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Contractor to pay over $8 million for scheme to fraudulently claim credit for work performed by DBE

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Granite Construction, Incorporated (Granite), a nationwide construction and public works company that is publicly traded on the New York Stock Exchange, has entered into a non-prosecution agreement and agreed to pay more than $8 million to the federal government and the Metropolitan Transportation Authority Office of Inspector General (MTA-IG) to resolve a criminal investigation into a disadvantaged business enterprise (DBE) fraud scheme perpetrated by Granite’s wholly-owned subsidiary, Granite Construction Northeast, Incorporated (GCN), previously known as Granite Halmar Construction Company, Incorporated.  In addition, Granite will provide continuing cooperation to the government and maintain far-reaching corporate reforms.

Justice Dept. sealPursuant to the non-prosecution agreement signed on November 24, 2015, Granite acknowledged and accepted responsibility for a DBE fraud scheme related to GCN’s work on a contract for the MTA that involved the construction of a bus depot in Maspeth, Queens, NY (the Project).  The Project was largely federally funded.

The investigation revealed that GCN served as the prime contractor on the Project after being awarded the prime contract for the job by the MTA, a contract for which GCN was ultimately paid approximately $222 million.  The contract required GCN to comply with the Disadvantaged Business Enterprise Program (the DBE program).  Pursuant to that program, as the prime contractor, GCN was obligated to make good faith efforts to subcontract a specified percentage of work on the prime contract to certain disadvantaged business enterprises (DBE companies).

GCN, certain other non-DBE companies (the actual companies), and a DBE company that acted solely as a front company in connection with the Project (the front company)  conspired to arrange the following scheme to avoid compliance with the DBE program:

(a) the front company would be awarded a subcontract worth approximately $22 million, to perform certain construction work (the specified work) on the Project;

(b) the actual companies would perform the specified work, but payroll would be “run through” the front fompany, with paperwork arranged to make it appear as if the front company was performing the specified work; and

(c) GCN would pay the front company a $500,000 “DBE fee,” although the front company would not perform a “commercially useful function” on the specified work, as required by state and federal regulations.

As the front companies performed the specified work, GCN submitted to officials from the MTA, as required, periodic progress reports that purported to represent the percentage of work performed by DBE companies on the prime contract.  From 2004 through approximately 2008, GCN falsely represented in those reports that the front company had performed a “commercially useful function” in performing thespecified work, when in fact, the specified work had actually been performed by the actual companies, and the front company had not performed any such commercially useful function.  (In August 2013, one of the actual companies, A.J. McNulty & Company, also entered into a non-prosecution agreement with the United States Attorney’s Office for the Eastern District of New York to resolve a criminal investigation into the same scheme.  Under the terms of that agreement, A.J. McNulty agreed to forfeit $850,000 to the federal government and pay $100,000 to the MTA-IG.) As a result, GCN deprived the MTA of its rights under the prime contract and deprived legitimate DBE companies of the opportunity to perform the specified work and be paid for it.

In light of a comprehensive internal investigation conducted by Granite, Granite’s complete acceptance of responsibility for GCN’s unlawful conduct, Granite’s cooperation with the government, the fact that the GCN employees most responsible for GCN’s unlawful conduct were separated from GCN and Granite years before the government’s investigation began, and Granite’s far-reaching remedial measures, including site visits by compliance program staff and mandatory training for appropriate Granite managers and employees, the government has agreed not to prosecute Granite or GCN for GCN’s criminal conduct provided that Granite complies for two years with all the terms of the agreement executed today. Significantly, this agreement also secures civil forfeiture to the federal government of $7.25 million in connection with this fraud, as well as a payment of $1 million to the MTA-IG.

“GCN defrauded the MTA by falsely claiming that millions of dollars worth of construction work was performed by a DBE company.  Today’s resolution marks a significant step in our continued effort to eliminate DBE fraud in New York’s construction industry and also recognizes Granite’s decision to timely accept full responsibility, provide complete cooperation, and take remedial measures to enforce best industry practices,” stated U.S. Attorney Capers.  Mr. Capers thanked the investigative agencies for their outstanding commitment and dedication over the course of this investigation.

