Man sentenced to 42 months in prison for defrauding SBA and IRS of more than $7 million

July 21, 2014 by

Earlier this month, Vernon J. Smith III, age 61, of Edgewater, Maryland, was sentenced to 42 months in prison, followed by three years of supervised release, for conspiring to defraud the United States in connection with schemes to fraudulently seek federal contracts under a Small Business Administration (SBA) program to assist disadvantaged small businesses, and to defraud the IRS.

U.S. District Judge Paul W. Grimm found that the actual loss to the government as a result of Smith’s offenses was $7,033,844, and entered an order requiring Smith to pay that amount in restitution and forfeiture.

“When individuals defraud the government by falsely claiming eligibility for SBA’s 8(a) Business Development Program, the biggest victims are the taxpayers and legitimate small businesses,” said Inspector General Peggy E. Gustafson of the Small Business Administration.

Thomas J Kelly, Special Agent in Charge, IRS Criminal Investigation, Washington D.C. Field Office pointed out that “Americans were victimized twice by the greed of Vernon Smith. Not only did Smith decide not to pay his fair share of federal taxes and ultimately defraud the IRS out of $839,016, his actions also denied legitimate business owners of socially and disadvantaged groups the opportunity to receive government contracts to which they were entitled.  [This] sentencing should put corrupt business owners like Vernon Smith on notice that the government will get to the truth no matter how they may try to conceal their involvement and income.”

Vernon Smith was the president and sole owner of Capitol Contractors since 2002. Capitol Contractors was a Maryland corporation with its headquarters in Capitol Heights, Maryland and later Edgewater, Maryland. Capitol Contractors had provided roofing and construction services, but was largely dormant after 2002.

In 1999, Vernon Smith caused a new roofing and construction company, Platinum One Contracting, Inc. (“Platinum”) to be incorporated in Maryland. Although Vernon Smith installed Anthony Wright, an African-American who was a former roofer and project manager at Capitol Contractors, to be the president and 60% owner, and Smith’s son was vice president and owned the remaining 40% of Platinum, Vernon Smith exercised complete and undisclosed control over Platinum’s business operations. Vernon Smith’s wife, Georgia Smith was in charge of Platinum’s accounting, and acted as the de facto Controller for the company.

Vernon Smith admited that from August 1999 to June 2013, he conspired to defraud the SBA in several ways. For example, Smith directed Wright to submit an application to the SBA for certification in the Section 8(a) program which did not reveal that Vernon Smith exercised control over the company, had previously supervised Wright, owned more than 10% of Capitol Contractors, and was related to an owner of Platinum. From May 2004 through April 2010, Vernon Smith also caused Platinum to submit annual updates to the SBA Section 8(a) program that contained false information, including that the company was controlled by a socially and economically disadvantaged individual, and that no non-disadvantaged member of Platinum’s management received compensation that exceeded that received by Wright. In fact, Vernon Smith controlled the company, and Platinum’s payments to Vernon Smith and other corporate officers far exceeded payments received by Wright for 2004 through 2009. Based on the fraudulent application and annual updates, Platinum One received more than $52 million in contracts from the federal government under the Section 8(a) program, to which it was not entitled. The total loss to the government resulting from Vernon Smith’s illegal conduct, regarding the illicit profit he received by defrauding the SBA, and depriving a legitimate Section 8(a) contractor of such profit, is $6,194,828

Vernon Smith and his wife, Georgia Smith, also transferred millions of dollars from Platinum to bank accounts in their own names, to casinos on their own behalf, to Capitol Contracting and another company owned by Vernon Smith, and to credit card companies to pay for personal expenses that Vernon and Georgia Smith charged to Platinum’s corporate credit cards, including extensive dental work, veterinary visits for personal pets, lavish vacations, a Royal Caribbean cruise, limousine transportation to casinos in Atlantic City, N.J., funeral expenses for a family relative, fencing for their personal residence, among others. Georgia Smith also mischaracterized numerous payments to casinos as subcontractor expenses.

In addition, Vernon and Georgia Smith signed false corporate and personal tax returns for 2005 and 2006. The Smiths knew that the cost of goods sold and payments to contractors reported on the corporate returns were false because almost all of that money was paid to, and for the benefit of, Georgia and Vernon Smith at casinos. They also knew that the income reported on their personal income taxes omitted hundreds of thousands of dollars that Capitol Contractors had paid to, and for their benefit. As a result, the Smith’s owed additional personal income tax to the IRS totaling $264,105, and Capitol Contractors owed an additional $574,911 to the IRS for tax years 2005 and 2006. The total tax loss resulting from Georgia and Vernon Smith’s conspiracy to defraud the IRS is $839,016.

