SDDC PROCUREMENT FRAUD OVERVIEW

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SDDC PROCUREMENT FRAUD OVERVIEW
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Agenda

• Background
• Government Policy
• Types of Fraud Irregularities
• Remedies - Statutory and Common Law
• Misconceptions
• Role of the Contracting Officer (KO)
• Role of the Transportation Officer (TO)
• New DFARS FAR Cases
• Technology Protection
• SDDC Program
• Problems
• POCs

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Background

• DOJ Creates a Procurement Fraud Task Force
• Prosecuting Public Corruption is One of DOJs
  Top Priorities
• When Public Servants Fail To Carry Out Their
  Duties With Integrity, The Public Treasury is
  Wasted, Civil Liberties are Threatened, and ,
  Perhaps Most Profoundly, Public Trust is eroded -
  the Very Trust that Gives Government its
  Legitimacy DAG Paul J. McNulty

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Policy Prevent, Find, Fight

• DOD DODD 7050.5 - Requires DOD Activities to
  Monitor, Investigate all Fraud or Corruption,
  Coordinate, Report, Pursue all Remedies and
  Provide Training.
• All Government Personnel Have a Duty to Fight
  Fraud and Corruption.
• Prevent, Find and Fight
• Business Integrity is the Rule Not the Exception

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Types of Fraud

• Defective Product or Pricing
• Product/Service Substitution
• Anti-Trust - Bid-Rigging
• Bribery and Public Corruption
• False Invoices
• Conflicts of Interests
• Overcharging
• Failure to Meet Legal Requirements
• False Representations
• Mail and Wire Fraud

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Remedies

• Criminal
• Civil
• Administrative
• Contractual

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Criminal

• Conspiracy - 18 USC 371
• Conspiracy to Defraud (claims) 18 USC 286
• False Claims - 18 USC 287
• False Statements - 18 USC 1001
• Fraud and Swindles (Mail) - 18 USC 1341
• Fraud by Wire, Phone, Television 18 USC 1343
• Anti-Trust - 15 USC 1
• Bribery and Gratuity- 18 USC 201
• Major Fraud Act - 18 USC 1031

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Civil

• Civil False Claims Act (FCA) 31 USC 3729
• Powerful Weapon Against Fraudulent Billings
• Treble Damages, Fine 6,000 - 11,000 Per Claim
• Qui Tam Provision - Rewards Whistleblower

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Qui Tam

• Big Money
• Relator Files Complaint and a Statement of
  Evidence
• Under Seal - Prohibition Against Disclosure
• DOJ has 60 Days to Join Case
• If DOJ Joins, Then They Conduct Case and Relator
  Gets a Small Percentage of the Damages
• DOJ Declines Case - Relator Pursues Case Gets
  25-30

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Administrative Remedies

• Suspension Temporary Until Outcome
  Investigation
• Debarment Usually for a Definite Period Usually
  
• Carrier Nonuse (ITO - 90 Days)
• Carrier Disqualification lt2 Years

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Contract Remedies

• Voiding or Rescind Contract
• Termination for Default
• Suspending Payments
• Damages

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Misconceptions

• These Fraud Laws do not Apply to Transportation
  Procurements
• A Transportation Officer (TO) is Not a
  Contracting Official
• A Bill of Lading is Not a Contract
• An Invoice Must be a Written Document Submitted
  to the Government for Payment
• ALL of These are Incorrect

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Procurement Officials

• Both Contracting Officer (KO) and TO are
  Procurement Officials
• They are Both Held to a Higher Standard of
  Conduct A Greater Duty to Prevent Fraud
• KOs Procurement Authority is Based on the FAR
• TOs Procurement Authority is Based on the
  Defense Transportation Regulation - Limited to
  Non-FAR Transportation Contracts

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Contracts

• A Contract is a Legally Enforceable Agreement
• FAR Contract is a Government Contract
• A Bill of Lading is a Government Contract
• A Purchase or Delivery Order is a Government
  Contract
• Order Under the Government Commercial Purchase
  Card is a Contract
• Procurement Fraud is Found in all Types of
  Contracts

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POWERTRACK

• POWERTRACK - Is Not a Government Payment
  -Incorrect.
• An Invoice Submitted in POWERTRACK is an Invoice
  Subject to the False Claims Act (ACT)
• Any Invoice Submitted in Order to Receive
  Government Funds is Potentially Subject to the Act