“As evidenced by the non-prosecution agreement entered into by Granite Construction, Inc., we remain steadfast in our commitment to maintaining the integrity of the U.S. Department of Transportation’s (USDOT) Disadvantaged Business Enterprise program,” said Regional Special Agent-in-Charge Shoemaker, USDOT Office of Inspector General.   “Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse, and violations of law.”

“This investigation uncovered a scheme that exploited a program designed to encourage disadvantaged businesses to participate in Metropolitan Transportation Authority projects,” stated IRS-Criminal Investigation Special Agent-in-Charge Kitchen.  “IRS-Criminal Investigation is proud to be part of the collective law enforcement effort on this investigation; it demonstrates the government’s resolve to protect public funds and its commitment to ensure the public’s trust.  The fact that GCN has entered into an agreement with the government will further serve and protect the public’s best interest.”

“Today’s announcement clearly reflects the firm commitment by our Office and our investigative and prosecutorial partners to utilize all avenues to ensure compliance with DBE requirements and to create and maintain a level playing field on which all qualified DBEs have a fair and equal opportunity to bid for and participate in all MTA projects.  We will continue to direct our energies and share of settlement proceeds to support the MTA Small Business Development Program and other productive efforts to expand opportunities for disadvantaged business enterprises,” stated Inspector General Kluger.

“Reporting that work was performed by a DBE company involved manipulating American workers and processing their pay through a front company in order to conceal the fraud.  We will continue to work with our law enforcement partners to protect contract opportunities for legitimate disadvantaged businesses,” stated Special Agent-in-Charge Garcia of the New York Regional Office, U.S. Department of Labor – Office of Inspector General, Office of Labor Racketeering and Fraud Investigations.

Source: http://www.justice.gov/usao-edny/pr/granite-construction-pay-more-8-million-forfeiture-and-penalties-engaging-scheme

Why are DBEs MIA? Overcoming the disadvantaged business enterprise shortage

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Since the early 1960s, even before the passage of the Civil Rights Act of 1964, the U.S. government has been trying to find ways to give disadvantaged business enterprises (DBEs) a piece of the gigantic federal contract pie — almost $450 billion in 2014. Also commonly called WBEs (women-owned) and MBEs (minority-owned), they all refer to businesses, which, by virtue of ownership, historically have been shut out of federal contracting opportunities.

DBE ownership and controlState and federal agencies typically set required DBE participation goals at 5%-10% and up, meaning that there are tens of billions of federal dollars up for grabs. In 2015, federal construction spending, according to the Associated General Contractors of America, will total almost $106 billion, resulting in a potential $10 billion payoff for firms certified as disadvantaged.

Of course there is, for some, the temptation to commit fraud in order to gain access to these lucrative contracts. Three Pennsylvania steel company executives pleaded guilty in October to setting up a sham DBE in order to win nearly $19 million in U.S. Department of Transportation and Pennsylvania Department of Transportation contracts set aside for disadvantaged businesses.

With all that money at stake, one would think minority and women-owned businesses are filling federal offices, demanding to be certified and eager to participate. So why aren’t they? Construction industry experts say there is a shortage of certified DBEs, and that means it’s getting harder to meet federal agency DBE participation goals.

Keep reading this article at: http://www.constructiondive.com/news/why-are-dbes-mia-overcoming-the-disadvantaged-business-enterprise-shortage/408432/

Owners of phony disadvantaged business to pay $7.8 million to settle false claim allegations

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LB&B Associates Inc. and its principals, Lily A. Brandon and F. Edward Brandon, have agreed to pay the government $7.8 million to resolve allegations that they made false statements to obtain contracts through the Small Business Administration’s (SBA’s) 8(a) Business Development Program for Small Disadvantaged Businesses, the Justice Department announced July 6, 2015.   LB&B is a North Carolina corporation headquartered in Columbia, Maryland.

Justice Dept. seal“The purpose of the 8(a) Program is to assist small disadvantaged businesses to compete in the American economy,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Department of Justice’s Civil Division.  “The Justice Department is committed to making sure that those who participate in 8(a) contracts do so honestly and fairly.”