Georgia Smith, age 52, of Edgewater, Maryland, pleaded guilty to conspiring to defraud the United States by filing false tax returns and is scheduled to be sentenced on July 21, 2014 at 11:00 a.m. Anthony Wright, age 42, of Bowie, Maryland, pleaded guilty to his role in the scheme and will be sentenced on September 15, 2014, at 9:30 a.m.

The full DOJ announcement report may be found at: http://www.justice.gov/usao/md/news/2014/EdgewaterMarylandManSentencedTo42MonthsInPrisonForDefraudingSBAAndIRSOfMoreThan7Millio.html

See April 2, 2014 report of guilty please in this case at: http://gtpac.org/?p=7780

Family ties plus business ties may equal affiliation

July 14, 2014 by

The SBA affiliation rules are not always intuitive, and perhaps no SBA affiliation rule is as little understood as the so-called “identity of interest” rule under 13 C.F.R. 121.103(f).

Identity of interest affiliation can arise in several ways, including when close family members also have business ties.  As demonstrated in a recent SBA Office of Hearings and Appeals decision, a close family relationship between two business owners, plus significant business ties, may cause affiliation between the businesses.

SBA OHA’s decision in Size Appeal of Knight Networking & Web Design, Inc., SBA No. SIZ-5561 (2014) involved a Navy procurement for ship and shore satellite communications support services.  The solicitation was issued as a small business set-aside under NAICS code 541330.

After evaluating competitive proposals, the Navy announced that Knight Networking & Web Design, Inc. was one of several awardees.  An unsuccessful competitor subsequently filed a size protest, claiming that Knight was affiliated with various other entities.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/sba-affiliation-rules-family-ties-plus-business-ties-may-equal-affiliation/

Small biz size status ordinarily is based on underlying GSA Schedule contract

July 8, 2014 by

When a small business submits an offer for a Blanket Purchase Agreement issued against a GSA Schedule contract, the offeror does not automatically recertify its size.  Rather, a new regulation effective December 31, 2013 provides that an offeror’s size status for a BPA issued against a GSA Schedule ordinarily is determined by looking to the offeror’s self-certification for the underlying GSA Schedule contract.

In a recent size appeal decision, the SBA Office of Hearings and Appeals relied, in part, on the new regulation to find that an offeror had not recertified its small business status by submitting a quotation for a BPA to be issued against the offeror’s GSA Schedule contract.

SBA OHA’s decision in Size Appeal of Total Systems Technologies Corp., SBA No. SIZ-5562 (2014) involved a Homeland Security RFQ for business management support at the Coast Guard’s C4IT Service Center.  The Coast Guard issued the RFQ under the MOBIS Schedule 874, and stated that the RFQ would result in the award of a single BPA.  The RFQ was set aside for HUBZone firms.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/gsa-schedule-bpa-awards-size-status-ordinarily-is-based-on-underlying-gsa-schedule-contract/

 

Revenue-based small business size standards to increase on July 14

July 8, 2014 by

You probably know that the federal government’s definition of a small business is based on either the number of people that a company employs or the amount of revenue it earns annually.  The number-of-employees or the gross-revenue standards are applied to individual North American Industrial Classification System (NAICS) codes.  One or more NAICS codes apply to every business.

Thus, in order to determine whether a company is a small business in the eyes of the government, one must first determine which NAICS code or codes apply to the business, and then see what size standard (employees or revenue) applies to each NAICS code.  If a business has fewer employees or earns less annual revenue (averaged over the past three years) than the standard, then that business can represent itself to the federal government as a small business.  This is an important determination to make since the federal government sets an annual goal of awarding 23 percent of its contract dollars to small businesses.

It’s been more than five years since the Small Business Administration (SBA) updated the revenue size standards for small businesses.  Therefore, as of July 14, 2014, the SBA is adjusting virtually all of its size standards that are based upon revenue, to account for the years of inflation since the last adjustment. 

The forthcoming adjustment affects almost half of all NAICS code categories.    In all,  476  industrial categories will be affected by the update,  including most service, construction, retail, agricultural and transportation industries. 

With these increases, the new small business size standards range between $5.5 million and $38.5 million.

Using the Gross Domestic Product price index to obtain the most comprehensive measure of inflation, the SBA determined that the amount of inflation that occurred between the first quarter of 2008 and the last quarter of 2013 was 8.73 percent.   The SBA then calculated the new size standards by multiplying the current size standards by 1.0873 and then rounding that total to the nearest $500,000.  After these adjustments,

This latest adjustment of the revenue-based size standards for inflation is separate from the comprehensive review of all size standards that the SBA is supposed to perform at least every five years.

The new size standards can be found at: http://www.regulations.gov/#!documentDetail;D=SBA-2014-0009-0001.  Busineeses have until August 11, 2014 to submit any comments on these rules which technically are “interim final rules” at this point.