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Recent FAR Cases

• Combating Trafficking in Persons 52.222-50
• Representations and Certifications Tax
  Delinquency - FAR Case 2006-001, 3/30/07
• Contractors Code of Ethics and Business Conduct
  Case FAR Case 2006-007, 2/16/07

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Technology Protection

• Protect National Security by Preventing
  Technology Transfer
• Export Control Act 22 USC 2778
• International Trafficking in Arms Regulations -
  22 CFR 120-130
• Export Administration Act 50 USC 2401-2420
• United States Munitions List, 22 CFR Part 121
  https//pmddtc.state.gov/docs/ITAR/2006/ITAR_Part_
  121.pdf
• Commerce Control List - http//www.access.gpo.g
  ov/bis/ear/pdf/indexccl.pdf
• Some of the Countries China, Syria, North
  Korea, Iran, Lybia, Former U.S.S.R.

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Munitions List Items

• I - Firearms
• Il - Artillery Projectors
• Ill - Ammunition
• IV - Launch Vehicles
• V - Explosives, Propellants, Incendiary Agents
• VI - Vessels of War and Special Naval Equipment
• VII Tanks and Military Vehicles
• VIII Aircraft and Equipment
• IX Military Training Equipment
• X Protective Personnel Equipment

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Munitions List Items Continued

• XI Military Electronics
• XII Fire Control, Range Finder, Optical and
  Guidance and Control Equipment
• XIII Auxiliary Military Equipment
• XIV Toxicological Agents and Equipment and
  Radiological Equipment
• XV Spacecraft Systems and Associated Equipment
• XVI Nuclear Weapons Design and Related
  Equipment
• XVII Classified Articles, Technical Data and
  Defense Services Not Otherwise Enumerated
• XVIII and XIX Reserve
• XX Submersible Vessels, Oceanographic and Ass.
  Equipment
• XXI Miscellaneous Articles

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Technology Protection

• Become Aware of What is USML Cargo
• Who is Transporting Your USML Cargo?
• If You Routinely Ship USML Cargo, Then do You
  Have a Pattern a Terrorist Can Exploit?
• Have You Address USML Protection With Your Local
  Force Protection Office or Law Enforcement
  Office?
• Have You Notice Unusual or Specious Behavior
  About USML Items or Shipments?
• Do You Use the Same Carrier(s)?
• What Do You do if a MSML Becomes Astray?

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SDDC PF Program

• SJA
• PFA 3
• CID

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Cradle To Grave

• Prevention - Training and Requirements (Contract
  Performance or Regulatory)
• SDDC Uses PF Indicators to Identified Possible PF
• Report - Possible Fraud
• Coordinate Investigations
• Provide Support to PFB, DOJ, Investigations and
  Other Agencies
• Monitor Contract Performance
• Works Closely With TOs, KOs and Shipping
  Activities

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A Winning Combination

• Cooperation
• Coordination
• Communication
• Constant Vigilance

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Team Players

• Army Procurement Fraud Branch (PFB)
• Army Material Command (AMC)
• SDDC
• Commanders, KOs and TOs
• Justice - AUSA and FBI
• DOD - IG, DCIS
• Investigative - CID, OSI, NCIS
• Procurement Fraud Advisors (PFA)
• Technical Experts KO, TO, Operators, Auditors
• Informants
• Government Agencies

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Fraud Indicators

• Services Continually Obtained From Same Source(s)
• Requirements Designed to fit one Source or a few
  Source(s)
• Award(s) to Other Than low Cost Carriers
• Overriding the GFM to get Non-tender Prices or
  Services not Provided in the Tender
• Avoiding Normal Contracting Methods
• Providing Advance Requirement Information
• Change Bid Price After Competitor Bids are
  Received

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Fraud Indicators Continued

• Evidence of Improper Communications or Social
  Contact
• Discussions of Future Employment
• Evidence of Collusion or Bid Rigging
• Substitution of Service or Equipment
• Favoritism Toward Contractor
• Invoices for Payment for Services not Provided
• Failure to Comply With Regulatory or Contractual
  Requirements

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Active Cases

• Currently SDDC has Over 60 Active Cases
• From Investigation to Administrative Remedies
• Often our Cases Affect More Than one Military
  Activity

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Updated Cases

• Gosselin World Moving - Convicted of Violating
  the Sherman Anti-Trust Act and for Conspiracy
• Paid 6 Million Dollars in Criminal Penalties
• Paid 865,000 Restitution - Joint and Severable
  With Pasha and Paid 800 Assessment
• Civil Cases Still Pending
• Operating Under an Army Compliance Agreement