“The basic purpose of this federal program is undermined when contractors falsely claim to be a small or disadvantaged business,” said Acting U.S. Attorney Vincent H. Cohen Jr. of the District of Columbia.  “This $7.8 million settlement demonstrates our commitment to protecting the integrity of this important program.  Working with relators and federal investigators, we will do all that we can to act against those who illegitimately bill the American taxpayers.”

The government alleged that in seeking certification under SBA’s 8(a) Program, LB&B falsely represented that Lily Brandon – who satisfied the criteria for a socially and economically disadvantaged person under the program – controlled the operations of LB&B, when she did not.  Securing 8(a) certification allowed LB&B to obtain 8(a) set aside contracts from various government agencies.  Throughout the performance of these contracts, Lily Brandon allegedly failed to exercise actual control over LB&B’s operations, a key component to qualifying for the set aside contracts.

“This case shows the lengths we will go to protect the integrity of SBA’s 8(a) program,” said General Counsel Melvin F. Williams Jr. of the SBA.  “Both the Justice Department and SBA are prepared to do what it takes to make certain that the program helps folks who are really disadvantaged, and for whom it is intended to assist.”

The civil settlement resolves a lawsuit filed by Steven O. Sansbury and James T. Buechler, former employees of LB&B, under the whistleblower provision of the False Claims Act, which permits private parties, known as relators, to file suit on behalf of the government for false claims and to share in any recovery.  The act permits the government either to intervene in and take over the whistleblowers’ suit, or to allow the whistleblowers to pursue the action.  In addition to alleging LB&B’s improper receipt of 8(a) set aside contracts, Mr. Sansbury and Mr. Buechler alleged that LB&B made false claims in connection with contracts it obtained pursuant to the SBA’s Mentor-Protégé Program, which allows participants to obtain set aside contracts following LB&B’s graduation from the 8(a) Program.  The United States intervened in the whistleblowers’ 8(a) claims but not the Mentor-Protégé claims.  The settlement resolves both claims, and Mr. Sansbury and Mr. Buechler will recover a total of $1.5 million of the settlement.

The settlement with LB&B was the result of a coordinated effort among the Civil Division, the U.S. Attorney’s Office of the District of Columbia, the SBA’s Office of Inspector General and SBA’s Office of General Counsel.

The civil lawsuit was filed in the District of Columbia and is captioned United States ex rel. Sansbury, et al.  v. LB&B Associates, Inc., et al., No. 07-cv-00251 (D. D.C.).

The claims resolved by this settlement are allegations only, and there has been no determination of liability.

Source: http://www.justice.gov/opa/pr/lbb-associates-inc-agrees-pay-78-million-alleged-false-claims-related-small-business

Company and its owners charged with DBE fraud on 224 contracts dating back to 1995

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Two owners of Carl M. Weber Steel Service, Inc. (Weber Steel), of Kutztown, PA, were charged with one count of conspiracy to commit wire fraud, the Philadelphia U.S. Attorney’s Office announced June 16, 2015.

DBE Fraud HotlineThe conspiracy charge states that Dennis Weber, president of Weber Steel, and Dale Weber, vice president, engaged in a scheme to defraud the U.S. Department of Transportation through DOT’s Disadvantaged Business Enterprise program (DBE). Weber Steel, a bridge and highway construction contractor, was not a certified DBE, but set-up and utilized a sham DBE called Karen Construction Co., Inc. (Karen Construction) to obtain DBE subcontracts for bridge and highway construction.

From approximately April 1995 through November 2011, Karen Construction, posing as a DBE, obtained an estimated $18.7 million from approximately 224 federally-funded projects, when, in reality, it was controlled by Weber Steel, a non-DBE.

If convicted, defendants Dennis and Dale Weber each face a maximum sentence of five years in prison, two years of supervised release, a fine of up to $250,000, and a $100 special assessment.  Defendant Weber Steel faces a maximum sentence of five years of probation, a fine of up to $500,000, and a $100 special assessment.

The case was investigated by USDOT’s Office of Inspector General, the Federal Bureau of Investigation, and the U.S. Department of Labor’s Office of Inspector General/Office of Labor Racketeering and Fraud Investigations.