Because these new size standards will apply to certificates of small business size status signed on or after July 14, 2014, small (and near-small) businesses should review the new size standards to determine whether they now qualify as a small business concern.   Businesses also should visit the System for Award Management (SAM) and verify that their profile and certifications are up to date based on the revised size standards.

See more details on the SBA’s website at: http://www.sba.gov/content/what%27s-new-with-size-standards.

Federal government again falls short of its small business goals

July 1, 2014 by

The federal government is falling short of its goals for awarding contracts to small businesses in some industries where it spends the most money, according to the Small Business Administration.

The government has an overall goal of giving 23 percent of its contracting dollars to small businesses. It has routinely missed that goal in recent years.

An analysis of federal spending by the SBA’s Office of Advocacy shows small businesses got less than 12 percent of contracting dollars spent at manufacturers during the 2012 fiscal year. The government spent nearly $200 billion on manufacturing contracts, the most in a single industry.

One problem is not the number of contracts going to small businesses, but the amount of those contracts, the analysis says. And in industries like manufacturing, a high amount of contract dollars go to a small number of companies — for example, defense contractors like Lockheed Martin Corp. or Boeing Co. that each get billions of dollars annually.

One concern continually raised by lawmakers is that some large companies with federal contracts don’t live up to agreements to give subcontracts to small businesses.

Small businesses, meanwhile, got 22.5 percent of the $141 billion spent at companies providing professional, scientific and technical services. They received 21.3 percent of the $43 billion spent at companies providing administrative and support, waste management and restoration services.

Keep reading this article at: http://www.inc.com/associated-press/small-businesses-contracts-fall-short.html 

SBA conducting step-by-step 8(a) certification workshop on July 17

June 30, 2014 by

The Atlanta District Office of the Small Business Administration (SBA) is conducting a workshop on July 17, 2014 in Atlanta to assist small businesses understand how to become 8(a) certified.

The SBA’s 8(a) Business Development program is a part of the federal government’s effort to promote equal business access for socially and economically disadvantaged individuals including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, subcontinent Asian Americans, and in in some cases women business owners. Companies with an 8(a) Certification can benefit from the wide-range of services offered including government contracting opportunities, access to capital, management and technical assistance, and much more.

The workshop will be held at the U.S. Small Business Administration, 233 Peachtree Street, Suite 1900, Peachtree Center – Harris Tower, Atlanta, GA, 30303.

The workshop will be held from 10:00 am until 1:00 pm.

You must pre-register in order to attend.   Register here: http://events.sba.gov/EventManagement/EventRegistration.aspx?id=02602672-c156-e311-9914-02bfa56e2a24

 

SBA increases small business size standards for construction

June 27, 2014 by

The SBA has published an interim final rule which increase in size standards for nine major categories of construction.    SBA size standards define the maximum size a firm can be and still be considered a small business.   The new standards are shown in the table below.

While the increases in the size standards are not dramatic, they could make a difference for construction companies on the verge of graduating; those that have recently graduated; and those that want to submit offers as a small business.

The interim rule is effective July 14, 2014, and can be found at: http://www.gpo.gov/fdsys/pkg/FR-2014-06-12/pdf/2014-12868.pdf.

NAICS Code

NAICS U.S. Industry Title

Old Standard

New Standard

238210

Electrical Contractors and Other Wiring Installation Contractors

$14 million

$15 million

237130

Power and Communication Line and Related Structures Construction

$33.5 million

$36.5 million

236210

Industrial Building Construction

$33.5 million

$36.5 million

236220

Commercial and Institutional Building Construction

$33.5 million

$36.5 million

237110

Water and Sewer Line and Related Structures Construction

$33.5 million

$36.5 million

237120

Oil and Gas Pipeline and Related Structures Construction

$33.5 million

$36.5 million

237210

Land Subdivision

$25.5 million

$27.5 million

237310

Highway, Street, and Bridge Construction

$33.5 million

$36.5 million

237990

Other Heavy and Civil Engineering Construction

$33.5 million

$36.5 million

237990

Dredging and Surface Cleanup Activities

$25.5 million

$27.5 million

Subsector 238

Specialty Trade Contractors

$14 million

$15 million

The new size standards will govern what contractors can certify as small businesses when they bid on or submit a proposal for projects on or after July 14, 2014, or seek certification, after that date, through the SBA for the 8(a), HUBZone or woman-owned small business programs or seek verification through the Department of Veterans Affairs for the Veteran Owned or Service-Disabled Veteran Owned small business programs.

Contractors at or near the size standard should take this opportunity to conduct a review of their last three fiscal years’ tax returns to determine their average annual receipts. 

