The owner of an Alaskan technology engineering firm that holds sole-source federal contracts worth millions of dollars might have used his small and disadvantaged business to direct taxpayer funds to his other defense contracting companies, according to a new report from the Small Business Administration inspector general.
Investigators found that for nearly five years, Patrick Simpson relied on the status of Alaska Native Technologies LLC as a certified 8(a) small business to enter into business arrangements on behalf of other companies he owned.
Simpson is not disadvantaged and therefore ineligible to run Alaska Native Technologies’ day-to-day operations. But the company qualifies for 8(a) status because a native Alaskan tribe owns a majority share. Simpson reportedly directed ANT funds for rental equipment, office space and consulting services to companies he privately owned. The tribe retained only 25 percent of the ANT’s net profits, the report found.
“It appears that ANT’s primary purpose is to benefit Mr. Simpson, which is contrary to what Congress intended when it allowed firms owned by Indian tribes to participate in the 8(a) program,” the IG found.
The watchdog agency recommended that SBA officials conduct a thorough review of ANT’s operations to determine whether it should be disqualified from the 8(a) program.
In an April 8 response, Joe Jordan, SBA’s associate administrator of government contracting and business development, promised “appropriate action will be pursued if Alaska Native Technologies LLC is found to be ineligible for the 8(a) Business Development Program.” An agency spokeswoman declined to provide an update on the company’s status in the program.
ANT officials did not respond to multiple requests for comment.
The company’s website says ANT specializes in design, development, service and maintenance activities “in support of our nation’s defense.” Its Defense Department business includes a contract to develop an underwater glider for the Navy to forecast ocean conditions.
The firm has won more than $27 million in federal contracts since 2004, according to USASpending.gov, a federal contracting database.
Simpson formed Alaska Native Technologies in January 2003 as a spinoff division of his research-and-development company, Scientific Fishery Systems Inc., the report said. ANT is 51 percent owned by the Native Village of Eyak through its holding company, Alaska Native General Services LLC, and 49 percent owned by Skookum Technologies Inc., another business Simpson owns.
But the financial statements of ANT do not indicate shared ownership between Skookum and Alaska Native General Services, the IG said, and the tribe told investigators the only document formalizing the arrangement was a memorandum of understanding between the two entities.
The IG found that Alaska Native General Services might no longer exist. According to the report, the holding company has not filed biennial financial statements with the Alaska Department of Commerce since November 2005, it has no Federal Employer Identification Number for tax verification, and a recent Dun & Bradstreet search could not verify its location.
The SBA approved Simpson’s business partner as general manager of Alaska Native Technologies. But the IG investigation revealed Simpson was heavily involved in managing the day-to-day activities, including signing timecards and issuing employee clearances.
Nondisadvantaged individuals are allowed to provide management services to a tribally owned business if they receive SBA’s approval. Simpson did not request such approval, the IG said.
Simpson entered ANT into contractual arrangements for a host of products and services, according to the IG. The report said he billed ANT for rental equipment and office space; subcontracting, consulting and professional services; and the lease of a boat for a half-dozen businesses he owned.
The line between the companies was blurred in other ways. Simpson transferred key employees from Scientific Fishery to ANT to serve as the company’s general manager and chief systems engineer, investigators found. He also transferred one of Scientific Fishery’s defense contracts to ANT.
In a 2008 report, the Defense Contract Audit Agency questioned the validity of $124,000 in fees paid to PKS Consulting, another Simpson entity, for consulting services reportedly provided to ANT.
Auditors found that 140 hours per month of consulting services in fiscal 2006 was excessive, particularly given Simpson’s role in managing his other businesses. Simpson was unable to provide DCAA with documentation supporting these fees, the report said.
— By Robert Brodsky – May 21, 2010 – (C) 2010 BY NATIONAL JOURNAL GROUP, INC. ALL RIGHTS RESERVED.