Source: https://www.fbi.gov/philadelphia/press-releases/2015/kutztown-steel-company-and-owners-charged-with-conspiracy

Augusta airport to hold contractor ‘meet-and-greet’ on May 27th

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On Wednesday, May 27, 2015, the Augusta Regional Airport is hosting a “Meet and Greet” for Disadvantaged Business Enterprises (DBEs) and four (4) prime contractors working on various airport construction projects.

Augusta Regional AirportThe prime contractors scheduled  to be present are:  Beams Contracting, Inc. Choate Construction, McKnight Construction Co., Inc., and Reeves Construction Co.  These prime contractors are looking for DBEs for possible subcontracting and teaming.  Specifically, they are looking for those in the construction arena and building trades such as but not limited to: building (commercial and industrial); electrical; mechanical (plumbing and HVAC); heavy construction; highway, railroad & airport construction; masonry; municipal utility; environmental; and specialties (landscaping, excavation, roofing, etc.).   Details will be shared at the event.

Additional information about the prime contractors can be found at the following links:

The event will be held from 3:00 to 4:00 pm at the Augusta Regional Airport, 1501 Aviation Way, Augusta, GA 30906.  For questions or additional information, please contact Risa A. Bingham, Finance Director/DBELO at 706-798-3236.

GA-based construction firm to pay $1 million to settle alleged DBE-related False Claims violations

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C.W. Matthews Contracting Company (C.W. Matthews), a Marietta, GA-based construction firm, has agreed to pay $1 million dollars to settle allegations that it violated the False Claims Act almost eight years ago by submitting false and misleading certifications to the Government regarding: 1) work performed on several federally funded highway construction projects; as well as 2) the company’s compliance with the U.S. Department of Transportation’s Disadvantaged Business Enterprise Program (DBE Program).

DBE ownership and controlThe agreement was announced by the U.S. Attorney’s Office of the Northern District of Georgia on Monday, April 13, 2015.

Additionally, C.W. Matthews has reached a separate settlement with the U.S. Federal Highway Administration, pursuant to which the company has agreed to: 1) adopt an ethics code and a corporate compliance program; 2) appoint a compliance officer; and 3) retain an independent monitor to assess its performance.

“To receive the tangible and intangible benefits that it contracts for, the United States expects companies that actively seek and obtain federally funded contracts to be diligent and forthright in fulfilling their contractual obligations to the Government,” said Acting U.S. Attorney John Horn.

The settlement concerns false certifications that C.W. Matthews provided the Government regarding its compliance with requirements associated with the DBE Program.  Pursuant to the DBE Program, federally funded construction contracts contain DBE clauses, which require that a specified percentage of the work be sub-contracted to firms meeting the statutory definition of a Disadvantaged Business Enterprise (DBE).

As a precondition to bidding, a contractor must acknowledge the project’s DBE goals, and then identify the DBE that it proposes to subcontract with if awarded the contract.  Additionally, DBE regulations (49 C.F.R. § 26.55) require “real and substantial” work performed by a “viable” and “independent” DBE firm, and state that “there cannot be a contrived arrangement for the purpose of meeting DBE goals.”  The DBE Program is intended to ensure that DBEs are able to compete for federal construction contracts.

Between 2006 and 2007, C.W. Matthews was awarded several highway construction contracts that contained DBE clauses.  In bidding on the contracts, C.W. Matthews promised to subcontract with a DBE firm called Longoria Trucking (Longoria) to satisfy the contracts’ DBE goals.  As work progressed, C.W. Matthews submitted the requisite DBE Reports to the Government, which: 1) described work Longoria had purportedly performed; and 2) quantified the monetary amounts purportedly paid to Longoria.

The Government’s investigation revealed that the DBE reports submitted by C.W. Matthews were false and misleading as, in truth, it was a non-DBE trucking firm called G.E. Robinson – not Longoria – that performed most of the work, and received most of the payments, described in the reports.  Indeed, the investigation revealed that G.E. Robinson used Longoria as a “front” to obtain, and receive payment under, the applicable contracts.  As a non-DBE firm, G.E. Robinson was ineligible to even bid on these subcontracts.  To circumvent this restriction, G.E. Robinson assumed the identify of, and controlled, Longoria, which did little work and was paid a small fee by G.E. Robinson for its complicity.

