AASHTO National Fraud Awareness Conference

1. AASHTONational Fraud Awareness Conference Charles Groshens, Labor Compliance Supervisor Minnesota Department of Transportation Chris Smith, Special Agent USDOT, Office of Inspector General Mark Underwood, Supervisory Investigator USDOL, Employee Benefits Security Administration

2. Presentation Purpose To promote working relationships between state, local, and federal agencies to help detect and deter fraud on federally funded highway projects.

3. Mn/DOT Labor Compliance Unit (LCU)

4. LCU’s Purpose Assist contracting partners and construction contractors in administering their contracts in accordance with the Federal Davis Bacon and Related Acts, Minnesota Prevailing Wage Law and the Contract Labor Provisions.

5. LCU Staff Administration Charles Groshens, Supervisor Diane Cornjeo, Administrative Assistant Local (County/City) Construction Projects Clancy Finnegan, Team Leader State Highway Construction Projects Robert Richards, Investigator Ward Wheeler, Investigator Bill Segl, Field Investigator Building Projects Roxanne Farnham, Investigator

6. Primary Services Provided Oversight (Ensuring Compliance) Development of Contract Labor Provisions & Specifications Contract Administration Support Dispute Resolution Processes Education and Outreach Investigations and Enforcement

7. Mn/DOT’s Contracting Partners • Mn/DOT Offices • County, City Departments • Other State Agencies • Consulting Firms • Construction Contractors

8. Investigations

9. Compliance Partners • Project Engineers/Project Managers • Construction Workers • Contractors /Associations • Unions • Other Interested Parties • Fringe Fund Administrators • Private Sector Attorneys

10. Types of Cases • Falsification of Records • Fringe Benefit Contribution/Plan Issues • Failure to Submit Records • Labor Classification Issues • Improper Payment of Wages/Overtime • Contract Labor Provision Discrepancies • Misclassification (Employee vs. IC)

12. Strategies to Prevent Fraud

13. Procedures • Pre-Construction Conference • Project Reviews / Employee Interviews • Daily Construction Diaries • Certified Payroll & Fringe Benefit Information • Payroll Tracking System • Subcontractor Tracking System • Educational Outreach • Certification Process/Best Value Contracting

14. Mn/DOT Forms and Brochures • Payroll Certification Form (w/fringe benefit information) • Request-to-Sublet Forms (w/signatures) • Month-end Truck Reports • Employee Wage Complaint Forms • Employee Right-to-Know Cards

15. Strategies to Uncover Fraud

16. Communicate with Construction Workers

17. Primary Procedures • Complaint Forms - employees, others • Employee Interviews and Follow-up • Employee Right-to-Know Cards • Certified Payroll Audit • Fringe Benefit Records Audit • Review Project Documents • Back Pay Check Process

18. New Technology • Website: www.dot.state.mn.us/const/labor • Pre-Construction DVD/Video • DOT Listserv - 50 states • LCU Case Management Database System • Electronic Project Data Collection Systems • AASHTO Civil Rights and Labor Management System (CRLMS)

19. CRLMS Program • Collaborative Effort of 12 States • Production Rollout in 2009 • Labor Fraud Detection • Level 2 Payroll Rules • Level 3 Payroll Rules • DBE Fraud Detection • Verification of DBE/Subcontractor Work • Prompt Payment Verification • DBE Analysis

20. Enforcement

22. Mn/DOT Enforcement • Withhold Funds from Primes • Reject Future Bids • Default and Terminate Contract • Suspend or Debar • Notify Bonding Companies • Refer Investigative Findings to Partners

23. State & Local Partners • Labor & Industry – Administrative Procedures, Workers’ Comp, OSHA • Department of Administration – Defaults, Debarments • Attorney General - Administrative Hearings, Defaults, Prosecutions, Debarments • County Attorney – Prosecution of State Statutes • Other State Agencies – Statute Enforcement • Private Sector Attorneys -Private Right-of-Action, Legislation

24. Federal Partners • FHWA– Contract Compliance Actions, Debarments • USDOL Wage & Hour– Civil Davis Bacon & Related Acts Issues, Debarments • USDOL Employee Benefits Security Admin. – Employee Benefit Actions • IRS– Tax Fraud • USDOT Office of Inspector General – Falsification of Records, Collusion, General Fraud Issues

25. Key Things To Remember • Identify & develop your partnerships • Select appropriate cases to refer • Develop preliminary investigations • Continue case development with partners • Involvement with case until completion • Debar after completion • Exercise state options if no prosecution

26. Benefits of Partnering • Increased Case Resource Allocation • Increased Investigative Staff • Broader Knowledge of Regulations • Additional Enforcement Remedies • Additional Penalties • Develop Positive Agency Relationships • Positive Publicity & Future Deterrents

27. Collaborative Case InvestigationsMark Underwood, Supervisory InvestigatorU.S. Department of Labor Employee Benefits Security Administration (EBSA)

28. EBSA Field Offices

29. EBSA Responsibilities • Responsible for administering and enforcing the fiduciary, reporting and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). • ERISA administration is divided among the U.S. Department of Labor, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).

