Ms. Jenny Strong Acquisition Fraud Counsel 66 ABG/JAA Hanscom AFB, MA

1. Procurement Fraud: The Basics Ms. Jenny Strong Acquisition Fraud Counsel 66 ABG/JAA Hanscom AFB, MA The views expressed herein are those of the briefer and do not necessarily reflect those of the Department of Defense or the United States Air Force.

2. Overview Building Blocks Fraud Indicators Team Players Fraud Schemes Fraud Remedies Take Aways

3. Fraud is Not New There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.” --Benjamin Franklin

4. What is Government Procurement Fraud? • Common Sense Meaning: • lying, cheating, stealing • Obtaining money or some other benefit by deliberate deception • Legal Definition: • An intentional deception designed to deprive the United States unlawfully of something of value or to secure from the United States a benefit, privilege, allowance, or consideration to which he or she is not entitled. DoD Instruction 5505.2

5. Who Suffers from Fraud? • National Security • Failure of a part or system creates advantages for adversaries, both on the battlefield and at home • Assets devoted to pursuing and prosecuting fraud cannot be used for other missions • USAF End Users / War Fighters • Safety issues • Adverse mission impact due to unreliable systems • Contractors and theirEmployees • Financial impact due to contracts lost to irresponsible contractors and unfair competition • Us! The Taxpayers

6. Who Reports Fraud? • Contracting Personnel • Contractor Employee (“Whistleblower”) • May be come to light as part of a Qui Tam lawsuit • Other DoD employees • Affirmative duty to report; required by E.O. 12674 • FAR reporting requirement for Contractors • Email the Fraud, Waste and Abuse Hotline • Reports are received by: • Government Law Enforcement Agencies • Inspector General • Staff Judge Advocate • Installation Procurement Fraud Counsel • Installation Procurement Fraud Working Group Members

7. Fraud Indicators • Who are the Fraud Spotters? All of us! • Everyone in the chain • When does fraud occur? Anytime! • Prior to contract award • During contract performance • Post award • Who commits fraud? All players! • Big contractors • Small contractors • Government employees

8. Fraud Indicators • What exactly is a fraud indicator? • “I’m not sure, but I know it when I see it.” • Fraud indicators are signs or clues that a contractor may be engaging in fraudulent conduct. Sometimes an indicator is obvious. However, most of the time, fraud indicators are subtle.

9. Fraud Indicators • Prior to Contract Award • Defective Pricing • Failure to update cost or pricing data where it is known that costs or prices have decreased • Distortion of overhead accounts by transferring charges or accounts that have a material impact on Govt contracts • Charging the Govt higher prices than commercial • Using inflated rates (i.e. insurance, workman’s comp) in proposals • Failing to disclose excess inventory that is used in later contracts

10. Fraud Indicators • During Contract Performance • Fraud in contractor accounting • False Invoices • Invoicing for services which should not have been performed • Duplicate invoices • Original documents not available for review • Cost mischarging • Transfer of labor costs from a FP contract to a Cost contract • Transfer of labor costs from a commercial contract to a government cost contract • Labor and time charges inconsistent with project progress • Double billing: charging employees full time to 2 or more jobs

11. Fraud Indicators • After Contract Award • Fraud in contractor accounting • Material mischarging • Charging inferior materials at full price • Using material on commercial contract but charging to Govt • Reassignment of material from fixed-price to cost-type contracts • Hiding costs • Shifting costs from one contract line item to another on the same contract but with different appropriations • Including unallowable costs • Including costs which were previously determined to be unallowable prior to submission (i.e. DCAA notification)

12. Team Players Acquisition Fraud Counsel Contracting Officer Program Team DCAA Investigative Auditor Special Agent(s) AUSA Program Counsel

13. Fraud Schemes Product Substitution/Defective Parts Bribery and Kickbacks Collusive Bidding Defective Pricing Organizational Conflict of Interest Public Corruption Anti-trust/Collusion Other False Statements/Claims

14. Fraud Schemes • Cost Mischarging • False test certifications • The largest commodities affected involve consumable parts, such as: fasteners, electronics, wire, and cable • Prepared sample not representative of the contractor’s actual production of the item

15. Fraud Remedies Contractual Administrative Criminal Civil

16. Contractual Remedies Termination for default (T4D) Termination for convenience (T4C) Reduction in price Withhold or suspend contract payments (FAR 32.006) Stop work order Formal Cure Notice Liquidated Damages Contract costs disapproved Re-inspection, rework, warranty Revocation of acceptance

17. Contractual Remedies • One Catch to Contractual Remedies: • FAR 33.210 (b) • The Contracting Officer’s authority to resolve claims does not extend to – • The settlement, compromise, payment, or adjustment of any claim involving fraud.

18. Administrative Remedies Suspension & Debarment • Protects government from non-responsible contractors • Not punishment, not punitive • However: • Collateral consequences provide significant benefits to investigators • FAR Subpart 9.4 • Debarment, Suspension, and Ineligibility • FAR 9.402 Policy • Agencies shall solicit offers from, award contracts to, and consent to subcontracts with responsible contractors only

19. Administrative Remedies • Misconduct that qualifies: • Crimes that relate to integrity • Contract performance • “Willful” failure to perform or • Substantial history of poor performance • Any other “serious” cause

20. Administrative Remedies • Based on court proceeding • Suspension • Indictment • Proposed Debarment • Conviction • Civil judgment • Based upon evidence, there are options • Suspension – “adequate evidence” • Debarment – “preponderance of evidence” • Show Cause Letter – lowest threshold • Administrative Agreements- regular reporting to Agency

21. Administrative Remedies • Effect • Immediate • Ineligibility for new contracts • https://www.sam.gov/ • Can continue performance on existing contracts • Becomes part of permanent record

22. Criminal Remedies- Statutes • False Statements (18 USC § 1001) • Prohibits making a false statement, concealing a material fact, or knowingly making or using a false document • False Claims (18 USC § 287) • Any claim presented to the U.S. • Bribery of Public Officials (18 USC § 201) • Directly or indirectly promising, giving or offering anything of value to a public official with the intent to influence a public act, induce an illegal act • Conspiracy (18 USC §§ 286 & 371) • Agreement of two or more people either to commit a crime or to achieve a lawful end by unlawful means

23. Civil Remedies- Statutes • False Claims Act (31 USC § 3729) • Prohibitions: • Knowingly presenting, or causing to be presented to the Government a false claim for payment; • Knowingly making, using, or causing to be made or used, a false record or statement to get a false claim paid or approved by the government; • Conspiring to defraud the Government by getting a false claim allowed or paid; • Falsely certifying the type or amount of property to be used by the Government; • Certifying receipt of property on a document without completely knowing that the information is true; • Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government.

24. Civil Remedies- Statutes • False Claims Act (31 USC § 3729) • Imposes up to treble damages and civil fines of $5,500 to $11,000 per false claim • Establishes “Preponderance of the Evidence" standard for all elements of the claim - including damages • Widens scope of liability for "deliberate ignorance" and "reckless disregard” of the truth – no specific intent required! • Rewards Qui Tam “whistle blower” plaintiffs between 15-30 percent of the funds recovered from the defendant • Defendant pays successful plaintiff's expenses and attorney's fees • Employment protection for whistleblowers including: • Reinstatement with seniority status • Special damages • Double back pay

25. Take Aways • Coordination is key • Investigate • Coordinate again • Contractual Remedies • Administrative Remedies • Civil Remedies • Criminal Remedies

26. In Closing IF THIS IS HOW WE FEEL, WE’RE DOING IT WRONG!!!!