ownership and control | The Contracting Education Academy

December 12, 2019 By cs

GAO says DoD’s fraud assessment efforts should include examination of contractor ownership

Some companies doing business with the Defense Department have opaque ownership structures that may conceal who owns, controls, or benefits from the company.

This GAO illustration depicts how DoD’s use of an ineligible foreign manufacturer — that illegally exported sensitive military data and provided defective and nonconforming parts — led to the grounding of at least 47 U.S. fighter aircraft.

The Government Accountability Office (GAO) recently identified fraud and national security risks to DoD from opaque ownership such as ineligible contractors receiving contracts and foreign firms receiving sensitive information through U.S.-based companies.

These risks, identified through GAO’s review of 32 adjudicated cases, include price inflation through multiple companies owned by the same entity to falsely create the appearance of competition, contractors receiving contracts they were not eligible to receive, and a foreign manufacturer receiving sensitive information or producing faulty equipment through a U.S.-based company.

For example, one case involved an ineligible foreign manufacturer that illegally exported sensitive military data and provided defective and nonconforming parts that led to the grounding of at least 47 fighter aircraft.

The GAO reports that DoD has taken some steps that could address some of the risks related to contractor ownership in the procurement process but has not yet assessed these risks across the department. DoD, in coordination with other agencies, revised the Federal Acquisition Regulation (FAR) in 2014 to require contractors to self-report some ownership information. In addition, DoD has taken steps to identify and use ownership information — for example, as part of its supply-chain risk analysis when acquiring critical components. DoD has also begun a department-wide fraud risk management program but, according to GAO, it has neither assessed risks of contractor ownership across the department nor identified risks posed by contractor ownership as a specific area for assessment.

GAO contends that assessing risks arising from contractor ownership would allow DoD to take a strategic approach to identifying and managing these risks, make informed decisions on how to best use its resources, and evaluate its existing control activities to ensure they effectively respond to these risks.

Keep reading this GAO report summary at: https://www.gao.gov/products/GAO-20-106#summary

June 16, 2016 By AMK

Consulting firm found guilty in DBE fraud case

Transit Safety Management, Inc., was sentenced Thursday to making a false statement to the government in connection with its certification for “favored contracting status.”

US DOT The firm’s president, Susan Madigan, pleaded guilty earlier this year to one criminal count of lying to a state agency about the firm’s status as a disadvantaged business enterprise (DBE).

The company was sentenced by U.S. District Court Judge Nathaniel M. Gorton to five years of probation and a fine of $84,000.

In order to qualify for favored status, a company’s management must be controlled by a socially or economically disadvantaged individual such as a woman or minority. The purpose of the program is to give an economic advantage to minorities and women who run their own companies. However, the manager cannot also engage in employment that would prevent him or her from devoting sufficient attention to the affairs of the company.

In this case, investigators discovered that TSM’s purported owner, Madigan, was a full-time employee of a federal agency and the business was really operated by her husband making it ineligible for certification.

Keep reading this article at: http://www.newburyportnews.com/news/local_news/georgetown-firm-found-guilty-in-fraud-case/article_79eeaae0-be38-5753-8b69-3f79e3d31284.html

See earlier report on this case at: http://contractingacademy.gatech.edu/?p=9107

February 3, 2016 By AMK

DOJ finds federal employee’s business ownership fraudulent, fines DBE firm $84,000

A Massachusetts-based transportation consulting company has been charged by the U.S. Department of Justice with making a false statement in connection with its certification for favored contracting status.

Transit Safety Management, Inc. (TSM) was charged with one count of making a false statement to a state agency in order to maintain its status as a Disadvantaged Business Enterprise (DBE).

In order to qualify as a DBE, a company’s management must be controlled by a socially or economically disadvantaged individual such as a woman or minority. The purpose of the program is to give an economic advantage to minorities and women who run their own companies. However, the manager of the DBE cannot also engage in employment that would prevent her from devoting sufficient attention to the affairs of the DBE. In this case investigators discovered that TSM’s purported owner was a full-time employee of a federal agency and the business was really operated by her husband making it ineligible for certification as a DBE.

TSM provided consulting services to the railroad industry, focusing on safety and operations management. Shortly after it was founded in 1999, TSM’s owner certified the company as a DBE. As such, TSM was able to take advantage of federal regulations aimed at promoting the participation of minority and disadvantaged businesses in federally-funded public construction contracts. Under the DBE regulations, a contractor on federally-assisted transportation projects must either subcontract a percentage of its work to a DBE or show that it made a good faith effort to subcontract work to a DBE but was unable to do so. This requirement makes the DBE status a valuable and potentially lucrative designation.

In order to maintain its DBE certification, TSM had to make yearly affirmations that it was still eligible and that nothing had changed that would affect its eligibility for the favored DBE status. Despite this, TSM lied about whether it met the criteria for DBE status. According to court documents, TSM’s owner was hired as a full-time employee with a federal agency in 2005. As a full-time federal employee, TSM’s purported manager could not control TSM under the regulations. Nevertheless, TSM failed to disclose this change and continued to make its yearly affirmations to maintain is DBE status.

As part of its plea agreement, TSM has agreed to pay a fine of $84,000 and dissolve its operations.

United States Attorney Carmen M. Ortiz; Todd Damiani, Special Agent in Charge of the U.S. Department of Transportation, Office of Inspector General, Office of Investigations; and Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the announcement of the plea agreement. The case is being prosecuted by Assistant U.S. Attorney Eugenia M. Carris of Ortiz’s Public Corruption Unit.

The details contained in the Information are allegations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Source: http://www.justice.gov/usao-ma/pr/massachusetts-company-charged-connection-disadvantaged-business-enterprise-fraud

Some companies doing business with the Defense Department have opaque ownership structures that may conceal who owns, controls, or benefits from the company.

Transit Safety Management, Inc., was sentenced Thursday to making a false statement to the government in connection with its certification for “favored contracting status.”

A Massachusetts-based transportation consulting company has been charged by the U.S. Department of Justice with making a false statement in connection with its certification for favored contracting status.

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