30. EBSA Activities • Criminal and civil investigations • Public disclosure of ERISA required annual financial reports • Assistance to participants or beneficiaries regarding benefits • Education, technical and compliance assistance • Issuing regulations under Title 1 of ERISA • Issuing interpretations under Title 1 of ERISA • Granting class or individual exemptions

31. Criminal Statutes Investigated by EBSA • 29 U.S.C • 18 U.S.C • Taft-Hartley - Section 4(a)(2)

32. What can EBSA Bring to the Table? • Oversight Authority • Expertise in ERISA, Retirement Plans and Health Plans • Good Publicity • Enforcement Assistance to Governmental Agencies

33. EBSA New Initiative • Collaborate with governmental contracting authorities to ensure compliance with the Davis Bacon Act’s Fringe Benefit Regulations under Title 29 CFR Part 5 on federally funded construction projects • The Act’s provisions require all contractors to pay workers employed directly upon the site of the work no less than the local prevailing wages and fringe benefitspaid either in cash or cash & contributions to “bona fide” fringe benefit programs

34. “Bona Fide” Fringe Benefits • Benefits that are common to the construction industry • Irrevocably paid directly into a fund, plan, or program • Legally enforceable • Communicated in writing to the employee • Available to employee upon meeting plan eligibility requirements

35. Timely Deposit Fringe Benefits • Davis-Bacon Act requires that contributions to fringe benefit plans made by a contractor must be made on a regular basis, and not less than quarterly. • For Collectively Bargained Plans, Plan Language may dictate sooner

36. Jay Bros., Inc. Investigations • A construction company owned by 2 brothers located in Forrest Lake, Minnesota • Contracted with federal, state and local government entities • Sponsored a 401k Plan funded by employee contributions and employer fringe contributions. Brothers were Co-trustees

37. Civil Investigation 1#Non-Payment of Fringe Benefits • Dates: Early 1997 - Early 1998 • Issue: January 1997 - Third Party Administrator sends letter to Contractor about timely contributions to the 401(k) pension fund account on behalf of its employees. • The TPA refers the issue to EBSA • Employees filed claims with EBSA • Outcome:Through voluntary compliance, contractor paid more than $28,521 to the Plan for delinquent employee contributions

38. Civil Investigation 2#Non-Payment of Fringe Benefits • Dates: October 1999 - Mid 2000 • Issue: Employees began issuing complaints to EBSA that the company had returned to their old scheme • Outcome:Through voluntary compliance, Jay Bros. paid $291,600 for delinquent contributions to the Plan.

39. EBSA/MnDOT Criminal Investigation Non-Payment of Fringe Benefits • Dates: December 2002 – December 2006 • Issue:Contractor’s payroll certification statement indicated contributions were being made to a 401(k) pension fund account on behalf of its employees. • Employees filed claims with both EBSA and Mn/DOT stating their online accounts showed no contributions and that the contractor once again had returned to old scheme • A cooperative investigation was conducted by EBSA and Mn/DOT

40. Investigation Outcomes • On December 6, 2006 Mark and Mike Jay, along with Jay Bros., Inc. were indicted on charges of 18 U.S.C. §2, §371, §664, §1027, and §1341. • Facing 10 years of potential jail time and millions in restitution, each brother pled to 18 U.S.C. 1027. • Each received 5 months incarceration, 5 months work release, 3 years probation.

41. Investigation Outcomes – Jay Bros • With the felony convictions, Jay Bros., Inc., Michael Jay, and Mark Jay are now barred from being a party to any state or federal contracts • In addition, the Court ordered Jay Bros. to pay for an independent outside monitor for the employee benefit plans to ensure compliance for 3 years

42. What can you provide to EBSA? • Referrals • Manpower • Intelligence • Expertise • Coordinate Prosecution/Debarment

43. Contact Information Mark Underwood Phone: (816) 285-1860 Email: Underwood.Mark@dol.gov

44. Collaborative Case InvestigationsChris Smith, Special AgentU.S. Department of Transportation Office of Inspector General

45. Overview • OIG Mission and Priorities • Investigation timeline of D&H Construction, Inc. • Investigation timeline of U.S. v. Minnesota Valley Landscape, Inc.

46. I. OIG Mission • To conduct objective audits and investigations of DOT’s programs and operations • To promote economy, effectiveness, and efficiency within DOT • To prevent and detect fraud, waste, and abuse in the Department’s programs • To review existing and proposed laws or regulations affecting the Department and make recommendations about them • To keep the Secretary of Transportation and Congress fully informed about problems in departmental programs and operations

48. OIG Investigative Priorities • Transportation Safety • Aviation • Motor Carrier • Hazardous Material • Contract Procurement and Grant Fraud • Program and Employee Integrity

49. II. D&H Construction, Inc. Company Background: • Subcontractor on appr. $2M of Federal-aid-highway jobs since 1998 • Exhibited a pattern of false certified payrolls • Initial estimated losses were approximately $80,000

50. II. D&H Construction, Inc.Investigation Timeline 2004: February – AUSA said case looks good, do search warrant and estimated $80,000 loss ok February – Search warrant conducted on foreclosed D&H property March – Target admitted in interview that he is ultimately responsible for any wrongdoing June – Case agent was told the $90,000 estimated loss does not meet U. S. Attorneys Office (USAO) guidelines of $100K