United States: Don't Be Fooled By The Latest Example Of Federal Small Business Contracting Fraud

Last Updated: November 18 2016
Article by Nicholas T. Solosky

As I've covered extensively on this blog, the U.S. government is conducting a wide-spread and on-going crackdown on contracting fraud.  Under the Civil False Claims Act alone, the government clawed back $3.5 billion in 2015.  And 2016 is poised to be another banner year.

One of the hot topics in fraud prevention of late is small business contracting fraud.  The government is investing heavily in making sure that there are optimum opportunities for small businesses to receive federal contracting dollars (for example, through small business set-aside contracts and socio-economic contracting programs).  IG offices are on alert to make sure that those contracting dollars actually reach small and disadvantaged business owners.

Recently in the news is the latest example of a contractor paying hefty penalties in connection with a small business contracting scam.  This time, the government revealed that a small business and a large business colluded to obtain over $70 million in small business set-aside contracts, but (illegally) have the large business perform all of the work on the contracts.

All federal contractors need to be aware of the uptick in fraud investigations – but they should not be lulled to sleep by this latest example.  This case was an easy one for the government – what I like to refer to as "old school fraud."  The guilty parties acted intentionally with the hope of beating the system and making an easy dollar for as long as possible.

Fortunately (or unfortunately), these kinds of cases are the exception, not the rule.  My experience shows that most contractors investigated for fraud are far less culpable than this extreme example.  In fact, I've seen plenty of fraud cases based on a failure to know the rules – which is particularly troubling given how fast those rules are changing today's environment.  Contractors are also facing fraud investigations based mistakes made by lower level employees – not the top brass.

So how do you avoid getting caught up in the IG's net?  There are a few simple steps your business should be following right now to create what I call a Culture of Compliance:

  • Implement a Contractor Code of Business Ethics and Conduct (even if you are not technically required to have one under FAR 52.203-13)
  • Establish a Business Ethics Awareness and Compliance Program (including regular employee trainings and updates)
  • Establish an Internal Control System (to monitor for and catch issues before they arise); and
  • Inform the IG Office of "Credible Evidence" of any Violation (and know what "credible evidence" really means before you do).

By taking these steps, your employees will be much less likely to commit mistakes rising to the level of fraud – and will be in a much better position to interface with the government in the event an investigation takes place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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