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Acquisition Integrity Protecting the Process – Let us help!. Acquisition Integrity Division AFMC LO/JAF WPAFB OH. 1. Who Suffers from Fraud?. National Security Suffers Failure of a part or system creates advantages for adversaries, both on the battlefield and at home - PowerPoint PPT Presentation
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Acquisition IntegrityProtecting the Process – Let us help!
Acquisition Integrity Division Acquisition Integrity Division
AFMC LO/JAFAFMC LO/JAF
WPAFB OHWPAFB OH
1
Who Suffers from Fraud?
National Security Suffers 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 / Warfighters Suffer Safety issues Adverse mission impact due to unreliable systems
Contractors and their Employees Suffer Contracts lost to irresponsible contractors and unfair
competition
We Taxpayers
2
Simple Definition of Fraud
Four Simple Elements to the Legal Definition of Fraud:
1) Misrepresentation
2) of a Material Fact
3) with the Intent to Deceive
4) to Obtain a BenefitIncludes:
Deliberate omission of material facts False or misleading statements or actions Single act or combination Innuendo, silence, look or gesture
3
Who Commits Fraud?
People do!They could be:
Employees and/or Management Contractor Personnel and/or Government
Employees Prime and/or Sub Contractors Military and/or Civilian
• Companies can be held responsible for actions of their employees and managers, and vice versa
4
Who Reports Fraud?
Contracting PersonnelContractor Employee (“Whistleblower”)
May be come to light as part of a Qui Tam lawsuit
Other AF or other DoD employees Affirmative duty to report; required by E.O. 12674
New FAR reporting requirement for ContractorsA call to the Fraud, Waste and Abuse HotlineReports are received by:
AF OSI or other Law Enforcement Agencies Inspector General Staff Judge Advocate Installation Procurement Fraud Counsel Installation Procurement Fraud Working Group members AFMCLO/JAF Procurement Fraud Branch (WPAFB) SAF/GCR
5
• Contractor or Subcontractor:• Machine shop, electronics manufacturer/assembler• Annual sales range between $1 - $3 million• Management structure made up of 1 to 3 executives with
decision making authority
• Government Employee:• Has little or no supervision • Works in the same area for an extended period of time • Has extensive contacts with contractors that he or she
oversees
The “Typical” Offender
Darleen Druyun, former Principal Deputy
Assistant Secretary for Air Force Acquisition and Management –
Plead Guilty to Fraud and Corruption in air refueling tanker lease
program, and Imprisoned
6
Suspension and DebarmentAn Additional Remedy
Administrative measures used to help ensure that the Government does business only with responsible contractors
Protects the integrity of the procurement process by ensuring that the Government receives safe, reliable, goods and services
Based on a finding that the contractor is “Not Presently Responsible” Can result from fraudulent or other illegal activity or from poor contract
performance
FAR 9.403 defines “Contractor” as any individual or other legal entity that may reasonably be expected to submit offers or be awarded Government contracts
7
Suspension and Debarment
Suspensions are for a maximum of one year unless extended due to criminal or civil proceedings
Debarments are for the time period specified by the SDO and are generally three years in length
Suspended or Debarred contractors are not eligible for award of new (future) Government contracts
Contractors are obligated to complete previously awarded contracts Contracting Officers order minimum amounts necessary in IDIQ
Contracts Contract Options are not exercised
8
New FAR Contractor Disclosure Requirement
FAR 52.203-13 – Contractor Code of Business Ethics and Conduct (Dec 2008)
(3) (i) The Contractor shall timely disclose, in writing, to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract there under, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed—
(A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or
(B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733).
9
A “Blended Family”
Types of Procurement Fraud, Sample Fraud Indicators and Trends
A “Blended Family”
10
Main Types of Contract Fraud
Defective PricingCost Mischarging
Direct/Indirect Costs Unallowable Costs Cost Shifting Between Projects Cost Inflation Labor Mischarging
Progress/Performance Payment FraudProduct SubstitutionFalse CertificationQuality Control DeficienciesBribery / Kickbacks / GratuitiesPrice-Fixing / Bid RiggingOutright Theft / Embezzlement
Iraq prison ate up $40 millionDeep Background: Desert prison stands out as 'worst project' in investigation of
mismanagement and waste.