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Updated Cases

• Pasha Group - Convicted of Violating the Sherman
  Anti-Trust Act and for Conspiracy
• Paid 4.6 Million Dollars in Criminal Penalties
• Paid 865,000 Dollars in Restitution - Joint and
  Severable with Pasha and Paid 800 Assessment
• Civil Case Still Pending
• Operating Under an Army Compliance Agreement

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Update Cases

• Allied Freight Forwarders, Inc. on 24 February
  2006 Pleaded Guilty of Violating the Sherman
  Anti-Trust Act. Pay 1,043,000 dollars. Awaiting
  Sentencing - Pending Administrative Remedies.
  Civil False Claim Case Pending
• Cartwright Settled Their Related Civil Case for
  150,000
• Gossilen, Pasha, Allied and Cartwright and Others
  Part of an Illegal Carte.

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Updated Cases

• Norfolk Conspiracy Cases - Improper Gifts
• Thomas A. Perry - AIT Representative Convicted
  Sentence to 8 Months Imprisonment, 6 Months Home
  Detention, 3 Years Probation and Ordered to pay
  Over 540,000 in Restitution. Settle Civil False
  Claim Act Case Against Perry and his Company for
  543,055.36.
• AIT - Civil Case Settle 4 Million
• Gene Boyce, Navy Employee Convicted Sentenced to
  44 Months Imprisonment, pay Over 540,000 in
  Restitution.

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Updated Cases

• Teresa Stranigan - Criminal Conviction, 5 Months
  Imprisonment, 5 Years Probation, pay Restitution
  44,000
• Allison R. Broda - Criminal Conviction, 12 Months
  Imprisonment and Probation
• Christine Walker - Navy Employee 3 Years
  Probation

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Updated Cases

• Stephen Wiley, Rep. of Team Air Express (TAIF)
  Convicted and Sentenced to 6 Months Home
  Detention, 3 Years Probation and Order to pay
  Restitution. Wiley Settled Civil Case by Paying
  75,000.
• Barbara Speller - Convicted Sentenced to 21
  Months Incarceration, 3 Years Probation and to
  pay 254,203.33 in Restitution.
• Team Air - Settles Civil Case for 350,000.
  Entered Into a Compliance Agreement With Navy.

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Transportation Cases

• Eagle Global Logistics (EGL), Civil Case Settled
  by EGL Paying 4,000,000 and Entered Into a
  Compliance Agreement With the Army
• Ryans World - Convicted Making False Statements,
  Required to pay 120,000 and Entered Into a
  Compliance Agreement
• Emery Worldwide Airways - Settle False Claim Case
  (False Billings) for 10,000,000

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Cases From the News

• Kellogg Brown and Root (KBR) - Settle False Claim
  Case (Improper Billing and Non-conforming Goods)
  8,000,000
• Congressman Randy Duke Cunningham -Convicted,
  Sentence to 100 Months Imprisonment and to pay
  1.8 Million in Restitution.
• Jack Abramoff - Lobbyist Convicted - Conspiracy,
  Mail Fraud and tax Evasion. 70 Months
  Imprisonment, Restitution 21.7 Million and pay
  1.7 in Back Taxes.

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How Do We Find Out

• Employee (Government or Carrier)
• Competitor
• Relator - Files a Complaint
• SDDC or DOD Audits - Looking for Fraud Indicators
• Data Mining - Researching GFM and Other Database
  for Fraud Indicators
• DOD Cargo Sold on E-bay and Other Venues
• Missing Cargo Reported
• Paper Trail - Review of Company Records
• Vehicles - Out of Gas

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Team Effort

• Procurement Fraud Corrupts the Procurement
  Process, Waste Valuable Resources, and Reduces
  Military Readiness and Effectiveness
• We all Need to Work Together to Prevent
  Procurement Fraud.
• If You Suspect It, Then Report It.
• Need to Promote Business Integrity and Ethics

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Report To

• DOD Hot Line (800-424-9098 or
• Hotline_at_dodig.mil)
• DOD Criminal Investigative Service (DCIS)
• Federal Bureau of Investigation (FBI)
• Naval Criminal Investigation Service (NCIS)
• USA, Criminal Investigation Command (USACIDC)
• Air Force Office of Special Investigations
  (AFOSI)
• Local Commander

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End

• Any Questions?