Georgia’s SBA office holding webinar for veteran-owned businesses on Sept. 24th

June 22, 2014 by

The Georgia District Office of the U. S. Small Business Administration is hosting a webinar on September 24, 2014 covering veterans and service-disabled veterans’ incentives for:

  • SBA Veterans Advantage Loan Guarantee Program
  • What are the credit requirements
  • Do you have sufficient collateral
  • Service-Disabled Veteran Federal Government Contracting Program
  • Do you have a VA rating letter
  • Have you been honorably discharged from the military

Date:           September 24, 2014

Time:         10:30 a.m. to 11:30 a.m.

Online Registration: To begin the registration process, go to www.sba.gov/ga. Cursor down to “Business Resources to Help You Start or Grow a Business in Your Area.” Look for SBA Programs and click on “Training/Events Calendar.” Scroll down until you find this webinar and click on “Register Now.”

Login instructions will be sent via e-mail to all registrants within 48 hours before the class.

For more information contact: Jorge Valentin-Stone at (404) 331-0100, ext. 609 or via e-mail at vog.absnull@enotS-nitnelaV.egroJ.

 

 

Course is essential to understanding small business contracting rules

June 18, 2014 by

The Contracting Education Academy at Georgia Tech is repeating its three-day course that delves into the intricacies of the federal government’s Small Business Programs.  The course focuses on the government agencies’ efforts to improve small business participation in both prime contracting and subcontracting.

Because of its relevance and popularity, the course is now scheduled to be held:

  • July 8 – 10, 2014
  • October 7 – 9, 2014

These classes will be held in the world-class Global Learning Center on Georgia Tech’s campus in midtown Atlanta.  Registration details may be found by clicking here.

Academy identifier - gold & black w-white bkgrndKnown as “CON 260B – Small Business Programs,” the course is a Defense Acquisition University (DAU) level 2 contracting course that goes a long way to ensure that those in the acquisition field are more aware of and responsive to small business concerns.  Historically, this class was designed for small business specialists, however The Academy has fashioned this class so that it is applicable to all interested parties – senior executives, managers, contracting officers and contracting staff, small business specialists from all agencies, small business advocates, as well as large and small business concerns.

A review of DAU’s prerequisite course, CON 260A, is included in the Contracting Academy’s course.

Small business participation in federal contracting is a high-profile issue.  For example, a recent Dept. of Defense (DoD) memo (seen here) reiterates how essential small businesses are to our nation’s economic recovery because they produce more jobs, represent a major source of innovative solutions to warfighter needs that help maintain our status as the world’s finest military, and contribute more to gross domestic output.  The Contracting Academy is committed to supporting DoD and other agency directives aimed at achieving higher levels of small business participation in federal contracting.

Uncle Sam's DollarsAll leaders who manage budgets and allocate funds for contracts and contracting officers are collectively responsible for achieving the government’s 23 percent small business goal.  To ensure that this collective responsibility is met, many federal agencies’ senior executives are evaluated and held accountable for small business participation in contracting.  A mandatory performance requirement for supporting this goal includes language that “establishes a command or program climate that is responsive to small business concerns.”

The Academy’s CON 260B is very relevant to the training needs of everyone involved in the process of seeing to it that small businesses participate in government contracting and subcontracting opportunities.  This includes, of course, small businesses themselves — as well as large businesses who are required to establish small business subcontract participation plans.

The Academy offers CON 260B, a 3-day course, as an open enrollment course which virtually ensures seating for all registrants.  Register here for the next CON 260B – Small Business Programs class at Georgia Tech in Atlanta.

2.1 CEUs are granted to those successfully completing this course.

Newly organized concern affiliation: “Key Employee” must influence entire company

June 16, 2014 by

Newly organized concern affiliation under the SBA’s affiliation rules did not exist when the alleged former key employee of the affiliate did not exercise influence over the entire company.

In a recent decision, the SBA Office of Hearings and Appeals held that no matter the size of the alleged affiliate, a former “key employee” must have had the ability to influence the entire company in order for the newly organized concern affiliation rule to apply.

SBA OHA’s decision in Size Appeal of Metis Technology Solutions, Inc., SBA No. SIZ-5538 (2014) involved a size determination conducted in connection with Metis Technology Solutions’ application for admission to the 8(a) program.  The SBA Area Office initially found Metis to be affiliated with two large businesses.

Metis subsequently applied for recertification as a small business.  The SBA Area Office found that Metis was no longer affiliated with one of the large businesses.  However, the SBA Area Office found that Metis was still affiliated with the second large business, Booz Allen Hamilton, Inc., under the newly organized concern affiliation rule.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/newly-organized-concern-affiliation-key-employee-must-influence-entire-company/