The investigation revealed C.W. Matthews either knew, or should have known, of the scheme between Longoria and G.E. Robinson.  However, despite this knowledge, C.W. Matthews continued issuing false and misleading certifications to the Government regarding Longoria’s role in the applicable highway projects.

In certifying that Longoria was performing work under the contracts, despite clear signs that the work was actually being performed by G.E. Robinson, C.W. Matthews, at minimum, was either reckless or deliberately indifferent.

Source: http://www.justice.gov/usao/gan/press/2015/04-13-15.html

FBI investigates TN road building giant for DBE fraud

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The FBI raided the offices of a Williamson County, Tennessee construction company as part of an ongoing investigation into nine Tennessee Department of Transportation and two Metro Nashville Airport Authority contracts.

The agents seized payroll records, contract files, work orders and computer hard drives from the College Grove offices of G&M Associates. Jones Brothers, one of the largest road contractors in the Southeast, and two of its affiliate companies are implicated in the investigation, according to a search warrant.

Jones Brothers and the two affiliated companies, Mountain States Contractors and Hot Mix Asphalt, were allegedly involved in a scheme to fraudulently land government contracts intended for companies that promise to subcontract a certain percentage of the work to women- or minority-owned small businesses, the search warrant documents state.

Keep reading this article at: http://www.tennessean.com/story/news/investigations/2015/03/14/fbi-investigates-tennessee-road-building-giant-fraud/70282674/

Construction company to pay $2.15 million, admits abuse of DC’s certified business enterprise program

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Forrester Construction Company has agreed to pay $2.15 million to the United States and implement internal reforms to resolve a criminal investigation into alleged fraud committed by the company in connection with the use of Certified Business Enterprises (CBEs) in the procurement of more than $145 million in District of Columbia government contracts. The internal reforms will be subject to independent review and reporting.

As part of the resolution, Forrester Construction admitted that it improperly entered into written letter agreements and “Action of Management Committee” memoranda with the CBE participants to joint ventures that were not disclosed to the District of Columbia during the contract procurement process. As a result, the company admitted, both Forrester Construction and the CBE partners failed to follow the required CBE rules and regulations.

The announcement concludes a two-year investigation into Forrester Construction, a firm based in Rockville, Md., as well as its CBE partners on the joint venture projects.

Under the terms of a non-prosecution agreement reached with the U.S. Attorney’s Office for the District of Columbia, Forrester Construction agreed to pay $2.15 million to the United States and accepted and acknowledged responsibility for its improper conduct, as described in a Statement of Facts. The company also agreed to undertake various remedial measures to ensure compliance with the requirements of the District of Columbia’s CBE program (or any such equivalent on federal government projects) and the U.S. Small Business Administration’s 8(a) program, insofar as the company undertakes projects involving CBEs or 8(a) companies in the future.

Both the District of Columbia’s CBE program and SBA’s 8(a) program are meant to help small, disadvantaged businesses access government procurement markets.

The remedial measures include the hiring or designation of a CBE and 8(a) Compliance Officer, as well as an Ethics Officer; the implementation of a comprehensive training program for all company personnel regarding compliance with the CBE and 8(a) programs; maintaining an effective compliance and ethics program, and continuing cooperation with law enforcement. Significantly, individual employees directly associated with the inappropriate conduct are no longer employed by the company.

Additionally, the company agreed to undertake community service intended to develop improvements in the CBE and 8(a) programs going forward. Forrester Construction agreed to offer workshops, either individually or in collaboration with an industry trade association, aimed at providing training with respect to the rules and regulations of the CBE and 8(a) programs, among other topics relating to the construction industry.

This case is the latest example of law enforcement efforts to protect the integrity of CBE programs. Michael A. Brown, a former member of the Council of the District of Columbia, pled guilty in 2013 to a federal bribery charge stemming from an undercover investigation in which he accepted $55,000 from FBI agents posing as employees of a company that purportedly wanted CBE approval and contracting opportunities. Brown is serving a 39-month prison term.