11
Sample Indicators of Bribery, Kickbacks and Gratuities
• Contractor offers monetary payment or other compensation in exchange for favorable consideration in contract award or oversight
• REALLY obvious Red Flag
• Contractor Entertains Purchasers
• Frequent use of Contractor despite Quality, Cost or Performance Problems
• Excessive Use of a Single Contractor in a Competitive Field
• Apparent Favoritism of Contractor by the Buyer/PCO/PM
12
Price-Fixing and/or Bid-Rigging
Agreements Among Contractors to: Adhere to Published Price Lists
Raise Prices by a Specified Amount
Establish, Adhere to or Eliminate Discounts
Not to Advertise Prices
Maintain Specified Price Differentials Based on Quantity, Type or Size of Product
13
Cost and Pricing Fraud Indicators
• Nonpayment of subcontractors and suppliers
• Requests for payment that are inconsistent with earlier cost reports
• Contractor bills costs that are not part of or required for contract performance
• Contractor makes little or no physical progress on the contract even though significant costs have been billed
• History of frequent invoice/voucher errors, poor documentation, & claiming unallowable costs
• Double counting costs as both direct and indirect
14
Quality Control Fraud Indicators
Altered Test Reports/Certifications Minor discrepancies in typeface, “whited out”
sections, handwritten portions of typed documents, other alterations
Non-Operating Test Equipment “It works, just not today”
“Pre-Signed” Certification or Receipt Forms Indication that actual verification was not performed
as these should not be signed until actual verification of facts have taken place
Commingled Tested and Untested Items Tested items should be stored separately to prevent
accidental use of untested items
“Salting” the Lots Does that Contractor have “sample” parts prepared
and waiting for inspection?
15
Quality Control Fraud Indicators
Substituting Generic for Brand-Name Parts
Check to ensure packaging matches
Questionable Testing Claims Examples: Two tests at the same time using
the same machine; 72-hour tests over 2 days (48-hours)
Parts Failures After “100% Inspection and Testing”
Subsequent Test and Inspection Failures on Products in Performance-Based Contracts
Rush Jobs (End of Month or Fiscal Year)
Example of subtle differences between authentic and fake
packaging
16
Quality Control Fraud Indicators
Limited Government Access to Production and Storage Facilities
Unwillingness to Mark or Seal in the Presence of a Government Representative
Major Work Schedule Changes without Notice
Contractor Efforts to Hide Records
Poor Reproduction of Certifications, Illegible or Incomplete Documentation
Use of Lesser Skilled Labor than Originally Anticipated
Substitution of Foreign Parts for Domestic Items
17
Product Substitution Fraud
• Use of Inferior Quality Raw Materials• Substitution of Products or Services
Counterfeit/non-qualified parts Sale of surplus or used parts as new Foreign made v. domestic products Remarking/Repackaging
False Certificates of Conformance Provided by Contractor to Affirmatively State that the Product meets
Contract RequirementsUse of Unqualified Personnel in Services ContractsLack of Required and/or Falsified Quality Control Testing
18
Largest group of cases prosecuted involve false test certificates
Largest commodity affected is fungible parts such as fasteners, electronics, wire & cable
Trends
• Growing number of cases with 2nd and 3rd tier subcontractors
• Potential fraud is greatest where DoD heavily relies on contractor integrity (trust in our partners)
19
What Should You Do?
• Know the Contract Requirements!
• Be alert for indications of fraud• Recognize undisclosed non-conformances,
defective or substituted items• Recognize irregularities
• Ask Questions
• Follow-up on Notices of Potentially Defective Products
• Report Wrongdoing• Do not wait for proof – Investigators are there to collect evidence and
conduct investigations• Delayed reporting can hinder the investigators / benefit the wrongdoers
20
REPORT suspicions of Procurement Fraud promptly!
DON’T WAIT FOR PROOFContact Your Supervisor, Local Fraud Counsel, Law Enforcement, Legal Office, Inspector General or a Fraud Hotline
And REMEMBER….
21
Susan TheodorelosAcquisition Fraud Counsel
Wright-Patterson Air Force Base, OH
937 904 [email protected]
QUESTIONS????
22
YOU can help detect and prevent fraud!
Protect the Process…Who knows…the life you save may be
your own.