two elements in organic marketplace:
1. Risk
- A belief that the system will not catch cheating.
- If caught, the (perceived) consequence is not significant.
Example: An operator might think, ‘The audits are infrequent, and they never check this specific part of my operation, so I can get away with it.’ or ‘All that will happen is that I’ll lose my organic certificate.’
2. Justification
- Belief that cheating is not being pursued.
- Belief that fraud is so rampant, it’s necessary to compete.
- Belief that there is no victim to the crime- that the cheating doesn’t harm farms, neighbors, the marketplace, or anyone else.
Example: A producer might think, ‘Everyone else is cutting corners, and if I don’t, I’ll be priced out of the market.’
The communication points most operations have to interact with their certifying agent are at application or renewal, in the review of their Organic System Plan, the audit, and the final decision. There is a tremendous opportunity in these activities to combat rationalization, not through negative experiences, rather through communication of consequences, a clear demonstration of the skills and resources to combat fraud, robust audits, and comprehensive enforcement. Couple this with strong complaint and investigation follow-up – and there is a recipe for combatting rationalization- while simultaneously impacting other vulnerabilities for fraud (opportunity, incentive).
The USDA National Organic Program is the only federally backed third party certification. Certifying agents are agents of the US Federal Government, through their accredited activities. Yes, operations can receive a noncompliance. Yes, operations can lose certification through suspension or revocation. Additionally, operations can be subject to fines (civil up to $22,392 per violation), loss of market access (the US Organic Market is the largest globally), and criminal (up to 5 years) or civil prosecution. Statements made to certifying agents are statements made to federal agents and can be prosecuted under federal law. Those in the enforcement bubble know this- now let’s make sure the consequences are clear to those outside of the bubble.
Who, where, what, when and how?
Low hanging fruit exists in the certifier contract language. SOS has some suggested text to get certifiers started. Contact SOS here to learn more and receive a draft of the communication we encourage certifiers to use and adapt based on their needs.
This language can be adapted to several formats- not just a contract. For example, an annual client newsletter can highlight some important resources:
- Complaint process for operations aware of violations or fraud. Click here for more information on reporting fraud.
- Annual reminder article or letter that the organic program is backed by federal regulation, and potential consequences for fraud.
- Reminders that operations are obligated to notify their certifying agent if they are aware of violations of the requirements that impact their business.
- Highlights and overview of enforcement activity, including a high-level explanation (without breaching confidentiality) of enforcement activity.
- Illustration of enforcement tools such as unannounced inspection, sampling, noncompliances, cooperative investigations, and product status impacts.
The reality is that an informed certified customer base (and the marketplace as a whole) benefits with the understanding that organic certification is a contract to follow a federal regulation, with all the consequences associated with breaking a federal law available. Both domestic and international businesses benefit from understanding the robust toolbelt behind the USDA National Organic Program regulation.
Consequences are not a fear tactic- they’re reality- and critical for combatting fraud.