“By changing the terms of joint ventures with small disadvantaged businesses and not reporting them to the D.C. government, Forrester Construction circumvented the foundation of the CBE program and used their proceeds to increase their own bottom line,” said Assistant Director in Charge McCabe.

“These joint ventures principally served the interests of Forrester Construction Company to make money and to obtain contracting opportunities otherwise unavailable to them,” said SBA Inspector General Gustafson. “Joint ventures involving SBA program participants should be structured and executed to give the small business an opportunity to gain experience and technical knowledge and to further develop their business. I want to thank the U.S. Attorney’s Office for its leadership in reaching this agreement.”

According to the Statement of Facts agreed to by the company, between 2008 and 2009, Forrester Construction formed multiple joint ventures with CBEs for the purpose of bidding on construction contracts in the District of Columbia.

Three joint ventures formed by Forrester Construction and one of the CBEs, EEC of D.C., Inc., were awarded construction contracts from the District of Columbia. These contracts, including change order amounts, totaled approximately $64 million for construction of a new headquarters building for the Department of Employment Services; approximately $5.4 million for construction of a Senior Wellness Center in Ward 1, and approximately $56 million for the renovation and modernization of the existing Anacostia Senior High School building.

Forrester Construction also formed joint ventures with another CBE, and those joint ventures were also awarded construction contracts from the District of Columbia, which were, over a period of approximately three years, in an aggregated amount in excess of $20 million.

In each of these various projects, the joint venture formed by Forrester Construction and the respective CBE partner received the maximum amount of contracting preferences for which the CBE partner was eligible, which provided Forrester Construction and the respective CBE partner with a competitive advantage during the bidding process.

As part of its joint venture submissions to the District of Columbia Department of Small and Local Business Development (DSLBD), Forrester Construction and its respective CBE partner represented that the CBE partner would be the majority partner and maintain a 51% interest in the joint venture, entitling the CBE partner to 51% of the net operating profits of the joint venture. Each joint venture agreement also established a “Management Committee,” consisting of two representatives from the CBE partner and one representative from Forrester Construction, which provided the CBE partner with majority control of the joint venture.

After each joint venture for the projects was submitted to, and certified by, the DSLBD, however, Forrester Construction and the respective CBE partner signed a memorandum entitled “Action of Management Committee” or signed a letter agreement, which related to the operations of each joint venture. The memoranda and/or letter agreements effectively increased Forrester Construction’s control over the day-to-day operations of the projects and reduced the CBE partner’s share of the profits or losses in the projects—notwithstanding the requirements of the joint venture agreements and the CBE rules and regulations. Forrester Construction and the CBE partner did not disclose these “Action of Management Committee” memoranda or the letter agreements to the District of Columbia government during the procurement process.

The “Action of Management Committee” memoranda also revised the respective scope of work and services that Forrester Construction and the CBE partner would provide to certain of the projects. In each instance, the “Action of Management Committee” memorandum applicable to the particular project identified a small scope of work for the CBE partner to complete and provided that Forrester Construction would provide all remaining general conditions, subcontract work, and all other work required to fulfill the requirements of the project.

For example, with respect to the Anacostia Senior High School joint venture, the applicable “Action of Management Committee” memorandum provided that the scope of work for the CBE equated to approximately $2.75 million, while the scope of work for Forrester Construction equated to approximately $46 million. The “Action of Management Committee” memoranda also established a pre-determined profit for the joint venture that specifically excluded any profits earned or losses sustained by either Forrester Construction or the CBE partner for their respective scope of work. Moreover, Forrester Construction and the CBE partner agreed that only the pre-determined profit, exclusive of each partner’s individual “scope of work,” would be split in the proportions agreed to in the joint venture agreement (i.e., 51% for the CBE partner and 49% for Forrester Construction). All other profits or losses generated through an individual scope of work would belong to the respective entity.

All of the work was performed under the various contracts. However, as a result of the letter agreements and “Action of Management Committee” memoranda, the CBE participant for each of the projects did not maintain majority control of the projects and did not receive 51% of the profits or losses associated with the projects, as required by the joint venture agreements and in accordance with the CBE rules and regulations.

This investigation was conducted by the FBI’s Washington Field Office; the Criminal Investigation Unit of the U.S. Attorney’s Office for the District of Columbia; the District of Columbia’s Office of the Inspector General, and the SBA Office of Inspector General.

Source: http://www.fbi.gov/washingtondc/press-releases/2014/forrester-construction-company-agrees-to-pay-2.15-million-admits-abuse-of-certified-business-enterprise-program

Got DBE fraud skeletons?

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Every Halloween, the cute traditional images re-emerge from our closets and the attics.  Ghosts, gravestones, plastic pumpkins, and perhaps the most common of all – skeletons.  Given the recent heightened status of Disadvantaged Business Enterprises (DBE) fraud prosecutions, the massive civil penalties, the prevalence of hotlines, and increased incentives for whistle-blowers, any contractor who participates in DBE programs should use Halloween as an annual reminder to take a closer look to see if they have other skeletons in their corporate attics.

According to recent government reports and audits, DBE fraud investigations have been on the rise, in hopes of deterring widespread abuses in the programs.  According to a 2011 report from the DOT, between 2003 and 2008, the Office of Inspector General (OIG) investigations resulted in 49 indictments, 43 convictions, nearly $42 million in recovery and fines, and 419 months of jail sentences.  Moreover, from 2009 and 2010, the number of DOT investigations increased by almost 70 percent.  Based upon the headlines each month, the number of indictments keeps climbing, along with the civil and criminal penalties.

In view of these statistics and trends, one thing should be crystal clear. To the extent that DBE compliance may be a challenge, it is far better to discover the problems sooner, rather than later.

Keep reading this article at: http://www.jdsupra.com/legalnews/got-dbe-fraud-skeletons-32884/

DBE Fraud Hotline

SBA’s inspector general says agencies are overstating 8(a) and HUBZone contracting achievements

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On September 24, 2014, the Small Business Administration’s Office of Inspector General (OIG) issued Evaluation Report 14-18, Agencies are Overstating Small Disadvantaged Business and HUBZone Goaling Credit by Including Contracts Performed by Eligible Firms.  This report presents the results of an evaluation of select Section 8(a) Business Development Program and Historically Underutilized Business Zones (HUBZone) contract awards.

The OIG identified over $400 million in contract actions that were awarded to ineligible firms, which may have contributed to the overstatement of small business goaling dollars for the Small Disadvantaged Business and the HUBZone Business preference programs in FY 2013.  Besides reporting inaccurate information in Federal Procurement Data System-Next Generation (FPDS-NG), procuring agencies may have limited contracting opportunities for firms currently participating in the 8(a) or HUBZone programs.

Further, the OIG found that HUBZone and 8(a) certification information is not consistently transmitted to the Dynamic Small Business Search (DSBS) and the System for Award Management (SAM).  As a result, the affected small businesses are not getting the visibility in the DSBS database, especially the HUBZone firms, and as a result, may impact federal agencies in meeting their HUBZone procurement goals.

Additionally, the OIG also identified over $1.5 billion dollars in contract actions for which the firms were in the programs at the time of contract award, but in FY 2013 were no longer in the 8(a) or HUBZone programs.  Specifically, SBA regulations permit procuring agencies to claim Small Disadvantaged Business and HUBZone goaling credit on certain contract actions even after firms have left the program.  In the opinion of the OIG, the amount of dollars the SBA reports to Congress and the public as being performed by 8(a) and HUBZone firms in the Small Business Goaling Report is significantly impacted by the inclusion of contract actions performed by former program participants.

The OIG made two recommendations to SBA’s Associate Administrator for Government Contracting and Business Development intended to strengthen controls between SBA databases on certification data of 8(a) and HUBZone firms and information reported in FPDS-NG. The recommendations are:

  1. In coordination with the Office of Federal Procurement Policy and the General Services Administration, the SBA should strengthen controls between the SBA’s Dynamic Small Business Search Database and the System for Award Management to ensure accuracy of 8(a) and HUBZone certification data in FPDS-NG.
  2. The SBA should modify DSBS so that a firm’s profile and certification information for HUBZone and 8(a) status remains visible and accurate to agency contracting officers, or develop an alternate list to verify a firm’s status.

The OIG reports that SBA’s management has agreed to pursue both recommendations.

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